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    As a state licensed life, P&C and health insurance agent; and dual SEC registered investment advisor and representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® chartered professional designation education program; as well as Chief Editor of the three print format HEALTH DICTIONARY SERIES® and online Wiki Project.

    Dr. David E. Marcinko’s professional memberships included: ASHE, AHIMA, ACHE, ACME, ACPE, MGMA, FMMA, FPA and HIMSS. He was a MSFT Beta tester, Google Scholar, “H” Index favorite and one of LinkedIn’s “Top Cited Voices”.

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Dr. Marcinko Interviewed on the Physician Credit Crunch

Financial Experts Share Tips on Obtaining Loans to Start or Expand a Medical Practice

By Michael Gibbons

Editor: ADVANCE Newsmagazines

Maybe you’re a young dermatologist or plastic surgeon who dreams of starting your own practice. Or maybe you’re an established professional but want to expand your palette of anti-aging services. Either way, you’ve probably made an unpleasant discovery: Banks are leery about lending today. Global recessions with seemingly no end in sight tend to give loan officers sticky fingers.HO-JFMS-CD-ROM

Dermatologists and Plastic Surgeons

We have it on good authority that dermatologists and plastic surgeons as a group are less affected by this problem than physicians in some other branches of medicine. Still, there’s no better time than now to absorb some sound advice on how to approach banks for loans—whether you’re a fresh-faced newcomer to the fresh-face business or a wrinkled veteran at eliminating wrinkles.

Start Small

There’s no soft-soaping it: Starting a healthy aging practice is much harder than expanding an existing practice, even in the flushest of times.

“For young dermatologists starting out, I recommend you start small,” advises Jerome Potozkin, MD, who offers facial rejuvenation, liposuction, body contouring and dermatological care through his practice in Walnut Creek, CA. “You can always expand. Keep your overhead low. Know what your credit score is and do everything you can to improve it. Pay your bills on time.”

Lasers aren’t cheap. Besides the initial acquisition costs, a service contract can cost $7,000 to $12,000 a year, according to Dr. Potozkin. “Don’t feel you have to buy every new laser under the sun,” he says. “In fact, renting rather than purchasing is an option many companies offer. When your volume is low you can rent and schedule laser days—although the pitfall there is you don’t have lasers available whenever patients come in.”

Also, young dermatologists “will probably have an easier time getting a loan if they go to a relatively underserved area, as opposed to an area that has a large number of dermatologists per capita,” says Dr. Potozkin, who began practicing 10 years ago. “There are two schools of thought on this: Go where you want to live to start a practice or go to where there’s a need and be instantly successful. I chose the former. It took me longer to get started but I’m very happy where I am.”

Patience, Prudence and Passiondem2

Be patient, prudent, passionate—and start with a spare office and as little debt as possible, advises Dr. David E. Marcinko MBA, a financial advisor and Certified Medical Planner™. Marcinko, a health economist,  is CEO of the Institute of Medical Business Advisors Inc., a national physician and medical practice consulting firm based in Norcross, GA www.MedicalBusinessAdvisors.com

“Patients are looking for passion from you, not lavish trappings,” Dr. Marcinko says. “When a banker or a loan officer sees $175,000 or more of debt they are loath to give a loan—and it’s hard to blame them. Purchase a home after you become a private practitioner. You need to be as close to debt-free as you can be.

Exit Strategy

“Another thing bankers want to know is, ‘If we give you a loan and you start a practice and it fails, how will we be paid back?’ They want an exit strategy.”

The good news is dermatology “remains a very lucrative specialty, and in most parts of the country they are in a shortage position, particularly with the aging population,” says Sandra McGraw, JD, MBA, principal and CEO of the Health Care Group, a financial and legal consulting firm based in Plymouth Meeting, PA., that advises the American Academy of Dermatology, among other groups.

“I would start with a realistic business plan for why you think this practice can succeed, in the specific location,” McGraw says. “How many patients do you expect to see? How will they know you are there and available? Remember that banks lend to all kinds of people, so keep your numbers realistic. Overestimating expenses is as bad as underestimating them. Then determine how you want the money—usually a fixed loan for a period of time and then a line of credit as you get your practice going and sometimes need the cash flow.”biz-book

Expanding a Practice

Established dermatologists should have an easier time getting loans to expand their practices. They have, one hopes, a track record of success and assets to put up as collateral.

Mid-career physicians “have cash flow, physician assets and equity to some degree in a house and personal assets,” Dr. Marcinko observes. “Banks can attach loans to personal assets and savings accounts. Ninety-nine percent of times you must sign a personal asset guarantee. Mid-lifers have assets young ones don’t, so mid-lifers aren’t quite the risk. They have businesses that have value and cash flow. Banks like cash flow.”

However, even veterans must do some homework before approaching a bank. “You still want to establish why you want the money and how the expansion will increase your income,” McGraw says.

Another tip: If the bank has loans out with reputable vendors, you might ask the loan officer to recommend them to you as potential contractors. “Sometimes keeping it local and supporting others with loans at the bank can be helpful,” she says.

Assessment

Dr. Marcinko adds, “Bankers today want you to come in with a well-reasoned, well-thought-out and well-written business plan. Give bankers a 30-second elevator speech on why you are different. It’s really important to ask yourself, ‘What can I offer the community as a doctor in my specialty that nobody else can?’ If you bill yourself as the first dermatologist to do laser surgery, that’s a perceived advantage. You purchased the equipment and learned to use it. But anyone can do that. If you can come up with something that nobody else has or can do, that’s how you’re successful in anything.”

Link: Dr. Marcinko Interview

Link: https://healthcarefinancials.files.wordpress.com/2009/08/dr-marcinko-interview.pdf

Conclusion

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Proposing a Possible [San Bernardino CA] Medical Work Place Violence Prevention Initiative?

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The Haddon Matrix for Health Place Injury Prevention and Workplace Violence

By

[Eugene Schmukler; PhD MBA MEd – Certified Trauma Specialist]

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An invaluable tool for healthcare violence prevention program establishment is the Haddon Matrix. In 1968, William Haddon, Jr., a public health physician with the New York State Health Department, developed a matrix of categories to assist researchers trying to address injury prevention systematically. The idea was to look at injuries in terms of causal factors and contributing factors, rather than just using a descriptive approach. It is only recently that this model has been put to use in the area of workplace violence.

The Matrix Framework

The matrix is a framework designed to apply the traditional public health domains of host, agent, and disease to primary, secondary, and tertiary injury factors. When applied to workplace violence, the “host” is the victim of workplace violence, such as a nurse. The “agent” is a combination of the perpetrator and his or her weapon(s) and the force with which an assault occurs. The “environment” is divided into two sub domains: the physical and the social environments. The location of an assault such as the ER, the street, an examining room, or hospital ward is as important as the social setting in patient interaction, presence of co-workers, and supervisor support.

Modifications

Subsequent versions of the matrix divide the environment into Physical environment and Social, Socio-economic, or Sociocultural environment. Each factor is then considered a pre-event phase, an event phase, and a post-event phase.

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Medical / Healthcare Setting

The Haddon Matrix lends itself to a medical setting in that it uses a classical epidemiological framework to categorize “pre-event,” “event,” and “post-event” activities according to the infectious disease vernacular, host (victim), vector (assailant or weapon), and environment. The strength of the Haddon Matrix is that it includes the ability to assess “pre-events” or precursors in order to develop primary preventive measures.

 

Phases

Host

Agent

Physical Environment

Social Environment

Pre-event (prior to assault)

Knowledge

Self-efficacy

Training

History of prior violence communicated

Assess objects that could become weapons, actual weapons, egress (means of escape)

Visit in pairs or with escort

Event (assault)

De-escalation

Escape techniques

Alarms/2-way phones

Reduce lethality of patient via increasing your distance

Egress, alarm, cell phone

Code and security procedures

Post-event (post-assault)

Medical care/counseling

Post-event debriefing

Referral

Law enforcement

Evaluate role of physical environment

All staff debrief and learn

Modify plan if appropriate

 

Policy?

From the perspective of administration, the Haddon Matrix does not implicate policy. This means that the matrix does not necessarily guide policy. When implemented, the Haddon Matrix can be a “politically” neutral, trans-or multi-disciplinary, objective tool that identifies opportunities for intervention. Furthermore, it outlines sensible “targets of change” for the physical and social environment.

 

Phase

Affected individual and population

Agent used

Environment

Pre-event

Psychological first aid

Communicate efforts to limit action

Have plans in place detailing agency roles in prevention and detection

Event

Population uses skills

Mobilize trauma workers

Communicate that response systems are in place

Post-event

Assessment, triage, and psychological treatment

Communicate, establish outreach centers

Adjust risk communication

End results

Limit distress responses, negative behavior changes and psychological illness

Minimize loss of life and impact of attack

Minimize disruption in daily routines

 

More: Was the San Bernardino CA Massacre Work Place Violence?

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™    8Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Assessment

And so, was San Bernardino workplace violence – or not; please opine?

Conclusion

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Why I’m Joining the Physician Nexus Medical Advisory Board

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On My Non-Linear … and Sometimes Concurrent Career Path

By Dr. David Edward Marcinko MBA CMP™

[Publisher-in-Chief]

As Medical Executive-Post readers know, I am a big believer in career and change management; evolution if you will. As an entrepreneurial doctor, writer, publisher, speaker, financial advisor, economist, management consultant and business owner, with a non-linear career spanning more than 30 years, I’m acutely aware that to thrive, I must evolve.

Evolution not Revolution

Most of our readers know my career story, but you probably don’t know that even now, my career continues to evolve. For example, I recently accepted a position on the Physician Nexus Medical Advisory Board http://physiciannexus.com/page/nexus-board-of-advisors

THINK: Evolution; not revolution.

Am I Un-Happy?

Why did I embark on this project? Am I giving up my day job at this ME-P? Am I moving on from my business? These are questions I’ve been asked, and I’ve given them all some thought. The nature of these questions signifies a fundamental assumption that, to be considered stable and sane, we must remained attached to “one occupation”, and that if anything changes in that equation, we are surely about to make a move because we are unhappy www.BusinessofMedicalPractice.com

Not so!

Last Gen Parents – Next Gen Son

Don’t believe m? Just ask me about the time I told my last-generation dad and mom I was going to business school, after medical school www.CertifiedMedicalPlanner.org then promptly started an online educational and testing firm for doctors, financial advisors, CPAs and stock brokers. Or; when I sold my ambulatory surgery center – and later still – my private practice, etc! Can you say ballistic?

I added this new patch work to my career quilt because I accepted an opportunity – a chance to do things that I truly love; have engaging clients, speak and write about it. But, don’t worry about me! I’ve got the support of my next-generation wife.

iMBA Inc

And, as we at the www.MedicalBusinessAdvisors.com continue to consult with medical practices to improve their operational results … or with doctors for their financial planning needs, I’m always keeping my eyes open for the next opportunity that catches my fancy.

A Kindred Spirit

Like my colleague Philippa Kennearly MD MPH, over at the Entrepreneurial MD http://www.entrepreneurialmd.com I’m here to argue that the contemporary career of an entrepreneurial physician can and perhaps should be a non-linear projection; it can contain clinical practice AND an Internet business AND writing books AND taking on clients AND seminar speaking and consulting projects AND being part of a family and community.

Just recall, Bill Gates of Microsoft said that most contemporary knowledge workers will follow a career path that changes every seven [7] years. But, I don’t know if he meant doctors, as well?

Assessment

Doesn’t that sound more exhilarating to you than feeling stuck in one gear? Isn’t it time to shift that gear from either … or  to and … and, as Philippa is prone to say?

Conclusion

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Understanding Healthcare Leadership Today

More Mentor – Less Administrator

By Dr. David Edward Marcinko MBA

[Editor-in-Chief]

The organizational changes necessary for good health care entity operational performance rarely occur without some initiative on the part of management.

IOW: If you want good financial performance, you need to assert the leadership necessary to design and implement needed changes in operations management.

Healthcare Leadership Today

But, healthcare leadership today is not something that is done to people; it is something you do with them.

Today’s successful hospital executive must act more like a leader and mentor, and less like an administrator or manager.  They must create trust and collaboration to empower their professional staff, volunteers, and employees.

The Mentoring Paradigm

For some executives, this requires a fundamental shift in mindset.  This new mentoring paradigm demands a holistic approach for the total healthcare organization so that the enterprise-wide environment assists everyone to realize their full potential.  This maximization of performance is more than just a trendy business concept for leadership.

And, it is more than merely putting on a business suit and expecting results.  It is a commitment to being a transparent informed leader.  One of the elements in this shift in mindset involves information communication.  All relationships involve communication as an element of education, and healthcare leadership is no exception.  In fact, what is really enabling is the dissemination of information to all stakeholders and peers.

Assessment

In essence, the leader takes on a more communicative role and thus empowers employees to their full potential.  To successfully achieve this, the hospital, nurse or physician executive must have a clear understanding of self and consider human values relative to the role of the health organization measurements and mission.  This attention assists the executive to lead with self-confidence and to encourage differing opinions, rather than the opposite.

Remember

Leadership is the driver of all components including Healthcare Information Technology and Analysis, Strategic Planning, Human Resource Development and Management, Motivation Theory and Process Management.

Conclusion

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A Review of HIPAA EHR Security Regulations

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Focus on the Hospital Industry

Carol S. MillerBy Carol S. Miller BSN MBA

With the implementation of EMRs, Internet access, intranet availability throughout the hospital and physician complexes, as well as from home or any virtual site, the potential for security violations and associated vulnerabilities may have already caused serious harm to many hospitals and to the IT community in general.  Implementation of HIPAA security standards across the United States at hospitals, clinics, medical complexes, universities, federal facilities such as the VA, DoD or IHS and others have been inconsistent.  In addition, the HIPAA privacy regulations have given the responsibility for the patient health record to the patient — the impact of which has not been fully addressed nor is it supported by healthcare IT rules and regulations.

In Control?

Throughout the entire healthcare industry, there are concerns over who has access, who is in control, and whether the release of information impacts the privacy and security of the patient medical information or presents a risk to patient well-being, the quality of patient care, compliance issues, and potential fines to the hospital community.

The simple fact is that security is a problem that could have a catastrophic effect on any hospital.  Most Chief Information Officers have increased their “security-related” and “computer specialist” staff to address security issues, but most believe that their security is still vulnerable and needs to be improved.  Understanding a complex group of technologies and processes that have been built and modified many times over the years, especially at a large university or medical center complex, will be not only time-consuming, but also costly.  Security, like complex IT systems, was never designed in any organized manner.  It simply expanded as more and more access was made available, patient rights were defined, technology capabilities expanded, and more Internet-related communications and document-sharing occurred.

Hospital Security Concerns

Further, HIPAA security requirements were thrown into the mix in an era when hospital budgets were shrinking, and hospitals were trying to meet their costs through consolidation or reduction of programs and staff.

The prime concerns for information security are:

  • confidentiality – information is accessible only by authorized people and processes;
  • integrity – information is not altered or destroyed; and
  • availability – information is there when you need it.

Hospitals will continue to review, update and further document their security issues, monitor changes, and develop processes to mitigate the problems.  Gap analyses will continue to determine where vulnerabilities are or potentially could occur.  This process will be time consuming, but will enable the hospitals to determine how each system is integrated into their portfolio of systems and applications, and how it will be integrated with new technology.  Most importantly, it will facilitate identification of the detailed process of requesting, securing, and approving access to confidential patient records, systems, or applications.  It will enable hospitals to move forward with other technology enhancements in a secure manner.

Patchwork Security Quill

As stated previously, security has grown piecemeal as needs have been integrated with system, application, and software program growth.  It is literally a patchwork of various security functions and restrictions that may just be applicable to a certain application or software product or may be applicable to several applications but not all.  Various security software or SaaS packages have been deployed at different facilities across the United States that provide firewalls, access controls, tracking systems, and various other HIPAA security compliant capabilities; however, even with all these controls no one person within a hospital environment is fully aware of all the security requirements, security structures, the integration of the security network or whether any of the security network works efficiently and effectively.  Building a basic understanding of the entire network is the basis for developing and improving the entire HIPAA-related security process.  Besides the security involved within the hospital systems and through the Internet, there is still the issue of physical security, security theft or inappropriate access to patient information.

Typical Security Queries

The following list provides examples of typical questions related to security of information stored either on the laptop or on an accessible Intranet site from the laptop that should be addressed. All of these questions relate to additional time and expense in having an assigned individual monitor all aspects of this tracking process:

  • Is there an accurate record or log of each piece of equipment referenced at the hospital?
  • Do I know how many of the laptops are portable and used at home?
  • Are personal digital assistants (PDAs) and laptops encrypted and is the employee required to change passwords frequently?
  • Do I know how many of these portable systems are used for personal services?
  • Do I know how many of these laptops are used by family members?
  • Do I know how secure the portable systems are?
  • Do I know if they are just password protected or whether other security measures are in place?
  • Is every piece of equipment accounted for when employees leave, including PDA, laptop, CD, DVD, or other storage devices?
  • Do I know who can access confidential patient information from a remote office or home?
  • Is there a defined process for discarding old computers and old media?
  • Do employees know the hospital’s reporting process if their laptop is stolen or hacked?
  • Is virus and spyware software continually updated?
  • Are employees provided with information on how to secure their laptops or blackberries?
  • Do employees know what to do when attachments from unknown sources are sent and/or downloaded?
  • Does the employee use home-burned CDs/DVDs on their laptop?
  • Is system backup maintained by every employee?
  • Do employees know to “log off” when leaving their desktop or is there an automatic “log off” capability built within the system?

Security Administrators and Managers

Hospitals are employing security administrators and security staff to identify potential risks, vulnerabilities, risk scenarios, and develop policy and procedures to address all of these issues.  HIPAA compliance reviews and approval processes from HIPAA officers or legal counsel will be an added process for the hospital as part of any security consideration.  All of these security review processes, requirements, and staffing represent new and most likely unbudgeted costs with higher-than-anticipated associated costs to the hospital.  Costs need to be based on the affiliated risk, and the associated manpower or technical systems/software required to fix the risk; these indirect costs (i.e., not direct labor costs related to patient care) are being met from the hospital profits.

Risk Assessment Queries

Every covered entity should complete a risk assessment and review it periodically.  Focus areas that need to be addressed in the risk plan include the following:

  • workforce clearance (does the job require access to patient information and is it documented in the job description);
  • training (ongoing awareness and reminders); and
  • termination (what are the processes and procedures for assuring that a terminated employee does not have future access to any confidential patient information).

Today it is important for all hospitals to focus on contingency plans and disaster recovery to prevent any arbitrary loss of patient information.  Hospitals need to plan for and demonstrate that disasters such as Katrina or 9/11 or Japan or Alabama will not affect the security of the systems or access to patient information.

Many hospitals provide routine reviews, and system maintenance and updates to combat potential security problems or concerns with regard to confidential patient information.  However, inadvertent or even intentional changes to systems can cause serious data problems as the data integrates throughout the hospital IT environment.  Security breaches at this level can come from inside or outside the hospital.  They can be malicious or accidental and they can be related to system function disruption or data degradation.  They can relate to potential failures to properly share data and coordinate information.  They can also be the cause of major patient clinical errors, physician dissatisfaction, inaccurate record information, duplication of records, and as always, additional cost to the hospital that must identify the potential breach, develop a solution, and correct the issue at hand.

Main Concern

Direct access to information is probably the biggest security issue.  It affects personnel access to the systems they need in their daily jobs and tends to be poorly controlled.  Because hospitals need to provide access to information, they are sometimes lax about who has that access.  As an example, ask any hospital to not only identify each access user on the system, but also identify who uses each specific application.  Few hospitals have that capability. They would require additional resources to develop not only a major computerized index, but also the time and attention to monitor and to change users’ rights to access.  Many hospitals routinely request that the business or IT manager provide access for new employees that is similar to what another comparable staff person has — not really addressing the particular “right to know” or determining whether the new employee really needs a particular level of access.  Experience within the hospital environment also shows that many of the staff still have the same access to systems that they have had for years, even though they may have changed positions several times.

Finally, many staff have access to confidential patient information, yet few of the hospitals have ever linked this “right of access” to a background check.  Access to the hospital system is given to employees to perform a job.  In turn, the hospital is widely opening its doors to access a wide range of financial or confidential information, or even competitive information.  Many of these hospitals have employed designated staff to change and delete access rights, or allow read-only access, or read/write access; however, vulnerability still can exist.  Security is a trade-off between control and flexibility and there will always be weak points.  For those hospitals that have in place a comprehensive security review process, policy and procedures, and a contingency plan, the risks and liability can be limited.

Assessment

Regardless of the cost, HIPAA security and privacy regulations have changed the hospital environment.  The hospital and its IT and security staff need to be proactive.  There is simply too much at stake and potentially too many issues where mistakes could cause the hospital a serious system problem or result in a large fine.  HIPAA and the responsibility to provide reasonable patient care risk reduction mandate secure healthcare IT operations.  To do less simply allows patient care and healthcare delivery outcomes to be exposed to unacceptable levels of unnecessary risk.

About the Author

Carol S. Miller has an extensive healthcare background in operations, business development and capture in both the public and private sector. Over the last 10 years she has provided management support to projects in the Department of Health and Human Services, Veterans Affairs, and Department of Defense medical programs. In most recent years, Carol has served as Vice President and Senior Account Executive for NCI Information Systems, Inc., Assistant Vice President at SAIC, and Program Manager at MITRE. She has led the successful capture of large IDIQ/GWAC programs, managed the operations of multiple government contracts, interacted with many government key executives, and increased the new account portfolios for each firm she supported.

She earned her MBA from Marymount University; BS in Business from Saint Joseph’s College, and BS in Nursing from the University of Pittsburgh. She is a Certified PMI Project Management Professional (PMP) (PMI PMP) and a Certified HIPAA Professional (CHP), with Top Secret Security clearance issued by the DoD in 2006. Ms. Miller is also a HIMSS Fellow, Past President and current Board member and an ACT/IAC Fellow.

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Understanding MCO Fixed-Rate Contract Negotiations [Case Model]

The Hope Outreach Medical Clinic

By Staff Reporters

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The Hope Outreach Medical Clinic (HOMC) is a private, for-profit, single specialty medical clinic in a south-eastern state.  It submitted its bi-annual Request for Proposal (RFP) to continue its current managed care fixed-rate contract.  Upon review of the RFP, however, Sunshine Indemnity Insurance Company, the managed care organization (MCO), denied the contract request for the upcoming year.

CEO Shock

In shock, the clinic’s CEO asked the clinic’s administrator to work with its legal team to develop a defensible estimate of economic damages that would occur as a result of the lost contract.  The clinic intended to bring suit against the MCO for breach-of-contract.  However, the administrator is not an attorney and is loathe to-enter the fray.  After consideration however, he decided to assist in filing the Statement of Claim (SOC) because he realized that changes in patient services (unit) volume would be a valid economic surrogate.  He then requested the following information from his controller, in order to develop a change in economic profit [damages] estimate:

  • Change in patient visits (unit) volume
  • Fees (price) per patient (unit)
  • Marginal (incremental) cost per patient (unit)
  • Change in current fees (prices)
  • Patient volume (units) affected

Key Issues:

1) Fee (price) per patient (units) may be obtained from the fee schedule used by the MCO to pay HOMC.

2) Marginal (incremental) costs per patient (unit) are approximated using variable costs.

3) Higher cost payers exist because lower patient volumes raise the average cost per patient (unit) due to existing fixed costs. The administrator’s financial work-product to estimate monetary damages and assist the legal team is explained as follows. 

Assessment

Change in profit estimate by: www.MedicalBusinessAdvisors.com

Change-in-Profit = Change in patient (unit) volume X [Fee (price per patient unit) – Incremental (marginal) cost per patient (unit)] – [Change in current price (fees) X Patient (unit) volume affected].

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Learning from a Hospital Cash Flow Management Case Model

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The Mackenzie Hospital Clinic

[By Staff Reporters]


The Mackenzie Hospital Clinic was offered a private fixed-rate MCO contract that would increase revenues by $50,000 for the next fiscal year. The clinic’s 30% gross margin would not change because of the new business.

However, $10,000 would be added to overhead expenses for another part-time assistant. More importantly, the AR collection time would be lengthened to one year, or paid at the end of the contract period.

The cost of services provided for the contract represents the amount of money needed to service the patients produced by the contract. Since gross margin is 30% of revenues, the cost of services is 70% or $35,000.

The financial manager had to decide whether there would be enough internally generated cash flow to accept the contract.

The Financial Facts

The manager knew that adding the extra overhead would result in $45,000 of new spending money (cash flow) needed to care for the patients. He had to further refine his calculations by dividing the $45,000 total by the number of days the contract extends (i.e., 365 days) to determine that the new contract would cost about $123.29 per day of cash flow. Now, the financial manger had to ask: where would the money come from?

He was reluctant to turn away any business for the clinic, so decided he must develop other methods to generate the additional cash. He made the following suggestions:

  • extend AP timelines and reduce AR times; and/or
  • borrow with short-term bridge loans or a line of credit; and/or
  • discuss the situation with vendors for longer or more favorable terms; and
  • do not stop paying corporate taxes.

Key Issues:

1) Consider what changes the Mackenzie Hospital Clinic might implement to ensure that it regularly makes good cash management, budgeting, and risk projection decisions?

2) If the Mackenzie Hospital Clinic is successful and attracts more long-term managed care fixed contracts, the serious nature of the cash flow problem becomes apparent. For instance, adding another nine contracts would multiply the above example tenfold. In other words, the clinic would increase revenues to $1 million with the same 70% cost of services and $100,000 increases in operating overhead expenses.

3) How much free cash flow would be required?

[Using identical mathematical calculations, we determine that $450,000/365 days equals $1,232.88 per day of needed new cash flow.]

4) What happens if the contract only pays off at the end of the year?

Assessment

Any other thoughts?

Conclusion

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Understanding CPT® Code Payment Components

Determinations More Complex than Most Believe

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Currently, there are more than 10,000 physician services designated by the current procedural terminology (CPT®) or healthcare common procedure coding system (HCPCS) codes.  Each reflects the three major cost drivers of a particular procedure:

  • Physician work effort or the relative value unit (RVUw) of medical providers’ work efforts, pre-service, intra-service and post-service time.

Patients may exhibit anxiety when examined orduring procedures resulting in the need for additional timeand effort by the physician to respond to and prepare for the examination or procedure. This uniformly adds moretime and stress to the pre-service and intra-service period as doctors respond to constantly changing behavior, questionsand level of cooperation in varying specialties.  Follow-up communicationwith employers, family, friends and concerned others requires increased post-service times.

  • Practice expenses (RVUpe), including non-physician costs but excluding medical malpractice coverage premiums.

The practice expense component of the resource-based relative value scale (RBRVS) includes clinicalstaff time, medical supplies, and medical equipment.  Often, the costsof supplies and equipment are not proportional to practicesize.  Major factorsaffecting practice expense are the volume of telephone, cell, or Internet management services, and the case management and administrative work required. For example, high patient turnover requires more examination rooms to maintain physician efficiency. High volume requires moreclerical staff to deal with larger patient-flow volume and resulting phone calls, difficultiesdressing and undressing patients, and is marked by increasedcomplexity and time in collecting laboratory specimens.  Thesefactors must be accounted for in any resource-based practiceexpense study and in the resulting practice expense calculationsfor medical services; and

  • Malpractice (RVUm) representing the cost of liability insurance.

The RBRVS system assigns RVUs to cover the malpractice expensesincurred by physicians. These malpractice RVUs, originally calculatedfor office-based physicians, may systematically undervaluethe practice liability costs for some specialties. The prolonged statutes of limitation on some legalactions may result in increased malpracticerisk exposure for physicians providing such services [i.e., pediatricians]. The differences in exposure may not be calculated in theRBRVS system, and were not included in initial studies.  Specialty specific survey data for malpractice expenseshould be used for this component when assigning final RVU valuations.  Without specialty-specific CPT® codes, however, there was no wayto do this objectively.

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Recognizing the Differences between Healthcare and Other Industries

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Why Hospitals, Clinics and Medical Offices are Not Hotels, or Manufacturing Plants or Production Assembly Lines, etc.

By Dr. David E. Marcinko FACFAS, MBA, CMP™

[Editor-in-Chief]

The rising cost of health insurance remains a major concern for business; despite the Affordable Care Act [ACA] of March 2010. Local and national news publications have trumpeted that healthcare costs are not just rising but are growing in proportion to the cost of other goods and services.

Many of these publications have expressed the widely held view that because of the “inflation gap,” the cost of medical expenses needs curbing.  Proponents of this viewpoint attribute the growth in the gross domestic product (GDP) devoted to personal medical services (from 5% in 1965 to approximately 14% in 2005 and 17% in 2012) to increases in both total national medical expenditures as well as prices for specific services, and then conclude that there is a need to rein in the growing costs of healthcare services for the average American, even if it be through a legislative mandate.

Healthcare Is the Economy

According to colleague Robert James Cimasi MHA, AVA, CMP™ of Health Capital Consultants LLC in St. Louis, MO, healthcare cannot be separated from the economy at large. Although economists have cited the aging population as the reason for the increase in healthcare’s share of the GDP, other voices assert that financial greed among HMOs, pharmaceutical companies, hospitals, and medical providers like doctors and nurses is responsible.  In reality, the rise in healthcare expenditures is, at least in large part, the result of a much deeper economic force.

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As economist William J. Baumol of New York University explained in a November 1993 New Republic article: “the relative increase in healthcare costs compared with the rest of the economy is inevitable and an ineradicable part of a developed economy. The attempt [to control relative costs] may be as foolhardy as it is impossible”.

Baumol’s observation is based on documented and significant differences in productivity growth between the healthcare sector of the economy and the economy as a whole.

Low Productivity Growth

Healthcare services have experienced significantly lower productivity growth rates than other industry sectors for three reasons, according to Cimasi:

1) Healthcare services are inherently resistant to automation. Innovation in the form of technological advancement has not made the same impact on healthcare productivity as it has in other industry sectors of the economy.  The manufacturing process can be carried out on an assembly line where thousands of identical (or very similar) items can be produced under the supervision of a few humans utilizing robots and statistical sampling techniques (e.g., defects per 1,000 units). The robot increases assembly line productivity by accelerating the process and reducing labor input. In medicine, most technology is still applied in a patient-by-patient manner — a labor-intensive process. Patients are cared for one at a time. Hospitals and physician offices cannot (and, most would agree, should not) try to operate as factories because patients are each unique and disease is widely variable.

2) Healthcare is local. Unlike other labor-intensive industries (e.g., shoe making), healthcare services are essentially local in nature. They cannot regularly be delivered from Mexico, India or Malaysia.  They must be provided locally by local labor.  Healthcare organizations must compete within a local community with low or no unemployment among skilled workers for high quality and higher cost labor.

3) Healthcare quality is — or is believed to be — correlated with the amount of labor expended. For example, a 30-minute office visit with a physician is perceived to be of higher quality than a 10-minute office visit. In mass production, the number of work-hours per unit is not as important a predictor of product quality as the skills and talents of a small engineering team, which may quickly produce a single design element for thousands of products (e.g., a common car chassis).

Assessment

Healthcare suffers a number of serious consequences when its productivity grows at a slower rate than other industries, the most serious being higher relative costs for healthcare services. The situation is an inevitable and ineradicable part of a developed economy.

For example, as technological advancements increase productivity in the computer, and eHR, manufacturing industry, wages for computer industry labor likewise increase. However, the total cost per computer produced actually declines.  But in healthcare (where technological advancements do not currently have the same impact on productivity), wage increases that would be consistent with other sectors of the economy yield a problem: the cost per unit of healthcare produced increases.

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Hospitals and Healthcare Organizations [2 New Print Books]

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Healthcare Organization and Hospital Financial Management Strategies

All hospitals and healthcare organizations, both emerging and mature, face a daunting financial scenario in today’s volatile healthcare re-imbursement environment.

Decreasing revenues, increasing costs, and high consumer expectations present a complex challenge for CEOs, CFOs, physicians and nurse executives, administrators, financial advisors and department managers who must not only lead in today’s climate, but also position their organizations for tomorrow’s financial tumult and potential political changes of the Obama Administration and ACA, etc.

A National Team of Contributors

Produced by  economists, administrators – accountants, business leaders, MDs and IT consultants, among others; Hospitals and Healthcare Organizations [Financial Management Strategies] looks at ways to manage assets, costs, human resources and healthcare claims.  Everything – from inventory management to hybrid and activity based cost analysis in order to accelerate the cash conversion cycle – is scrutinized.  And, modern health economic themes like competitive strategy, workplace violence and financial benchmarks, for both public and private entities, are included.

Contemporaneous Health 2.0 Topics

We also examine contemporaneous topics such as the lessons learned from the corporate healthcare market competition and the PPMC imbroglio of the early 2000’s, and the domestic financial meltdown of 2009. This includes current methods for achieving hospital objectives, negotiating and analyzing cost-volume-profit contracts, and understanding the financial impact of regulatory requirements under HIPAA, STARK I-III, OSHA, the US Patriot Acts, the Deficit Reduction Act [DRA], the often contentious Sarbanes-Oxley Act, ARRA and HITECH Acts, and the Fair and Accurate Credit Transactions [FACT] Act. In addition, information technology issues like electronic medical records (eMRs), RFID controls, RSS feeds and blogs, Health 2.0 initiatives and computerized physician order entry (CPOE) systems are examined in detail. Virtually no operational, strategic business, health economics, or financial management topic is omitted.

Assessment

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How to Monitor Hedge Funds

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Four Ways to Monitor after Purchase

By Dr. David Edward Marcinko MBA, CMP™

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[Publisher-in-Chief]

Hedge funds (broadly defined as private investment vehicles that trade a variety of long and short equities, derivatives, futures contracts, and options in a variety of capital markets) have grown in size and importance in client portfolios because of superior performance, until of late [2008-09], and readily available investor capital.

Risk Factors

Physicians and clients often ask us to assess certain risk factors and a variety of investment entity structural characteristics associated with hedge funds. Accordingly, we must often be involved in discussing clients’ specific risk/return desires and expectations as they consider such investments.

Four Key Post-Investment Issues:

  1. A change in core investment strategies or risk postures from those which are documented in the investment policy statement—Among these are the specific markets to be traded, the degree of financial leverage to be employed or allowable, the underlying instruments or contracts to be used, and the investment strategies to be pursued under various conditions. Hence, there is no substitute for careful and regular assessment by the planner of changes in how and what an investment manager is trading and communication of such to the client.
  2. Use of financial leverage can dramatically increase returns just as poor performance can be accentuated—The key issue for the planner is whether a given investment manager’s use of leverage changes over the life of the hedge-fund investment, thereby possibly affecting the client’s initial desired risk/return profile.
  3. The composition of the performance return, particularly with respect to the long-term capital gain component.
  4. Asset growth—Regularly monitor and evaluate whether it is detrimental to performance and capable of causing an erosion of performance over a long-term horizon.

Assessment

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Often, after a hedge-fund investment has been made, if performance over time is good (or even adequate), both the doctor client and the financial advisors or planner may assume that there has been no material changes in investment strategy or structural characteristics that warrant attention or concern. Such changes often occur subtly over time and, if performance erodes, and the client may feel that the planner did not adequately monitor the investment. Hence the necessity for the above warning post

Note: “Post investment Issues Regarding Hedge Funds,” by Richard L. Fisher, Personal Financial Planning, November/December 1996, pp. 14–19, Warren, Gorham & Lamont, 1-800-950-1205.)

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How Equity-Based Securities Affect a Physician’s Total Financial Plan

Equity Securities Provide a Portfolio Growth Engine

By Dr. David Edward Marcinko MBA, CMP™

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[Editor-in-Chief]

Equity securities provide growth. Theoretically, the amount of growth potential in an equity security is infinite. A stock’s price appreciation possibilities have no limit. However, a stock’s price can also go to zero and an investor can lose the entire amount invested. Therefore, while stocks contribute long-term growth to a portfolio, they also add risk.

Stock Diversification is Key

Diversification is the best defense against risk, so only a portion of every portfolio should be in stocks. Other investments—fixed income securities; cash equivalents that can be used to take advantage of opportunities or for emergencies; real estate; and even commodities (precious metals, for instance, or securities of companies whose businesses are commodity-based)—should all be considered by the responsible physician-investor or financial advisor as components of a well-rounded, balanced portfolio.

And So is Portfolio Diversification

The stock portfolio itself should also be diversified. Diversify among all types of equity securities such as some large capitalization stocks, some small capitalization stocks, some utilities, some cyclical stocks, some value stocks, some growth stocks, and some defensive stocks. Because it is difficult to adequately diversify an equity portfolio with a small amount of money, consider mutual funds or ETFs for some doctors or financial advisory clients. At least this is the philosophy of our Certified Medical Planner™ [CMP] online educational program.  

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Assessment

Always remember that, because the equity component of the portfolio can be expected to provide more than its proportionate share of the risk of a portfolio, it must be constantly monitored. Also remember that every physician-investor as a different level of risk tolerance, and some may be able to handle ownership of only the most solid and stable equity investments.

Conclusion

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What is the Role of a Physician-Focused Financial Advisor?

Changing Times – Demand Changing Roles

By Dr. David Edward Marcinko MBA, CMP™

Editor-in-Chief

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As a financial advisor for more than 15 years, it has been my experience that many doctors who require assistance in developing a comprehensive personal financial plan also need help with implementing any investment planning recommendations. While perhaps not so true before the “flash-crash” of 2008-09, the issue seems especially true today as retirement portfolios have been decimated, and the specter of healthcare reform is no longer just a threat but a political reality. The mindset of hubris has been replaced by a tone of fear in many medical colleagues.

The Financial Advisors

Physician investors who develop an investment plan may use a competent financial advisor [FA] or other specialist in the investment area. A financial advisor can help clients understand their current financial situations and develop strategies for achieving their goals. Other FAs are specialists that help clients design and implement plans for investing. Still others use a more comprehensive approach to the entire financial planning process with extreme degrees of healthcare specificity

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These Certified Medical Planners™ are fiduciaries at all times and put client needs first as registered investment advisors [RIAs], not commissioned sales agents or mere stock-brokers despite often confusing monikers.

Implementation

Implementation may be accomplished using professionally managed portfolios and mutual funds. The following shows how a plan may be implemented with an advisor assisting the physician-investor. The process may include:

• Developing investment policy and strategies

• Selecting and implementing managed portfolios and mutual funds

• Evaluating performance on a periodic basis

• Periodically reviewing and adjusting the investment plan as required

Note: The advisor may provide all of the investment services, or the physician investor may use other advisors in the process.

Example: 

A financial planner has developed a number of financial planning recommendations for a client. One recommendation is to develop a written investment plan, review current investments, and implement changes. The planner has recommended an investment advisor experienced in selecting and monitoring managed portfolios and mutual funds. The financial planner will meet with the client and advisor initially and once each year to monitor the plan.

Example: 

A financial planner has developed a financial plan for a client. The financial planner specializes in developing investment policy but not in implementing investments. The financial planner will use asset allocation software and develop a written long-term plan for the client. The doctor-client will work with a major brokerage firm to implement the plan using managed portfolios and mutual funds. The financial planner will monitor the brokerage firm and help the client evaluate performance.

Example:

A financial planner has developed a financial plan for a physician-client and will assist the client in developing asset allocation strategies. The planner has extensive knowledge in implementing the asset allocation strategies using managed portfolios and mutual funds. The planner will select and monitor the choices. The planner will provide the client with a quarterly performance report and meet with the client every six months to review the plan and strategies.

Assessment

Understanding the above is more critical than ever as physician-income continues to shrink going forward in the era of healthcare reform.

Conclusion

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A Brief History of the ME-P

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Understanding Hospital Denial Management

An Essay on Rejected Medical Claims and Invoices

By Ross Fidler

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Typically, denied and rejected hospital claims quickly surface as a source of multi-millions  of dollars in revenue leakage and unnecessary expense.

Struggling Payers

Payers have been struggling for decades with increased hospital costs; and the Affordable Care Act of 2010 [ACA] will only increase the stress. Hospitals now thoroughly inspect claims for errors and have become adept at using their rules to deny and delay claims.

For example, Zimmerman reported the denied percentage of gross charges climbed from 4% in 1990 to 11% in 2001; even more by unaudited 2010. In contrast, providers typically lack the tools to aggressively manage current denied claims and prevent future ones.

Denial Tracking

Without denial tracking, an organization may not recognize the heavy financial impact of denied claims. One report www.HARA.com indicates that bad debt and gross days are declining. However, a majority of medical providers write off denials as contractual allowance, distorting the numbers but not the resulting lower margins and reduced cash. H*Works reports that the typical 350-bed hospital loses between $4 million and $9 million each year in earned revenue from denials and underpayments (assume $103 million annual gross revenue and 40% contractual allowance), thru 2009. Recouping lost revenue from denials and underpayments will, according to H*Works, increase an organization’s operating margin by 2.6% www.advisoryboardcompany.com

Industry Benchmarks

Industry estimates report that at least 50% of denials are recoverable and 90% are preventable with the appropriate workflow processes, management commitment, strong change leadership, and the correct technology. H*Works estimates that for a revenue capture of $3 million from denials and underpayments, the recovery infrastructure costs are only about 3%.

Assessment

With all this in mind, better management of rejections and denials, as well as the information necessary to resolve and prevent them, surfaces as probably the best strategy to improving hospital financials. By streamlining the revenue cycle, managing rejections and denials proves to be less expensive and to provide faster returns than initiating new services.

Conclusion

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Integration as a Competitive Strategy in Healthcare Reform

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Understanding Horizontal and Vertical Integration

[By Robert James Cimasi MHA, AVA, CMP™]

Health Capital Consultants, LLC

St. Louis MO

Several potential benefits are associated with the integration of companies in the same or related industries. These synergistic benefits depend upon the type of companies and their integration strategies, as well as whether the anticipated transaction is a manifestation of horizontal consolidation or vertical integration.

Horizontal consolidation is “the acquisition and consolidation of like organizations or business ventures under a single corporate management, in order to produce synergy, reduce redundancies and duplication of efforts or products, and achieve economies of scale while increasing market share.”

Vertical integration involves the joining of organizations that are fundamentally different in their product and/or services offerings, i.e., “the aggregation of dissimilar but related business units, companies, or organizations under a single ownership or management in order to provide a full range of related products and services.”

Healthcare Locality

As healthcare is essentially a local business, horizontal integration within the local market has been limited by antitrust laws. Therefore, in order to control greater market share, a hospital’s strategy has required vertical integration. Healthcare providers and organizations have placed much emphasis on the benefits of vertical system integration in the last 10 or more years, whereby a single healthcare organization owns all of the elements needed to provide a continuum of care for all the needs of a given patient population. Much of this effect has stemmed from the desire to be able provide a “continuum of care,” i.e., to be able to single source contract for the healthcare needs of a patient population and to profit from implementing preventative healthcare and utilization management measures. The relative economic benefits of this type of vertical integration versus horizontal integration strategies remain the subject of great debate in academia and among the strategic managers of other industries. One lesson that may be drawn from other industries is that neither of these forms of integration is universally applicable or beneficial to every organization and market. There are also great costs to integration, which must be outweighed by the benefits. Each specific benefit should be identified and researched when examining the probable effects of integration, consolidation, mergers or divestitures as a competitive strategy.

Rapid Consolidation Periods

During the rapid consolidation and integration of healthcare providers, insurers, and purchasers, in recent years, there was much discussion of a concept termed “managed competition.” This term appears to have been an outgrowth of the term “managed care” and was viewed by many as the logical result of the integration of healthcare markets nationally. The concept of “managed competition” apparently related to an idealized vision of competition between very large, integrated providers (organized into integrated delivery systems), large, national managed care payors, and purchasing group coalitions that could achieve a balance of power between these interacting groups. However, many believe that the result of such an arrangement would more likely be a reduction in competition between members of each of these three groups and the creation of powerful bureaucratic and intractable organizations. Further, this scenario does not appear to effectively remove any of the existing barriers to competition and therefore doesn’t introduce any additional incentives for innovation to produce value for consumers which, of course, is the “sine qua non” of competition.

Disadvantages

The disadvantages of integration are becoming apparent, including:

  • the loss of autonomy;
  • increased bureaucracy;
  • difficulty in aligning incentives; and
  • other failed expectations.

Many organizations that sought strategic advantage through integration are ending those arrangements and now divesting acquired organizations.

Other Industries

In other industries, specialized providers of goods and services are increasingly able to offer customers a full range of services through affiliation and affinity with other independent specialists, made more seamless through the use of increasingly sophisticated communications and computing technologies. However, this move to “dis-integration” must also be carefully considered if organizations are not to make further costly organizational changes inspired by a rushed judgment of general market trends.

Porter Speaks

Michael Porter (et al.) wrote in the Harvard Business Review that,

In industry after industry, the underlying dynamic is the same: competition compels companies to deliver increasing value to customers. The fundamental driver of this continuous quality improvement and cost reduction is innovation. Without incentives to sustain innovation in health care, short-term cost savings will soon be overwhelmed by the desire to widen access, the growing health needs of an aging population, and the unwillingness of Americans to settle for anything less than the best treatments available. Inevitably, the failure to promote innovation will lead to lower quality or more rationing of care — two equally undesirable results.

Assessment

Therefore, if the emerging healthcare industry is to respond successfully to the Affordable Care Act [ACA] and related market pressures to reduce costs, then the healthcare market must first create incentives for innovation. The barriers to competition cannot include barriers to innovation as many do now. Physicians, nurses, healthcare purchasers, managers, and legislators must ensure innovation takes the forefront of any reform, if it is to be effective.

Conclusion

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On Medical Practice [Business] Succession Planning

A Process of Financial Steps

By Dr. David Edward Marcinko, MBA CMP™

[Editor-in-Chief]

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Succession planning is a dynamic process requiring current ownership and management to plan the medical practice or company’s future, and then implement the resulting plan. As a financial planner and advisor myself, I see many doctors and clients approach business [practice] succession planning initially through retirement planning. Once they understand the issues and realities of the tax laws, they are much more amenable to working out a viable succession plan. Many doctors and other clients have not clearly articulated their goals, but have many pieces of the plan that need to be organized and analyzed by the financial planner to meet their objectives, including both personal and financial issues.

A Step-Wise Process

The steps necessary for successful succession planning are as follows:

• Gathering and analyzing data and personal information

• Contacting the doctor [client’s] other advisors

• Valuing the medical practice or business

• Projecting estate and transfer taxes

• Presenting liquidity needs

• Gathering additional corporate information

• Identifying dispositive and financial goals

• Analyzing the needs and desires of nonfamily key employees

• Identifying potential ownership, physician-executive and/or management successors

• Making recommendations, modifying goals, and providing methodologies

• Assisting the doctor-client in implementation

Gathering and Analyzing Data and Personal Information

The first step in data collection is talking to the doctor or client, and explaining the process of gathering data. Most successful financial planners use a questionnaire to be sure to address all important information. The planner should gain an understanding of the interrelationships between the practice, family and the business and address each of these areas as separate parts of the same equation. Finding out how the practice or business operates and why it operates that way can help the planner determine whether change is necessary and how to go about implementing it. Other important elements to address include the environment in which the practice [business] operates, potential flaws in the current structure and operations, appropriate levels of key-person life insurance coverage, investment asset diversification, prior estate planning efforts, and existing legal contracts that may need modification.

A Timely Process

It may take some time, from weeks to months, for the client to gather the required information. The planner should be encouraging and should periodically check on the doctor-client’s progress. If it appears that the client may not be motivated to complete the questionnaires independently, the planner should schedule an appointment to help the doctor-client finish. The client may create obstacles because he or she does not want to talk about death or relinquish control of the practice or business. These are delicate topics, and the financial planner cannot force the client to face them. Still, the consequences of not carrying out personal financial and estate planning can be explained.

Understanding the Practice or Business

To be most helpful to the doctor-client, the financial planner must understand the client’s medical practice or business. Reviewing the history of the company, getting acquainted with its current operations, and becoming familiar with the industry is important. By reviewing financial statements, income tax returns, business plans, and all pertinent legal documents, the planner will be able to identify key areas to focus on during the engagement. Understanding the patient or customer base of the business is also important. For example, exploring the impact of the principal’s death on the patient [customer] base helps the financial planner understand what changes could occur in the business after the physician-owner’s death.

Fair Market Valuation

Next, the planner must translate the balance sheet to current fair market values and analyze the debt, capital structure, and cash flows. A review of accounts receivable, inventory, and any fixed assets should be included to determine whether there is sufficient collateral for a leveraged buy-out or other estate planning technique for succession planning. Also, the cash flow should be reviewed to see if new fixed payments such as debt repayments or dividend distributions could be made.

Contacting the Doctor-Client’s Other Advisors

After gathering the documents, it’s a good idea for the planner to contact the client’s attorney, accountant or tax advisor, bank or trust officer, insurance advisor, investment advisor, stockbroker, and other business advisors. As many key advisers as possible should be contacted early in the engagement to create a spirit of cooperation. A planner will benefit by creating team harmony and establishing himself or herself as the team leader. Additionally, a planner could be engaged by these professionals in the future, and a planner is a valuable source of referrals.

Valuing the Medical practice of Business

The next step in the succession planning process is computing the value of the practice or business. It may surprise the planner to hear what the doctor or client perceives as the value of the [practice] business at the beginning of the engagement. Likewise, the client may be surprised to hear what value could be placed on the business for estate tax purposes. The goal in valuation is determining the price at which the business would change hands between a willing buyer and a willing seller, assuming:

• The buyer is not under any compulsion to buy.

• The seller is not under any compulsion to sell.

• Both parties have reasonable knowledge of the relevant facts.

Revenue Ruling 59-60 (1959-1, CB 237

The IRS issued Revenue Ruling 59-60 (1959-1, CB 237), which lists several factors to be used in valuing a business:

• Nature and history of the practice or business

• Economic outlook and condition of the healthcare industry

• Book value and financial condition of the practice or business

• Earning capacity of the practice or business

• Dividend-paying capacity of the practice or business

• Value of any goodwill or other intangibles

• Value of similar stocks traded on open markets

• Degree of control represented by the size of the block of stock interest

Highest and Best Use

The IRS computes a value based on the “highest and best use” of the practice or business. This means that the business will be valued by the IRS at the highest possible value that can be reasonably justified. Valuation methods include the asset approach, income approaches, and market approach.

• Asset approach:  This is primarily used for a business that is worth more if it is sold in pieces rather than as a whole. The tangible asset value is added to the intangible goodwill value.

• Income approaches:  A business as a going concern has value in its ability to produce profits in the future. These profits represent a return on the investment. The value of the business is a function of expected profits and desired rate of return.

— Discounted future earnings method:  Projected future earnings are discounted to present value.

— Discounted cash flow method:  Cash that the owner can withdraw from the business is discounted to present value.

— Capitalization of earnings method: Expected earnings are divided by the capitalization rate.

— Capitalization of excess earnings method.  Expected earnings that are not needed in the business are divided by the capitalization rate.

• Market approach: A business is worth what similar businesses sell for. Referred to as the comparable method of business valuation, this method should be used only when the comparable business is truly comparable.

Each of these primary methods has numerous variations that may provide a more desirable or justifiable value.

Assessment

When reviewing potentially taxable estates, the planner should analyze the opportunity to use favorable valuation discounts for loss of a key employee, lack of marketability, or possibly a minority discount for lack of control. Alternatively, planning recommendations can be made to avoid exposure to valuation premiums for control. The physician-owner may avail himself or herself of many of these discounts by reducing holdings to less than 50% prior to death.

Conclusion

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Hospital Personnel and Physician Recruitment

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Understanding Professional Employer Organizations [ PEOs]

By Eric Galtress

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One way to improve human resources [HR] is to recruit physicians, nurses, technicians, allied healthcare providers and other hospital personnel who bring in a certain expertise and disseminate it to other employees.

Hospitals, larger practices and medical clinics are increasingly hiring materials managers from other industries, for example, to upgrade their materials management capabilities; so why not medical and other related professionals, as well?

 Hospitals Lag Conventional Industry

And, hospitals often lag far behind other industries with regard to professional human resource activities. For example, hospitals can hire personnel with experience in other professionals settings in order to gain new perspectives in physician management and leadership.  With these new perspectives, agreements with doctors and other providers can be renegotiated to make a hospital or clinic more competitive.

Internal Recruitment

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Internally, improving the financial performance of any healthcare organization is a skilful balance between cinching the belt and investing in the right growth strategies.  Whether that strategy calls for expanding a clinic, moving into a key market, or adding a new clinical program, recruiting the right physicians and medical personnel becomes all important in achieving economic goals.  Without physicians and ancillary personnel there are no patients.  Indeed, doctors, nurses, and providers are key drivers in any healthcare organization’s growth strategy.

Simply put, finding and hiring the right medical professionals is a surefire prescription for success.  A winning centralized operational process includes: needs and criteria determinations; materials for sales, marketing and recruiting; interviews and onsite visits; and the correct reimbursements package with employment contract.

External Recruitment

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External recruitment, on the other hand, may involve use of a professional employer organization (PEO) as hospitals and healthcare entities may find that employee leasing, also referred to as co-employment, can be an effective strategy to combat the spiraling costs of having a professional recruitment and clerical support staff.  PEOs can offer financial and administrative benefits to hospitals, which in turn, can increase staff loyalty and reduce turnover.  Office-based physicians will find that the personnel services of an employee leasing company will give them more time to address the efficiency of their practices and the quality of care they provide for patients.

Simply put, instead of the healthcare organizations, clinic, hospital, or practitioner being the employer of record of the workplace employees, this responsibility is outsourced to an off-site PEO that specializes in hiring, retention, labor management, and cost control. 

Assessment

In a PEO, the healthcare organization retains functional control of the employees, and the PEO handles the HR management issues.  The PEO can provide these HR services more cost effectively by combining employee groups and servicing their needs along with the employees of the many other healthcare organizations they already serve.  Outsourcing becomes a matter of simple economics.

Conclusion

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The Rise of Niche Medical Providers

Understanding New Roles and a Changing Delivery Ecosystem

By Staff Reporters

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It is well know that orthopedic and cardiac hospitals have experienced a development boom over the past decade.  And, according to Robert James Cimasi MHA, AVA, CMP™ of Health Capital Consultants, LLC, reimbursement levels for these specialties, and especially surgeries, have been considered to be relatively high in comparison to others, creating the perception that these services are especially profitable.

Reasons for Development

The reasons for specialty hospital development are complex and vary across markets but analysis suggests that three factors are important drivers of this trend nationally:

  • relatively high reimbursements for certain procedures;
  • physicians’ desire for greater control over management decisions affecting productivity; and ,
  • quality and specialists’ desire to increase their income in the face of reduced reimbursement for professional services.

Perspectives

From the perspectives of some observers, the possible “overpayment” for certain specialties’ services is unintentional on the part of payors and is possibly the result of recent productivity gains in those specialties.  The promoters of this reimbursement methodology have asserted,

The challenge for policy makers is to give specialty hospitals the chance to fulfill their promise as focused factories while limiting their opportunities to prosper from cream skimming and preventing problems for patients and communities such activity might cause.

From this singularly preconceived viewpoint, productivity gains through efficient provision of quality services should be discouraged and saddled with the disincentives of lower reimbursement to allow less efficient providers to compete.  That surgical and specialty hospitals focus on a narrower range of procedures and produce quality and efficiency gains over their general acute care hospital competitors is rarely disputed.  Existing hospitals often admit this but then claim that new market entrant hospitals dilute the experience level of their facilities, which then results in a lowering of quality.  This is part of the larger argument that any quality or financial gains made by the surgical or specialty hospitals are the direct result of losses at the general acute care hospitals.  If these hospitals can’t cost shift to subsidize less profitable areas such as emergency departments and intensive care units, the argument goes, then they will be in jeopardy of closing them.

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Proponents

These proponents assert: “Policy makers seek to encourage competition and give new care delivery models that have the potential to improve quality and lower costs a chance.  However, they also want to maintain quality and patient safety, avoid total as well as per-case cost increases and preserve access to basic services.”

Assessment

In response to the development of niche providers and specialty hospitals, general acute care hospitals often are competing by adding to their offerings in these specialties to create integrated specialty centers or even constructing new specialty hospitals themselves.  In many cases, hospitals seek physician involvement in these developments, through joint ventures or other means.

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Conclusion

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On Hospital Bond Insurers and Credit Enhancement

Understanding the Capital Formation Process

By Calvin W. Wiese CPA MBA

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Credit enhancement is commonly used when issuing tax-exempt bonds. Credit providers guarantee the payments promised by the bonds, essentially co-signing. As a party with recognized credibility in the market, the bond provider agrees to make payments on behalf of the obligor in the event the obligor fails to make payments. The effect of this is that the credit rating on the credit enhanced instruments is higher than the underlying credit rating of the hospital obligor.

Credit Enhancement

Credit enhancement is primarily provided by bond insurers and commercial banks. Bond insurers issue insurance policies that cover the payments of principal and interest over the life of the bonds, usually up to 30 years. For this policy, the bond insurer is paid an upfront premium; typically in the range of 40 to 300 basis points (hundredths of one percent) applied to the total principal and interest payments. Effectively, the credit rating of the insured bonds becomes the credit rating of the bond insurer, typically ‘AAA’ or ‘AA,’ instead of the underlying rating of the hospital obligor. The credit enhanced bonds then are priced on the basis of the bond insurer’s credit rating resulting in lower interest rates. The difference between the interest rate based on the hospital obligor’s underlying credit rating and the bond insurer’s credit rating is the savings in interest payments derived by the insurance. The premium paid to the bond insurer is usually about two-thirds of the present value of this interest savings.

[picapp align=”none” wrap=”false” link=”term=financial+bonds&iid=167808″ src=”http://view.picapp.com/pictures.photo/image/167808/stocks-and-bonds/stocks-and-bonds.jpg?size=500&imageId=167808″ width=”337″ height=”506″ /]

Commercial Banks

Commercial banks issue letters of credit to enhance hospital obligations. Letters of credit basically provide that the issuing bank will make any principal or interest payments that the hospital obligor fails to make. Usually, letters of credit are issued for three to five years with “evergreen” provisions. Evergreen provisions provide the mechanism whereby the letter of credit can be extended for an additional year at each anniversary upon the agreement of the parties (not automatically). An important difference between bond insurance and letters of credit is the term: bond insurance covers the entire term of the bonds, while letters of credit cover less than the entire term (casting uncertainty on the credit enhancement provided by a letter of credit). Another important difference is the fee structure: letters of credit fees are paid on a quarterly basis, while bond insurance premiums are paid upfront.

Letters of Credit

Due to its short term, the letter of credit has to provide a “take out” mechanism that is exercised in the event the letter of credit is not renewed. This “take out” mechanism converts the underlying instrument into a bank loan with a short amortization — usually five to seven years — and a “prime plus” rate of interest.

Assessment

Letters of credit are most commonly used to support variable-rate tax-exempt instruments. These instruments are usually auctioned once a week and a new interest set for the next week. The interest rates are extremely low and make very favorable forms of financing. They do introduce interest rate uncertainty. Although the rates are low, there is no certainty that they will remain low, although they have never traded above about 6% in the 20 or so years they have been in the market. Because of this uncertainty, they are typically limited to something less than half the debt of a hospital.

Conclusion

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Regarding Hospital Security and Financial Covenants

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Understanding the Capital Formation Process

[By Calvin W. Wiese CPA MBA]

Almost every bond issue has security provisions. Usually the security for bond holders is described in the bond indenture. Security for credit enhancers typically is greater than that provided bond holders and is spelled out in the agreements between the credit enhancers and the hospital obligor. Covenants are promises made between the parties and are used to describe the security provisions.

Mortgages

Mortgages on properties are not common security provisions. Mortgages, reserved for poorer credits, are considered somewhat arcane. More in favor are covenants not to encumber. The idea is to ensure that no property has a superior security interest to the interests of the bond holders. This form is less restrictive and provides more flexibility to the hospital obligor. Almost all bond issues will provide either a covenant not to encumber or a mortgage on almost all property as security for the promise to make payments.

Hospital

Debt Service Covenant

Covenants based on debt service coverage are fairly common. Debt service coverage is a metric that expresses how much cash is being generated relative to the debt service of the hospital. It is, as a rule, calculated as net income available for debt services divided by annual debt service. Net income available for debt service is net income plus depreciation expense plus interest expense. Debt service is the principal and interest payments for all long-term debt. Sometimes, maximum annual debt service is used; debt service is scheduled out for each year into the future and the year with the highest amount is used. Debt service coverage is used as a trigger for various covenants. If debt service coverage falls below specified level, then provisions of covenants kick in.

The Rate Covenant

The most common covenant is the rate covenant: hospital covenants to set rates sufficiently high to ensure that debt service coverage is at least X (typically 1.10). If the specified coverage is not maintained, then the hospital promises to hire a consultant to do a study and determine what changes need to be made to achieve the specified debt service coverage.

Long Term Borrowing Covenant

Perhaps the most confusing covenants deal with additional long-term borrowing. Usually, additional long-term debt can only be borrowed when the pro-forma debt service coverage (debt service coverage including the additional long-term debt) is higher than a specified level. This limits the amount of long-term debt hospitals can borrow.

Assessment

Covenants made to bond holders are very rigid. Since there can be many bond holders, and many of them may be fairly unsophisticated, there is almost no way to get relief from them. If they are too tight, about the only means to gain relief from them is to refund the bonds. Thus, great care must be used in making covenants to bond holders. Covenants with credit enhancers can be more flexible since credit enhancers can waive covenants — if relief is needed, hospitals have the option of requesting waivers from the credit enhancers who are usually quite sophisticated and may very well find it in their interest to waive.

Conclusion

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Managing Hospital Credit Relationships

Understanding the Capital Formation Process

By Calvin W. Wiese; CPA MBA

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Every hospital needs to manage their credit relationships. Rating agencies and credit providers need to be targeted by hospitals for development and maintenance of credit relationships. Credit relationships are an ongoing process. They need to be fed and nurtured. Hospitals should make sure that they cultivate their relationships with credit analysts even during times when they are not seeking credit.

Capital Financing

Too often, hospitals work on credit relationships only when they need capital financing. That’s the wrong time. Relationships need to be in place before they need financing. Credit relationships should not be transaction based; rather formed and nurtured on an ongoing basis, resulting in better, more optimal transaction results. Credit relationships are fed and nurtured through communication. Communication strategies need to be multi-faceted: quarterly reporting, annual face-to-face reviews, and ad-hoc telephone conversations. Reporting needs to go beyond just what is required by the covenants. Covenanted reporting should be viewed as the minimum.

[picapp align=”none” wrap=”false” link=”term=hospital&iid=246735″ src=”http://view1.picapp.com/pictures.photo/image/246735/woman-hospital-recovery/woman-hospital-recovery.jpg?size=500&imageId=246735″ width=”320″ height=”480″ /]

Annual Meetings

Perhaps the most important component of nurturing credit relationships is the annual meeting. Annual meetings should be set up and conducted at the offices of the credit analysts. The meeting should review the past year and describe the plans for the future. An important component of the annual review is the financial forecast. Credibility is established by presenting a three- to five-year financial forecast each year. Variances from the forecast should be discussed and whether they are favorable or unfavorable should be explained. Candor about the good and especially the bad creates understanding and trust, which are critical components in credibility.

Uncertain Forecasts

Financial forecasts are inherently uncertain. The future is unknown, and in most cases unknowable. A financial forecast is not so much a prediction of the future, but a description of a management team’s view of the future. That view encompasses both external factors that are largely out of the control of management, and internal factors that are controllable. The forecast describes management’s strategies of dealing with that environment. As such, the financial forecast creates the context for a very profitable discussion between management and analysts. The view of the external environment can be compared and contrasted and challenged by the analysts. It is important for them to develop a comfort level with management’s view of the external environment. Given that environment, analysts can then evaluate management’s strategies for successfully leading the hospital through that environment.

Assessment

Presenting updated forecasts each year provides additional dimensions for useful dialogue. Changes in environmental views can be highlighted and discussed. Implications to hospital strategy can then be usefully identified and debated. Failures and successes in meeting the assumptions presented in prior forecasts highlight strengths and weaknesses of management in dealing with the uncertainties of its environment.

Conclusion

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About Tax-Exempt Hospital Debt

Understanding the Capital Formation Process

By Calvin W. Wiese CPA MBA

www.HealthcareFinancials.com

Tax exempt debt has become an important means of external financing for hospitals, primarily because its cost is very attractive. Interest rates on tax-exempt financing are lower than interest rates on financing that is not tax-exempt because the interest income earned by the holders is exempt from federal income tax. In some states, it is also exempt from state income tax and in some cities; it is also exempt from city income tax. Accordingly, the holders of these debt instruments (usually bonds) are willing to accept lower rates of interest.

State and Local Governments Issue Hospital Debt

Hospitals themselves are not capable of issuing tax-exempt debt. Only state and local governments are. A state or local government issues tax-exempt debt for hospitals and then loans the proceeds to hospitals. This is called “conduit” financing: the state or local government acts as a conduit through which hospitals can access tax-exempt debt markets. State and local governments are authorized to loan proceeds of their bond issues to hospitals through state statutes, and each state statute is different. Some states authorize any state or local government to issue bonds to loan to hospitals. Other states restrict such power to special purpose governmental entities only. And some states restrict this power to a single governmental entity that is specially formed for the sole purpose of issuing tax-exempt bonds on behalf of hospitals.

[picapp align=”none” wrap=”false” link=”term=medical+clinic&iid=252095″ src=”http://view2.picapp.com/pictures.photo/image/252095/clinical-waiting-room/clinical-waiting-room.jpg?size=500&imageId=252095″ width=”324″ height=”480″ /]

The IRS and Tax Exempt Financing

The Internal Revenue Service (IRS) regulates the issuance of tax-exempt financing. While the IRS code nominally provides that debt instruments issued by state and local governments are exempt from federal income tax, it imposes special rules on conduit issues. Therefore, tax-exempt issues whose proceeds are loaned to hospitals must comply with special IRS rules. Although very complex, these rules primarily regulate the use of proceeds, restricting the use of tax-exempt proceeds to the acquisition of property, plant components and equipment. Given state statutes, IRS code and applicable security laws (both state and federal), issuing tax-exempt bonds is legally complex. Many lawyers get paid handsome fees every time tax-exempt debt is issued. The quarterback of the legal team is the bond counsel who represents the interests of the bondholders; the bond counsel issues the critical tax opinion that investors rely upon to claim tax-exemption on the interest from these instruments. Everything revolves around getting this opinion. Given its’ critical nature, only highly qualified lawyers are accepted by the market to provide this opinion. Underwriter’s counsel represents the interests of the investment bankers; their primary concern is compliance with security laws. Issuer’s counsel represents the interests of the state or local government, and hospital counsel represents the interests of the hospital; both have relatively minor roles. In the event credit enhancement is involved, credit enhancement counsel represents their interests and has significant influence on the process.

Bond Trustees

Another unique party to most tax-exempt bond issues is the bond trustee. The bond trustee is usually a bank who performs a fiduciary duty on behalf of the bond holders throughout the life of the bonds. The face of the faceless bond holders, they act on their behalf. And they, too, are represented by counsel in the bond issuance process. State or local government typically appoints bond counsel. In many cases, they work with only a single firm. Not unusually, these relationships are quite cozy, and often result in fees being paid that are well in excess of what otherwise would be paid.

The Indenture

An excess of documents is involved in most tax-exempt financings. The heart of the documents is the indenture, which is the agreement between the bond trustee (on behalf of the bond holders) and the state or local government issuer. It contains the promises made to the bond holders, and it describes the work of the bond trustee. The bond trustee will only perform actions on behalf of bond holders that are explicitly set forth in the bond indenture. The bond indenture is the security given to the bond holders, describing all their recourses.

Assessment

The bond indenture is typically supported by the loan agreement between the state or local government that issues the bonds and the hospital to which the proceeds are loaned. Its terms complement the terms of the bond indenture, which together, form the conduit.

Conclusion

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Medical Endowment Fund Manager Selection

Are External Financial Consultants Necessary?

[By Dr. David E. Marcinko MBA]

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John English, of the Ford Foundation, once observed that:

[T]he thing that is most interesting to me is that every one of the managers is able to give me a chart that shows me he was in the first quartile or the first decile. I have never had a prospective manager come in and say, ‘We’re in the fourth quartile or bottom decile’.

According to Wayne Firebaugh CPA, CFP® CMP™ most medical endowment funds today, even those with internal investment staff, rely heavily upon consultants and external managers.

In fact, the 2006 Commonfund Benchmarks Healthcare Study revealed that 85% of all surveyed institutions relied upon consultants with an even greater percentage of larger endowments relying upon consultants.  The common reasons given by endowments for such reliance are augmenting staff and oddly enough, cost containment.  In essence, the endowment staff’s job becomes one of managing the managers.

Manager Selection 

Even those endowments that use consultants to assist in selecting outside managers remain involved in the selection and monitoring process.  Interestingly, performance should generally not be the overriding criterion for selecting a manager.  Selecting a manager could be viewed as a two-step process in which the endowment first establishes its initial allocation and determines what classes will require an external manager.  The second part of the process is to select a manager that due diligence has indicated to have two primary characteristics: integrity and a repeatable and sustainable systematic process.  These characteristics are interrelated, as a manager who embodies integrity will also strive to follow the established investment selection process.

Of Medical-Managers

In medicine, obtaining the best care often means consulting a specialist.  As a manager of managers, the average endowment should seek specialist managers within a given asset class. Just as physicians and healthcare institutions gain additional insight and skill in their area of specialty, investment managers may be able to gain informational or system advantages within a given concentrated area of investments.

Assessment

Since most plan managers are seeking positive alpha by actively managing certain asset classes, many successful endowments will use a greater number of external managers in the concentrated segments than they will in the larger, more efficient markets.

Conclusion

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Understanding the Tactical Approach to Medical Endowment Fund Management

Guiding Long-Term Investment Decisions

By Staff Reporters

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According to Wayne Firebaugh CPA, CFP® CMP™ many successful medical endowment funds will establish a “strategic” allocation policy that is intended to guide long-term (greater than one-year) investment decisions. This strategic allocation reflects the endowment’s thinking regarding the existence of perceived fundamental shifts in the market.

Asset Class Target Ranges

Most endowments will also establish a target range or band for each asset class. The day-to-day managers then have the flexibility to make tactical decisions for a given class so long as they stay within the target range.

Definition

The term “tactical” when used in the context of investment strategy refers to the manager’s ability to take advantage of short-term (under one year) market anomalies such as pricing discrepancies between different sectors or across different styles.

Historically, tactical decisions with respect to asset allocation were derided as “market timing.” However, market timing implies moving outside of the target ranges whereas tactical decision making simply addresses the opportunistic deployment of funds within the asset class target range.

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Assessment

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Conclusion

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Avoiding Managed Care Contract Pitfalls

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A Non-All Inclusive List

By Staff Reporters

There are several key pitfalls to watch out for when evaluating a managed care organization contract, as noted and continually revised by the Advisory Board Company, and others.

  • Profitability — Less than 52% of all senior physician executives know whether their managed care contracts are profitable. “Many simply sign up and hope for the best.”
  • Financial Data — 90% of all executives said the ability to obtain financial information was valuable, yet only 50% could obtain the needed data.
  • Information Technology — IT hardware and sophisticated software is needed to gather, evaluate, and interpret clinical and financial data; yet it is typically “unavailable to the solo or small group practice.”
  • Underpayments — This rate is typically between 3 – 10% and is usually “left on the table.”
  • Cash Flow Forecasting — MCO contracting will soon begin yearly (or longer) compensation disbursements, “causing significant cash flow problems to many physicians.”
  • Stop-Loss Minimums — SLMs are one-time up-front premium charges for stop-loss insurance. However, if the contract is prematurely terminated, you may not receive a pro rata refund unless you ask for it!
  • Automatic Contract Renewals ACRs or “evergreen” contracts automatically renew unless one party objects. This is convenient for both the payor and payee, but may result in overlapping renewal and re-negotiation deadlines. Hence, a contract may be continued on a sub-optimal basis, to the detriment of the providers.
  • Eliminate Retroactive Denials — Eliminate the rejection of claims that were either directly or indirectly approved, initially.  Sample: “MCO reserves the right to perform utilization review [prospective, retrospective and/or concurrent] and to adjust or deny payments for medically inappropriate services.”  
  • Define “Clean” and “Dirty Claims” — Eliminate the rejection of standard medical claim formats like CMS-1450, CMS-1500 or UB-92 for non-material reasons. Make payment of appropriate clean claims within some specific time period, like 30 days, in order to enhance free cash flows.
  • Reject Silent or Faux HMO or PPs, etc — Eliminate leased medical networks or affiliates and reject further payment discounts to larger subscriber cohorts than originally anticipated.
  • Include Terms for Health Information Technology — Eliminate the economic risk of leading edge electronic advancements like EMRs, PHRs, CPOEs, and so on.  
  • Establish ability to recover payments after contract termination — Eliminate financial carry forward for an excessive period of time.
  • Preserve Payment Ability — Provide medical services if requested by patients, who are then billed directly.
  • Minimize Differentials — Establish a standardized rate structure [fee schedule] for all plans and then grant discounts for administrative or other efficiencies; rather than have different schedules for each individual plan.

Certified Medical Planner

Conclusion

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On Professor Kenneth Arrow PhD

The “Father” of Health Economics

By Dr. David Edward Marcinko MBA, CMP™

[Editor-in-Chief]

Professor Kenneth Arrow is a Nobel laureate who explored the characteristics of a perfectly competitive marketplace for an ordinary commodity – and how the healthcare industry deviated from those characteristics – and what aspects of health care might explain these deviations.

But, in as much as he did all this in the 1960’s, he is known today as the “father” of health [not health care] economics. 

LINK: https://www.nobelprize.org/prizes/economic-sciences/1972/arrow/facts/

Required ME-P Reading

In fact, his 1963 paper launched health economics as a unique discipline and is as close to required reading as can exist for followers of the ME-P and our related websites and educational consulting firms [sidebar].

Assessment

Arrow Title: “Uncertainty and the Welfare Economics of Medical Care”

Link: Arrow

Commentary

Glossary: Dictionary of Health Economics and Finance

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On Hospital Revenue Cycle Opportunities

Do They Still Exist in Today’s Healthcare Milieu?

Staff Reporters

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For a decade now, healthcare providers have been challenged to deliver quality patient care in an environment of shrinking profit margins. Total margins and operating margins have followed the same trend. Analysts report that an operating margin of less than 5% leaves an organization without the resources to invest in new technology and capital projects, and will eventually force the facility to close or merge. With rising labor costs, a poorly performing economy, and an aging population, these numbers are not likely to improve soon.

Bar code use in hospitals may save lives

Industry Status

Although the industry has seen an overall improvement in accounts receivable days and bad debt for an extended period, it appears that many facilities have reached their peak in addressing these areas, particularly given current demands to reduce staff and other operational costs. So, where is the next major opportunity for reducing costs or maximizing revenue opportunities?

The Experts Opine

According to private consultants Ross J. Fidler and Karen White PhD, revenue cycle improvement still seems to be a promising and popular area today. And, PriceWaterhouseCoopers recently listed five areas to reinvent the revenue cycle:

1) organizational / accountability;

2) process/workflow improvements;

3) information systems/management reporting enhancements;

4) quality assurance mechanisms; and

5) department and staff productivity measurements.

Assessment

A thorough re-examination of the revenue cycle process will typically uncover cost drains and revenue opportunities.

Conclusion

To succeed in enhancing hospital revenue streams, for example, we commence with patient access through HIM to PFS, by applying optimal organizational structures, benchmarking, and technology adoption. Only then will outcomes trend toward higher performing revenue cycles.

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Understanding Hospital Net Working Capital

Lower is Better

[By Staff Reporters]

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Net working capital is the difference between current assets and current liabilities. The lower the net working capital, the more economically efficient the medical care provided. Some important definitions and ratios for hospitals include those immediately below:

  • Days Sales Outstanding: AR/(net sales/365)

Year-end receivables net of allowances for doubtful accounts, plus financial receivables divided by net sales per day. A decrease in days sales outstanding (DSO) represents an improvement in cash flows while an increase represents deterioration. The hospital industry average is 30 days.

  • Days Payable Outstanding: AP/(total expenses [less depreciation and amortization] / 365)

Year-end payables divided by expenses per day. An increase in days payable outstanding (DPO) is an improvement, while a decrease is not. Payables exclude accrued expenses. Hospital industry average is 20 days.

  • Days Inventory Outstanding: Inventory/(net sales/365)

Year-end inventories divided by sales per day. A decrease in days inventory outstanding (DIO) is an improvement, while an increase may be a sales deterioration. Hospital industry average is 4 days.

  • Days Working Capital: (AR + inventory – AP)/net sales/365)

Year-end net working capital (service receivables plus inventory, minus AP) divided by sales per day. The lower the better. Hospital industry average is 14 days.

Assessment

For more health economics and finance terms and definitions, please review the following:

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Conclusion

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Medical Endowment Fund Contingency Planning

Understanding Stock Market Volatility?

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According to Wayne Firebaugh CPA, CFP®, CMP™ the many quantitative methods of stock, bond, derivatives, alternative assets and mutual fund investing would have suggested that the October 1987 crash was impossible; yet the flash-crash of 2008 still occurred.

The Improbable Happens

For example, Mark Rubenstein, a professor at University of California at Berkeley, noted that if annualized stock market volatility was assumed to be approximately 20% “(the historical average since 1928), the probability that the stock market could fall 29% in a single day is 10–160. So improbable is such an event that it would not be anticipated to occur even if the stock market were to last for 20 billion years. Indeed, such an event should not occur even if the stock market were to enjoy a rebirth for 20 billion years in each of 20 billion big bangs.”

Statistically Impossible

Although it was statistically impossible for it to happen, it did happen in 1987 and again 2008. The nature of crises is such that many will be unanticipated events with unexpected precipitators. As such, a medical endowment or physician’s portfolio contingency plan cannot address every conceivable event. What a contingency plan should address is the process for confronting these events. Most importantly, the plan should assign responsibility for actions and contain provisions to limit the ability of panic to impair long-term decisions.

Donor Trust is Core

Healthcare and all endowments have at their core donor trust. As such, it is important for an endowment’s contingency plan to include provisions for communicating promptly and forthrightly with the public. One only has to look at the Red Cross’ performance during the aftermath of the 9/11 tragedy to receive a lesson on an inappropriate approach. After donating more than $550 million to the Liberty Fund, donors learned that less than $175 million had been spent on direct aid for victims and that the Red Cross was allocating a large portion of the funds to other programs. After public outcry and congressional hearings, the Red Cross announced that all donations would be spent on direct victim relief.

Unfortunately, Dr. Bernadine Healy, the president of the Red Cross, resigned at least in part because of this controversy. These alleged violations of public confidence can have long-term impacts on an endowment’s donor base. Consider also the United Way whose national leader, William V. Aramony, was accused of fraud, embezzlement, and other charges in 1992. Even a decade later, inflation-adjusted contributions are lower than they were before the scandal even though charitable giving in general has doubled.

Assessment

The very nature of crises is such that pre-determined contingency plans generally allow more rapid and appropriate reaction. For an endowment, a well-considered contingency plan will include both an action (or standstill) plan and a public relations plan.

Note: Red Cross defends handling of September 11 donations on November 6, 2001: see: www.cnn.com

Conclusion

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More on Modern Investment Portfolio Rebalancing

Understanding Risks and Benefits

By Dr. David Edward Marcinko MBA CMP™

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According to Wayne Firebaugh CPA, CFP®, CMP™ rebalancing a private physician’s portfolio or medical endowment contradicts conventional market “wisdom” that you allow your winners to run. Perhaps in speculation this is true, but for investing such a view can be deadly.

One Healthcare Case Example

Take, for example, the Cleveland Clinic’s experience with its endowment. In 1999, the Cleveland Clinic Foundation reported $1.2 billion in investments. Unfortunately, by the end of 2002, the Foundation’s investments were valued at $650 million, a loss of approximately 50%. Its losses reflected its substantial allocation into technology stocks during the technology boom of the late 1990s. As a result of these investment losses, the Clinic had to postpone a planned $300 million cardiology center and certain debt financing had to be restructured. In addition, both Moody’s and Standard & Poor lowered their ratings on the Clinic.

Definition

Since rebalancing by definition requires an endowment to take money from more successful investment classes and invest it into under-performing classes, it will always cause some measure of anguish. There will always be some reason why rebalancing should not take place. In 1987, the unprecedented single day decline in the market could have been presented as an argument against moving into equities. In 1998, the seemingly endless number of world financial crises could have provided a useful excuse to avoid rebalancing into emerging markets. So too; the flash crash of 2008!

Assessment

Current bond prices could provide similar reasons for not rebalancing into an appropriate fixed income position. However, since the whole reason for asset allocation policy decisions is to mitigate the negative impact that irrational behavior can have on a portfolio or an endowment’s investment performance, they should include a process for periodic rebalancing of its assets.

Conclusion

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Managing for Endowment Portfolio Alpha

Understanding Non-Systematic Return on Investment

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DEM 2013

[By Dr. David Edward Marcinko MBA]

According to Wayne Firebaugh CPA, CFP®, CMP™ alpha measures non-systematic return on investment [ROI], or the return that cannot be attributed to the market.

It shows the difference between a fund’s actual return and its expected performance given the level of systematic (or market) risk (as measured by beta).

Example

For example, a fund with a beta of 1.2 in a market that returns 10% would be expected to earn 12%. If, in fact, the fund earns a return of 14%, it then has an alpha of 2 which would suggest that the manager has added value. Conversely, a return below that expected given the fund’s beta would suggest that the manager diminished value.

In a truly efficient market, no manager should be able to consistently generate positive alpha. In such a market, the endowment manager would likely employ a passive strategy that seeks to replicate index returns. Although there is substantial evidence of efficient domestic markets, there is also evidence to suggest that certain managers do repeat their positive alpha performance.

In fact, a 2002 study by Roger Ibbotson and Amita Patel found that “the phenomenon of persistence does exist in domestic equity funds.” The same study suggested that 65% of mutual funds with the highest style-adjusted alpha repeated with positive alpha performances in the following year.

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More Research

Additional research suggests that active management can add value and achieve positive alpha in concentrated portfolios.

A pre 2008 crash study of actively managed mutual funds found that “on average, higher industry concentration improves the performance of the funds. The most concentrated funds generate, after adjusting for risk … the highest performance. They yield an average abnormal return [alpha] of 2.56% per year before deducting expenses and 1.12% per year after deducting expenses.”

FutureMetrics

FutureMetrics, a pension plan consulting firm, calculated that in 2006 the median pension fund achieved record alpha of 3.7% compared to a 60/40 benchmark portfolio, the best since the firm began calculating return data in 1988. Over longer periods of time, an endowment manager’s ability to achieve positive alpha for their entire portfolio is more hotly debated.  Dimensional Fund Advisors, a mutual fund firm specializing in a unique form of passive management, compiled FutureMetrics data on 192 pension funds for the period of 1988 through 2005.

Their research showed that over this period of time approximately 75% of the pension funds underperformed the 60/40 benchmark. The end result is that many endowments will use a combination of active and passive management approaches with respect to some portion of the domestic equity segment of their allocation.

Assessment

One approach is known as the “core and satellite” method in which a “core” investment into a passive index is used to capture the broader market’s performance while concentrated satellite positions are taken in an attempt to “capture” alpha. Since other asset classes such as private equity, foreign equity, and real assets are often viewed to be less efficient, the endowment manager will typically use active management to obtain positive alpha from these segments.

Notes:

  • Ibbotson, R.G. and Patel, A.K. Do Winners Repeat with Style? Summary of Findings – Ibbotson & Associates, Chicago (February 2002).
  • Kacperczyk, M.T., Sialm, C., and Lu Zheng. On Industry Concentration of Actively Managed Equity Mutual Funds. University of Michigan Business School. (November 2002).
  • 2007 Annual US Corporate Pension Plan Best and Worst Investment Performance Report.  FutureMetrics, April 20, 2007.

Conclusion

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What is the Cost of eHRs?

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A Retrospective Look-Back

By Richard J. Mata; MD CIS CMP™

Studies by the Organization for Economic Cooperation and Development (OECD) show that healthcare spending in the U.S. accounts for 16-17% of GDP, which is more than six-seven percentage points higher than the average of 8.9% in other OECD countries.  This translates into per capita health spending of $5,635 in the U.S. compared with median costs of $2,280 in other OECD countries.[1]  Suggestions as to the economic drivers of U.S. health spending include excessive service use, administrative complexity, population aging, threats of malpractice litigation, defensive medicine practices, and the lack of patient waiting lists.  In further comparisons with the OECD countries, it appears the U.S. overpays for physician visits, hospital stays, and pharmaceuticals.

In the Year 2004

A 2004 OECD paper suggested that one way of improving performance would be to move towards EHR:

Health systems should invest in automated health-data systems, including electronic medical records and systems to automate medication orders in hospitals. Better systems for recording and tracking data on patients, health and health care are needed to make major improvements in the quality of care.[2]

In the U.S., possible savings from the adoption of EHR have been projected to reach $142 billion in physician office visits, and $371 billion in hospital costs over a 15-year period.  These projections have not been validated by the experience in other OECD countries where the adoption movement is ahead of U.S. efforts by anything from four to thirteen years.

Nevertheless, the U.S. began its quest to move towards EHR in 2004 as medical software companies began actively marketing their systems, although funding for this endeavor did not come through until 2006.  In spite of this effort, the U.S. has the lowest percentage of physician providers using any EHR compared to Germany, Canada, United Kingdom, and Australia.  The U. S. physicians’ low adoption rate involves fear of the loss of productivity, lack of financial incentives, and high startup costs of as high as $40,000 per physician EHR adoption.

When spending on IT implementation in the healthcare system is compared on an international level, the U.S. lags dramatically behind the major OECD countries.  The U.S. spends $0.43 per capita compared to a high of $193 in the U.K.  This difference is even more dramatic when compared with the German experience, where IT adoption in the healthcare system is almost universal.  In thirteen years, Germany has spent $1.88 billion.  Their annual per capita cost has been $1.63.  The U.S. has reached only 25% of that expenditure so far.

Barriers to Adoption

The greatest barrier to adoption of EHR in most OECD countries has been the need to simplify the health insurance contracts payment structures with standard nomenclatures that can be adapted to EHR.  The major OECD countries also report that there must be a national adoption of IT standards in the healthcare system as well as a national effort to focus on privacy and confidentiality standards.  This assures better coordination of implementation and provides better strategies for adoptions through public incentives and grants.

 

Domestic 5 Year Costs

In the U.S., the five-year costs for a national IT healthcare network have been estimated to be as high as $103 billion in capital and $53 billion in interoperability.  Hospital costs for functionality were estimated to be $51 billion, skilled nursing facilities would bear $31 billion of costs, and physician offices would bear $18 billion of the costs. (Anderson, 2006)  EHR systems that have been implemented have been used mainly for administrative rather than clinical purposes.

In the Year 2005

A 2005 study by Richard Hillestad and colleagues at RAND[3] estimates that implementation of a nationwide EHR network would take about 15 years and cost hospitals about $98 billion and physicians about $17 billion.  Over the 15-year period, the average annual cost to hospitals would be $6.5 billion and the average annual cost to physicians would be $1.1 billion (CQ HealthBeat [1], 9/14). However, if 90% of providers adopted such a network, annual savings would total $81 billion, including $77 billion from improved efficiency and $4 billion from reduced medical errors, the RAND study found.  The study estimates that an EHR network would reduce adverse drug events in inpatient hospital settings by 200,000 annually and reduce such events in ambulatory settings by two million annually, saving $1 billion annually in hospitals and $3.5 billion in ambulatory settings.  For hospitals, about 60% of these savings would be from reduced adverse drug events in patients ages 65 and older, while 40% of savings to ambulatory practices from reduced medication errors would be in patients 65 and older (CQ HealthBeat [1], 9/14).

Assessment

In addition, the study estimates that a national EHR network would save Medicare about $23 billion annually and save private insurers about $31 billion annually.  The study projects that the estimated total annual savings of $81 billion would double if providers followed all checkup reminders and other prompts from the system (AP/Las Vegas Sun, 9/14).  Currently, about 20% to 25% of hospitals and 15% to 20% of physician offices have EHR systems, according to the study (CQ HealthBeat [1], 9/14).

But, what is the estimated cost in 2010?

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Conclusion

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References:


[1]    For details of the report, see http://www.oecd.org/dataoecd/29/52/36960035.pdf.

[2]   OECD, Towards High-Performing Health Systems, see http://www.oecd.org/document/26/0,2340,en_2649_37407_31734042_1_1_1_37407,00.htm.

[3]   See http://www.rand.org/health/feature/2006/060414_shekelle.html.  The report is also discussed in some detail in Neergaard, AP/Las Vegas Sun, 9/14/05.  See http://www.ihealthbeat.org/index.cfm?Action=dspItem&itemID=114707.

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The Pros and Cons of eMRs

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Delving Deeper into the Historic Origins of Debate

Dr. Mata

[By Richard J. Mata MD, CIS, CMP™]

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According to Wager, Ornstein, and Jenkins, in 2005, the perceived advantages of an EHR system include the following:

  •  Quality of the patient records (legible, complete, organized) — 86%
  •  Better access to patient records (available, convenient, fast) — 86%
  •  Improved documentation for patient care purposes — 93%
  •  Improved documentation of preventive services — 82%
  •  Improved documentation for quality improvement activities — 82%

Items viewed as an advantage by fewer respondents include the following:

  •  Administrative cost savings — 38%
  •  Improved efficiency — 61%
  •  Security of patient records — 64%

Nothing directly was said about cost savings or increased medical care quality. These topics have become more contentious issues during the past few years.

The Gurley Opinion

According to HIT expert Lori Gurley, in 2006, of the American Academy of Medical Administrators:

“The EHR provides the essential infrastructure required to enable the adoption and effective use of new healthcare modalities and information management tools such as integrated care,  evidenced-based medicine, computer-based decision support, care planning and pathways, and outcomes analysis” (Schloefell et al).  Although the benefits that support implementation of an EHR are clear, there are still barriers too, therefore the concept is still not accepted. “However, this could also be said of almost every other area of positive change and improvement within healthcare systems […]” (Schloefell et al).  There must be more involvement by the government and the private sector “to make changes where possible to instigate, motivate, and provide incentives to accelerate the development of solutions to overcome the barriers” (Young).

THINK: ARRA and HITECH, today. Of course, there are obviously advantages and disadvantages to both the paper medical record and the EHR.

Multi-Factorial Issues

Many factors must be considered before any healthcare organization or medical practice should implement an EHR.  The organization must first obtain as much information as possible about this new concept, and then the information must be carefully reviewed and the pros and cons discussed. Only then should the organization make their decision about this very important issue.

“The [EHR] as a part of a Clinical Information System (CIS) is a powerful tool which ties together documentation of the patient visit (clinical information), coding (diagnosis, and treatment procedures), which then translates into more accurate billing processes, reduces reprocessing of medical claims, and that translates into increased customer satisfaction with a provider” (Koeller). Although the technology is available, progress towards an EHR has been slower than expected. “Widespread use of [EHRs] would serve both private-and public-sector objectives to transform healthcare delivery in the United States” […] EHRs would also “enhance the health of citizens and reduce the costs of care” (Dick, Steen, and Detmer).

The MRI Study

According to a 2005-07 survey by the Medical Records Institute, the following factors are driving the push towards EHR systems within medical organizations:

Motivating Factors 2005 Ambulatory
The need to improve clinical processes or workflow efficiency. 89.3% 91.2%
The need to improve quality of care. 85.0% 85.3%
The need to share patient record information among healthcare practitioners and professionals. 81.1% 66.9%
The need to reduce medical errors (improve patient safety). 76.1% 69.1%
The need to provide access to patient records at remote locations. 67.9% 65.4%
The need to improve clinical documentation to support appropriate billing service levels. 67.1% 76.5%
The need to improve clinical data capture. 64.6% 61.0%
The need to facilitate clinical decision support. 60.7% 50.7%
The requirement to contain or reduce healthcare delivery costs. 54.6% 61.8%
The need to establish a more efficient and effective information infrastructure as a competitive advantage. 53.6% 53.7%
The need to meet the requirements of legal, regulatory, or accreditation standards. 50.0% 44.1%
Other 5.7% 5.1%
Totals 280 136
Margin of Error +/- 5.8% +/- 8.4%

Now, compare this with the results of the 2007 survey that focused on the factors driving hospitals to expand their use of EHR.

Driving Factors in a Hospital 2007
Efficiency and convenience, e.g., better networking to the medical community and patients and remote access 57.8%
Satisfaction of physicians and clinician employees 42.2%
The need to survive and thrive in a much more competitive, interconnected world. 41.0%
Regulatory requirements of JCAHO or NCQA. 35.6%
Savings in the Medical Record Department and elsewhere, including transcription. 24.0%
Value-based purchasing/pay for performance 17.7%
Pressure from payer groups, such as Leapfrog Group 15.2%
Possibility of subsidized purchase of HER, e-prescribing systems, etc. by purchasers/payers/large health systems. 8.8%
Totals 329
Margin of Error +/- 5.4%

Assessment

How have these motivating and driving factors changed today; have they really changed in 2010?

Does this deeper dive reveal any other truths; political, social, business or economic? Is this historical review helpful in understanding the reluctance or eagerness for EMR acceptance, or not?

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Conclusion

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Defining Electronic Medical Record Systems

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Does Linguistic Obfuscation Exacerbate our Use Ambivalence?

[By Dr. Richard J. Mata; CIS, CMP™]

[By Dr. David E. Marcinko; MBA, CMP™]

The 2003 Institute of Medicine (IOM) Patient Safety Report [1] described an EHR [2] as encompassing:

  • a longitudinal collection of electronic health information for and about persons;
  • [immediate] electronic access to person- and population-level information by authorized users;
  • provision of knowledge and decision-support systems [that enhance the quality, safety, and;
  • efficiency of patient care] with support for efficient processes for health care delivery.

The IOM Report

A 1997 IOM report, The Computer-Based Patient Record: An Essential Technology for Health Care, provides a more extensive definition:

A patient record system is a type of clinical information system, which is dedicated to collecting, storing, manipulating, and making available clinical information important to the delivery of patient care. The central focus of such systems is clinical data and not financial or billing information. Such systems may be limited in their scope to a single area of clinical information (e.g., dedicated to laboratory data), or they may be comprehensive and cover virtually every facet of clinical information pertinent to patient care (e.g., computer-based patient record systems).

The HIMSS Model

The EHR definitional model document developed by the Health Information and Management Systems Society (HIMSS, 2003) includes:

“a working definition of an EHR, attributes, key requirements to meet attributes, and measures or ‘evidence’ to assess the degree to which essential requirements have been met once EHR is implemented.”

 

The IOM Model

Another IOM report, Key Capabilities of an Electronic Health Record System [Tang, 2003], identifies a set of eight core care delivery functions that EHR systems should be capable of performing in order to promote greater safety, quality and efficiency in health care delivery:

8 Core Principles

Today, we realize that the eight core capabilities that Electronic Health [Medical] Records should possess are:

  1. — Health information and data. Having immediate access to key information – such as patients’ diagnoses, allergies, lab test results, and medications – would improve caregivers’ ability to make sound clinical decisions in a timely manner.
  2. — Result management. The ability for all providers participating in the care of a patient in multiple settings to quickly access new and past test results would increase patient safety and the effectiveness of care.
  3. — Order management. The ability to enter and store orders for prescriptions, tests, and other services in a computer-based system should enhance legibility, reduce duplication, and improve the speed with which orders are executed.
  4. — Decision support. Using reminders, prompts, and alerts, computerized decision-support systems would help improve compliance with best clinical practices, ensure regular screenings and other preventive practices, identify possible drug interactions, and facilitate diagnoses and treatments.
  5. — Electronic communication and connectivity. Efficient, secure, and readily accessible communication among providers and patients would improve the continuity of care, increase the timeliness of diagnoses and treatments, and reduce the frequency of adverse events.
  6. — Patient support. Tools that give patients access to their health records, provide interactive patient education, and help them carry out home monitoring and self-testing can improve control of chronic conditions, such as diabetes.
  7. — Administrative processes. Computerized administrative tools, such as scheduling systems, would greatly improve hospitals’ and clinics’ efficiency and provide more timely service to patients.
  8. — Reporting. Electronic data storage that employs uniform data standards will enable health care organizations to respond more quickly to federal, state, and private reporting requirements, including those that support patient safety and disease surveillance.” [3]

Assessment

With all the confusion surrounding terms like quality improvement and “meaningful use” which can mean major Federal dollars to the coffers of a medical practice, clinic or hospital; are we still confused about basic definitional terms?

And, does eMR linguistic obfuscation exacerbate our use ambivalence and encourage physician/dentist eMR avoidance?

Conclusion

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References:

[1]   See http://www.himss.org/content/files/PatientSafetyFinalReport8252003.pdf.

[2]   EHR (electronic health record) is often used interchangeably with EMR (electronic medical record).  In this discussion, EHR will be used consistently.

[3]   See http://www.iom.edu/.

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Beware Medical and Money Management ‘Groupthink’

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Helping Doctors Understand Peer Comparisons

By J. Wayne Firebaugh CPA, CFP® CMP™

By Dr. David E. Marcinko MBA, CMP™

Source: http://www.CertifiedMedicalPlanner.org

More than a few mutual, hedge and endowment fund managers have noted that they commonly compare their endowment and portfolio allocations to those of peer institutions and that as a result, allocations are often similar to the “average” as reported by one or more surveys/consulting firms.

One interviewed endowment fund manager expanded this thought by presciently noting that expecting materially different performance with substantially the same allocation is unreasonable. It is anecdotally interesting to wonder whether any “seminal” study “proving” the importance of asset allocation could have even had a substantially different conclusion. It seems likely that the pensions and funds surveyed in these types of studies have very similar allocations given the human tendency to measure one-self against peers and to use peers for guidance.

This is a truism in medicine as well as the financial services sector.

Understanding Peer Comparisons

Although peer comparisons can be useful in evaluating your portfolio, or your hospital or medical practice’s own processes, groupthink can be highly contagious and dangerous.

For historical example, in the first quarter of 2000, net flows into equity mutual funds were $140.4 billion as compared to net inflows of $187.7 billion for all of 1999. February’s equity fund inflows were a staggering $55.6 billion, the record for single month investments. For all of 1999, total net mutual fund investments were $169.8 billion[1] meaning that investors “rebalanced” out of asset classes such as bonds just in time for the market’s March 24, 2000 peak (as measured by the S&P 500).

Of course, physicians and investors are not immune to poor decision making in upward trending markets. In 2001, investors withdrew a then-record amount of $30 billion[2] in September, presumably in response to the September 11th terrorist attacks. These investors managed to skillfully “rebalance” their ways out of markets that declined approximately 11.5% during the first several trading sessions after the market reopened, only to reach September 10th levels again after only 19 trading days. In 2002, investors revealed their relentless pursuit of self-destruction when they withdrew a net $27.7 billion from equity funds[3] just before the S&P 500’s 29.9% 2003 growth.

Amateurs versus Professionals [is there such a thing?]

Although it is easy to dismiss the travails of mutual fund investors as representing only the performance of amateurs, it is important to remember that institutions are not automatically immune by virtue of being managed by investment professionals.

For example, in the 1960s and early 1970s, common wisdom stipulated that portfolios include the Nifty Fifty stocks that were viewed to be complete companies.  These stocks were considered “one-decision” stocks for which the only decision was how much to buy. Even institutions got caught up in purchasing such current corporate stalwarts as Joe Schlitz Brewing, Simplicity Patterns, and Louisiana Home & Exploration.  Collective market groupthink pushed these stocks to such prices that Price Earnings ratios routinely exceeded 50 [nothing in the internet age]. Subsequent disappointing performance of this strategy only revealed that common wisdom is often neither common nor wisdom.

The Bear Sterns Example

Recall that The New York Times reported on June 21, 2007, that Bear Stearns had managed to forestall the demise of the Bear Stearns High Grade Structured Credit Strategies and the related Enhanced Leveraged Fund.  The two funds held mortgage-backed debt securities of almost $2 billion many of which were in the sub-prime market.  To compound the problem, the funds borrowed much of the money used to purchase these securities.  The firms who had provided the loans to make these purchases represented some of the smartest names on Wall Street, including JP Morgan, Goldman Sachs, Bank of America, Merrill Lynch, and Deutsche Bank.[4]  Despite its efforts Bear Stearns had to inform investors less than a week later on June 27 that these two funds had collapsed. The subsequent fate of these firms, and the history of the past two years, need not be repeated to appreciate that the king surely had no clothes.

Assessment

What broader message lies in this post relative to such medical initiatives as P4P, various clinical quality improvement endeavors and benchmarks, hospital peer-review, PROs, Medicare compliance, etc?  

Conclusion

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References


[1]   2001 Fact Book, Investment Company Institute.

[2]   Id.

[3]   2003 Fact Book, Investment Company Institute.

[4]    Bajaj, Vikas and Creswell, Julie. “Bear Stearns Staves off Collapse of 2 Hedge Funds.” New York Times, June 21, 2007.

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

Understanding Absolute Investment Returns

Exploiting Market Inefficiencies

By J. Wayne Firebaugh CPA, CFP® CMP™

By Dr. David E. Marcinko MBA, CMP™

Source: www.HealthcareFinancials.com

This class of investments seeks to exploit market inefficiencies and generate positive returns regardless of broader market performance. Often, investments in this class are made through the use of hedge funds. Hedge funds will often employ leverage, short-selling, and arbitrage to take advantage of pricing distortions in their targeted strategy area.

Relation to Healthcare Endowments

When investing an endowment’s assets in this category, the physician director or money manager should be aware of fee structures that commonly include performance-related incentive fees, hurdle rates, and claw-back clauses. The endowment managers should also remember that these types of investments generally have much less transparency than other asset classes with which they may be more familiar.

Assessment

Finally, since many of these investments are offered only to accredited investors, the physician or investment manager is often free to pursue much more aggressive strategies than would otherwise be pursued for retail or lay customers.

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Conclusion

But, can we [anyone] exploit market inefficiencies? Is the market efficient or inefficient? What about Modern Portfolio Theory [MPT] or the Arbitrage Pricing Model? Did we really learn anything from the market crash of 2008?

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How the ME-P Views Client Engagements and Consultations

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An Expert Led – Future Focused Firm – Enhancing Doctor and Advisory Practices

By Ann Miller RN, MHA

[Executive Director]

ME-P consultants use advanced analytics, medical practice intelligence, education, deep experiential insight and publications to deliver measurable value across the full continuum of the independent health care administration and integrated economics and financial services space. Our team includes DOs, CPAs, MDs, DPMs, MBAs, PhDs, CFAs, MSFSs, CFPs®, RNs, CMPs™ and health care leaders, business leaders and CXOs. All have extensive strategic, operational, academic, technological, business and financial experience, certifications and licenses.

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Our clients include medical practices, hospitals and health systems; financial advisory firms RIAs and BDs; pharmaceutical companies, academic medical centers and physician organizations; private equity and investment firms, health insurance providers and medical device manufacturers are included. We help build a foundation for improving care delivery, related financial services sector performance and overall matrix or organizational advancement through the systems we implement. And, we enable our clients to:

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ME-P is future-focused

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Conclusion

And so, your thoughts and comments on this ME-P are appreciated. What benchmarks do you use for consulting engagements? Are doctors and FAs more or less likely to retain a consulting firm in today’s competitive environment? Are these two consulting sectors more or less integrated today than yesterday?

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Are Hospitals Auctioning Debt?

Understanding Modern Cash Flow Strategies

By Ross Filder

By Karen White PhD

www.HealthcareFinancials.com

As a sign of the contracting economic times, some struggling hospitals are using a new method to collect revenue: the Internet. It has become a channel to cut write-offs and bad debt ratios, which lower stock prices if publicly held.

Rather than simply hiring agencies to collect patient bills, hospitals have begun to put their accounts receivable (ARs) up for auction online. Bidders on the debt include the same agencies that serve the hospitals, some of which provide guaranteed payments to hospitals in exchange for access to the debt. 

Strategy Attractive to Buyer and Sellers

The auctions are also attracting other companies that buy the debt outright. For example, one method that a facility based medical practice used to auction debt was for the hospital to determine the criteria it would use for selecting the debt to be auctioned. The criteria generally focus on ARs that are a certain age, but demographic regions, legal accounts, and monthly payment accounts were also be considered.

[picapp align=”none” wrap=”false” link=”term=accounting&iid=289186″ src=”http://view4.picapp.com/pictures.photo/image/289186/corporate-details/corporate-details.jpg?size=500&imageId=289186″ width=”335″ height=”480″ /]

Request for Proposal

Once the criteria are determined, a listing of accounts is generated and supplied to potential buyers along with a Request for Proposal that asks each potential buyer to provide information on their experience in servicing hospital-type ARs, as well as details of their expertise, collection techniques, references, and price. 

Usually the winning bidder will pay a flat price for the entire AR.  It is important for the hospital to understand that when auctioning ARs the winning bidder owns the accounts and their collection tactics will not necessarily comply with the hospital’s standards for collections.

Automation

Automation can lead to decreased paperwork, process standardization, increased productivity, and cleaner claims. In 2004, Hospital & Health Network’s “Most Wired Survey” [1] found that the 100 most wired hospitals — including three out of the four AA+ hospitals in the country — had better control of expenses, higher productivity, and efficient utilization management. These numerics are much higher today. Additionally, these top hospitals tend to be larger and have better access to capital.

Assessment

The positive return on investment in technology increases allocation of funding to technology. This correlation is important because it begins to link the investment in information technology with positive financial returns in all areas of a hospital’s business, including the revenue cycle.

Conclusion

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References:


[1]   See http://www.hhnmostwiredsurvey.com. The Most Wired Survey is conducted annually between January and March to “promote the effective use of information technology in achieving clinical and operating excellence.”

Current Outlook for the Hospital Industry

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Adaptation is Key in 2010 and Going Forward

By Robert James Cimasi; MHA, ASA, AVA, CBA, CMP™

cimasi

www.HealthCapital.com

Hospitals today must continually adjust to deal with pressures to contain reimbursement and utilization levels.  The continuing cost containment pressures manifest themselves in many patients being shifted not only to lower acuity treatments but also to other providers.

Reimbursement mechanisms are increasingly designed to control costs and access. Managed care insurance plans continue to be a strong influence as payers for acute care hospital services. Medicare’s HOPPS [hospital outpatient prospective payment system] has reduced many of the financial benefits of shifting more care to outpatient settings.

Personnel Shortages

Personnel shortages have plagued the industry, and with the pending retirement of baby-boomers, relief from these shortages seems remote. This population also heavily influences the consumer side of the industry, since healthcare plans are based heavily upon demographics.  Aging baby-boomers are the fastest-growing segment of the population; the portion of the population over 65 years old is expected to increase from 20 million in 1970 to 69.4 million in 2030. Following closely behind is the increase in other minority populations.  Both groups will influence how healthcare services are dispensed.

Additionally, despite pressure to limit ALOS [average length of stay] and the shift to outpatient and freestanding, off-campus care, there will continue to be demand for acute care hospitals and the demographic trends will support this demand for many years.

Technology

Technological advances always play a central role in changing the medical industry.  The issue will be how healthcare providers will adopt new technologies under their current capital constraints.

Currently, health care insurance coverage is a major unfolding issue in the US, and there remains uncertainty about the future level of both public and private insurance coverage.  Now, facing the recent economic instability, employers are looking at restraining healthcare benefits for their employees even more as a way to stay profitable.

Assessment

The decline in the healthcare workforce coinciding with the increase in labor costs and resource consumption poses an ongoing challenge.  And yet, in the midst of the economic turmoil, hospitals must continue to provide services while remaining aware of the economic threats that may still lie ahead.

More:

Conclusion

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On Hospital Revenue Cycles Management

Operational Considerations for Improvement

By Dr. David Edward Marcinko, FACFAS, MBA, CMP™

By Hope Rachel Hetico; RN, MHA, CPHQ, CMP™

One of us has been an acute general care hospital administrator while the other vice-president of a clinical and medical staff.

Throughout our respective tenures, providing high quality care with improved health outcomes was our primary concern – and actually is that of most hospitals of any size, geography, or demographic. Conflicts of interest were inevitable of course, and occasionally the interest of stakeholders collided, or was ignored. And, continually we realized – and were reminded – that money matters and the maxim “no margin, no mission” applies.

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Strong Management Required for Success

Nevertheless, the foundation of strong financial health ultimately lies in effective management of the hospital revenue cycle. And, strong internal management and leadership is the basis of an enhanced revenue cycle. In practical terms, effective management means understanding the process and targeting the core of the revenue cycle in order to fine-tune and support fiscal health and business growth.

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A Triad of Processes Groupers

For us, the processes of hospital revenue cycles were grouped in three areas corresponding to the journey of a patient through the system: the front door, the middle, and the back door; to the extent possible.

1. Front-door processes are termed patient access functions and revolve around scheduling, registration, pre-admission, and admissions. When these processes are streamlined and swift; the value is most evident to a hospitals’ customers, the patients, but it is also vital to the revenue maintenance (and enhancement) of the facility. The most effective and efficient time to accomplish patient access activities is when patients and their caregivers are together. Patient access needs to be handled by highly skilled and motivated employees who can accomplish a hospital’s goals for information capture while carrying out customer service objectives. This is also the optimal stage for achieving denial management.

2. Middle processes include case management (CM) and health information management (HIM).  Those involved in the CM function act as gatekeepers to review the appropriateness of clinic referrals and ensure financial clearance is established.  CM also involves developing a plan for discharge and monitoring to ensure it is timely and appropriate to the level of care.  Another important focus of CM is the freeing up of acute care beds.

The HIM functions revolve around document management, coding, transcription, and charge capture. Financial performance can be significantly improved when case management and HIM activities are optimized by using information technologies that are integrated with process and workflow. The end result can be an increase in revenue and reduction in regulatory risk.

3. Finally, back-door processes are termed patient financial services (PFS) functions and revolve around billing, collections, follow-up, and resolution. These are the business office billing and administrative functions that support the front-line caregivers and that interface with external payers and patients to resolve outstanding accounts receivable. Back-door processes bring significant value to hospitals by reducing administrative costs, increasing collections levels, and dramatically lowering the percentage of aged accounts receivables [ARs].

Assessment

Modern hospitals today that are seeking to improve their bottom lines through better-managed and enhanced revenue cycle operations in these three areas front, middle, and back usually encounter challenges with people, processes, and technology. These challenges may be addressed by incorporating following:

  • optimizing organizational structure;
  • raising the bar through benchmarking; and
  • adopting appropriate technology.

Editors: We appreciate the ME-P input of Karen White PhD and Ross Fidler. 

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Conclusion

Now, please tell us your hospital revenue cycles story and how these challenges were executed; successfully or not!  What benchmarks did you use for them, and were any others required. Do these operational activities conflict or compliment each other; how and why or why not?

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Understanding Patient-Focused Healthcare

Emerging Trend Focuses on the Patient

By Gregory O. Ginn; PhD, MBA, CPA, MEd

By Hope Rachel Hetico; RN, MHA, CMP™

One swelling competitive medical administration and clinical trend is patient-focused and holistic healthcare, which centers on patient needs and attempts to humanize patient care.

Definition

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Patient-focused healthcare therefore incorporates the following concepts, among others:

  • patient education;
  • active participation of the patient;
  • involvement of the family;
  • nutrition;
  • art; and
  • music.

These are thought to improve patient outcomes. Further, some think that patients will benefit from learning how to cope with healthcare processes before they enter into those processes and that this knowledge will result in better outcomes.

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An example of this would be classes to prepare couples for childbirth. These classes teach prospective parents the different stages of labor and strategies for dealing with the challenges associated with each stage. They cover options for pain management such as breathing and relaxation techniques and/or analgesics. The classes also provide education about clinical options such as induced labor and caesarian sections, and they cover practical issues such as what to wear and what kind of car seat to buy to transport the newborn home.

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Assessment

We know from personal experience that this type of education is enormously beneficial in reducing stress and improving the decision-making ability of patients who are involved in healthcare processes.

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Conclusion

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Editors Note: Gregory Ginn has been a professor in the Department of Health Care Administration at the University of Nevada, Las Vegas, since 2000. He received his doctorate, MBA, M.Ed., and undergraduate degree from the University of Texas at Austin, and is an inactive Certified Public Accountant registrant in the States of Nebraska and Texas. Before his current position at UNLV, he spent time teaching at Clarkson College, College of Saint Mary, University of Findlay, University of Central Texas, Stephen F. Austin State University, State University of New York at Buffalo, University of Houston at Victoria, University of Texas at Austin, and the Southwest Texas State University. Prior to his academic roles, he was an accountant for Touche Ross & Co., and an Internal Revenue Service Tax Auditor. Dr. Ginn has also been a reviewer for organizations such as: Health Care Management Review and the Health Care Administration Division of the Academy of Management. He is Treasurer for the Nevada Executive Health Care Forum and was a member of the Southern Nevada Wellness Council. His graduate teaching experience in healthcare administration is abundant, having taught courses in: Management of Health Services Organizations, Quantitative Methods, The U.S. Health Care System, Health Care Systems and Policy, Health Care Finance, Group Practice Management, Long-term Care, and Health Care Law.  He has been published in numerous journals, including Journal of Healthcare Management, Hospital Topics, Nursing Homes, Journal of Nursing Administration, International Electronic Journal of Health Education, and Hospital and Health Services Administration. His current and former professional memberships include: American College of Healthcare Executives, Nevada Executive Healthcare Forum, Academy of Management, Association of University Programs in Health Administration, Certified Medial Planner (Hon.) and Heartland Health Care Executives.

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On Hospital CPOE Systems [Part Two]

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Computerized Physician Order Entry Systems

By Brent Metfessel; MD, MIS

A significant initial cost outlay for an organization-wide CPOE system is necessary, which for a large hospital may run into the tens of millions of dollars.  Understandably, the majority of the hospitals that have installed a CPOE system are large urban hospitals.  The up-front cost outlay may be prohibitive for smaller or rural hospitals unless there is an increase in outside revenue or third-party subsidies.

However, although it may take a few years before a positive ROI becomes manifest, there can be a significant financial return from such systems.

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Potential Benefits

The potential benefits of a CPOE system go beyond quality. Significant decreases in resource utilization can occur. In one study, inpatient costs were 12% lower and average Length of Stay (LOS) was 0.89 day shorter for patients residing on general medicine wards that used a CPOE system with decision support. Rather simple decision support tools can reap cost benefits as well. When a computerized antibiotic advisor was integrated with the ordering process, one institution realized a reduction in costs per patient ($26,325 vs. $35,283) and average LOS (10.0 days vs. 12.9 days), with all differences statistically significant.

Studies have shown that CPOE systems can significantly reduce medication error rates, including rates of serious errors.

For example, one large east coast hospital saw a 55% reduction in serious adverse medication errors after the system was installed. However, on occasion errors can actually be introduced due to the computing process; in particular, errors can be introduced if the provider accidentally selects the wrong medication from the list or drop-down menu.

Accordingly, a CPOE system should not be viewed as a replacement for the pharmacist in terms of checking for medication errors. In addition, proper user interface design such as highlighting every other line on the medication screen for better visibility and having the provider give a final check to the orders before sending are some ways of reducing this kind of error. Overall, error rates from incorrect order entry on the computer are much smaller than other medication errors prior to introduction of the system.

Appropriate use of a CPOE system helps prevent errors and quality of care deficiencies due to problems with the initiation of orders.  However, errors can also occur in the execution of orders, particularly with the administration of medications to patients.  Bar coding of medications, discussed previously, is a simple way to close the loop in medication error prevention as well as further increase the efficiency of workflow.

Despite its advantages, a CPOE system has been implemented on an organization-wide basis in only about 45% of all US hospitals and growth in implementations has been relatively slow, although about 67% plan to add a CPOE system in the next few years.  Implementing a CPOE system is not an easy task, and there is a significant risk of failure.  Most hospitals utilize vendors for implementation rather than attempting to develop the system in-house given the difficulty of hiring full-time IT talent that specializes in CPOE systems.

One critical feature of any CPOE system is to obtain physician buy-in to the technology, since they will be doing most of the ordering.  Actually, unless the system is of the highest sophistication, physicians may claim it takes more time to write orders using a CPOE system than using the paper chart, as there may be a number of drop-down menus to negotiate prior to arriving at the appropriate drug.  Real-time retrieval of information and electronic documentation, provision of on-line alerts, and the ability to use standard order sets (prepackaged sets of orders pertaining to a particular clinical condition or time period in an episode of care), when relevant, can make the net time spent on writing orders similar to using paper charts.

Doctor Acceptance

It is also important, for physician acceptance, to not overwhelm them with on-line alerts.  Clearly, the system needs to point out the more serious errors, but if the physician’s process is frequently interrupted by alerts, they may increasingly resist the system.

For example, medication allergy alerts may warn physicians not only of potential problems with medications that have an exact match to the allergen, but also, as a defensive maneuver (“better safe than sorry”), to other medications that have a related molecular structure,, even though the patient may already be taking such medication and tolerating it well.  Furthermore, allergies to medications that may result in life-threatening anaphylactic shock may not be distinguished from “sensitivities” that consist of side effects that are not true allergies and are usually much less serious.

Thus, the potential exists for frequent alert generation that would interrupt the work flow and require time spent to override the alerts, making the system difficult to use and leading to user resistance.  One suggested solution is to have a hierarchy of importance, with alerts for potentially life-threatening situations being allowed to interrupt the work flow and requiring specific override or acknowledgment, and alerts for less serious problems being “noninterruptive,” allowing easy visibility of the alert without requiring stoppage of the work flow.

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CPOE Pitfalls

Other pitfalls with respect to CPOE systems include the following:

  • crowded menus making it easy to select the wrong patient or wrong drug with the mouse;
  • fragmented information necessitating navigation through numerous screens to find the relevant information;
  • computer downtime (scheduled or unscheduled); and
  • location of terminals in busy places, which can lead to distractions and resulting incomplete or incorrect entries.

Intelligent, well-thought-out system designs can serve to mitigate many of these problems.  It is important that such difficulties appear on the systems designers’ “radar screen” and are explicitly considered in the implementation.

Pharmacists

As for pharmacists, a CPOE system will not take them out of the process. Although a CPOE system has the capability to capture many drug errors and remove the need for manual order entry, there will always be a need for pharmacists to not only give a second look at possible errors, but to take a more active role in patient care, including going on ward rounds for complex cases, defining optimal treatment, and giving consultative advice.

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Assessment

A CPOE system has the potential to give physicians ready access to patient data anywhere in the hospital as well as at home or on the road, especially with Internet-based connections. This is significant given the difficulty in obtaining patient charts for mobile providers.

In today’s environment of high expectations for care quality and pay-for-performance initiatives, enhanced quality of care can translate into financial gain. Although there is a significant up-front allocation of funds for CPOE systems, given present trends the time may arrive where there is no longer a choice but to implement such a system.

Conclusion

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On Hospital CPOE Systems [Part One]

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Computerized Physician Order Entry Systems

[By Brent Metfessel MD, MIS]

Since the late 1990s, there has been increasing pressure for hospitals to develop processes to ensure quality of care. The Institute of Medicine (IOM) has estimated the number of annual deaths from medical error to be 44,000 to 98,000.  Manual entry of orders, use of non-standard abbreviations, and poor legibility of orders and chart notes contribute to medical errors.  They also concluded that most errors are the result of system failures, not people failures.

www.CPOE.org

Other studies suggest that between 6.5% and 20% of hospitalized patients will experience an adverse drug event (ADE) during their stay. Both quality and cost of care suffer.  The cost for each ADE is estimated to be about $2,000 to $2,500, mainly resulting from longer lengths of stay. The National Committee on Vital and Health Statistics reported that about 23,000 hospital patients die annually from injuries linked specifically to the use of medications.

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The Joint Commission and the Leapfrog Group

In addition, the Joint Commission and the Leapfrog Group, a consortium of large employers, have pushed patient safety as a high priority and hospitals are following suit. The Leapfrog Group in particular highlighted CPOE systems as one of the changes that would most improve patient safety.  These patient safety initiatives have further advanced CPOE systems, since these systems have the reduction of medical errors as a prime function.  State and federal legislatures have also stepped up activity in this regard.

For example, back in July 2004, the federal government strongly advocated for electronic medical records, including the creation of the Office of the National Coordinator for Health Information Technology to develop a National Health Information Network. Consequently, regional health information organizations have been established in many states, and these are used for the purpose of expediting the sharing and exchange of healthcare data and information, although there still remain issues in terms of providing adequate funding to these programs.

In addition, consideration was given to the allocation of grants and low-interest loans to aid hospitals in implementing healthcare technology solutions.  In 2000, California first enacted legislation (Senate Bill 1875) stating that as a condition of licensure, acute care hospitals, with the exception of small and rural hospitals, submit plans to implement technological solutions (such as CPOE systems) to substantially reduce medication-related errors by January 1, 2002. Hospitals in California had until January 1, 2005, to actually implement their medication error-reduction plans and make them operational. Unfortunately, many are still not in compliance today.

Health plans also entered the patient safety stage. In 2002, one large health plan in the northeast provided a 4% bonus to hospitals implementing a CPOE system and staffing intensive care units (ICUs) with “intensivists.” Today, this goal is almost the norm, but not yet reality for all.

More than Data Retrieval 

Many hospitals have “data retrieval” systems where a provider on the wards can obtain lab results and other information. A CPOE system, however, allows entry of data from the wards and is usually coupled with a “decision support” module that does just that — supports the provider in making decisions that maximize care quality and/or cost effectiveness.

In this application of HIT, physicians and possibly other providers enter hospital orders directly into the computer. Many vendors of such systems make special efforts to create an intuitive and user-friendly interface, with a variable range of customization possibilities. The physicians can enter orders either on a workstation on the ward or in some cases at the bedside.

Features of a True CPOE System

Basic features of CPOE should include the following:

  • Medication analysis system — A medication analysis program usually accompanies the order entry system. In such cases, either after order entry or interactively, the system checks for potential problems such as drug-drug interactions, duplicate orders, drug allergies and hypersensitivities, and dosage miscalculations. More sophisticated systems may also check for drug interactions with co-morbidities (e.g., psychiatric drugs that may increase blood pressure in a depressed patient with hypertension), drug-lab interactions (e.g., labs pointing to renal impairment that may adversely affect drug levels), and suggestions to use drugs with the same therapeutic effect but lower cost. Naturally, physicians have the option to decline the alerts and continue with the order. In fact, if there are alerts that providers are frequently overriding, providers will often provide feedback that can lead to modification of the alert paradigms. Encouraging feedback increases the robustness of the CPOE system and facilitates continuous quality improvement.
  • Order clarity — Reading the handwriting of providers is a legendary problem. Although many providers do perfectly well with legibility, other providers have difficulty due to being rushed, stressed, or due to trait factors. Since the orders are accessible directly on the workstation screen or from the printer, time is saved on callbacks to decipher illegible orders as well as preventing possible errors in order translation. A study in 1986 by Georgetown University Hospital (Washington, D.C.) noted that 16% of all manual medical records are illegible. Clarifying these orders takes professional time, and resources are spent duplicating the data; thus, real cost savings can be realized through the elimination of these processes.
  • Increased work efficiency — Instantaneous electronic transmittal of orders to radiology, laboratory, pharmacy, consulting services, or other departments replaces corresponding manual tasks. This increase in efficiency from a CPOE system has significant returns. In one hospital in the southeast, the time taken between drug order submission and receipt by the pharmacy was shortened from 96 minutes (using paper) to 3 minutes. Such an increase in efficiency can save labor costs and lead to earlier discharge of patients. The same hospital noted a 72% reduction in medication error rates during a three-month period after the system was implemented. Alerting providers to duplicate lab orders further saves costs from more efficient work processes. And, in another instance, the time from writing admission orders to execution of the orders decreased from about six hours to 30 minutes, underscoring CPOE system utility in making work processes more efficient; thus positively affecting the bottom line.

Assessment

In today’s environment of high expectations for care quality and pay-for-performance initiatives, enhanced quality of care can translate into financial gain. Although there is a significant up-front allocation of funds for CPOE systems, given present trends the time may arrive where there is no longer a choice but to implement such a system.

Conclusion

Although a Computerized Physician Order Entry system alone will reap significant benefits if intelligently implemented, in order to realize the greatest benefit a CPOE system should be rolled up into a fully functioning EMR system where feasible.

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

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