Operations Management in Healthcare Organizations

HCM-401Kemal Erkan, FACHE

Operations Management in

Healthcare Organizations

Changing the Behavior

HCM-401 Week IV• Group Project

• Progress So Far– Budget & Organizational Structure– Pay for Performance Challenge – Physician

• Week IV Topic Presentation by Kyle Bain – Physician Compensation

• Week IV Class Presentation by Kemal Erkan• CCHS 2010 Annual Financial Report• Case Studies

– Pay for Performance Analysis– Break Even Analysis– Physician Extender Analysis

• Midterm– 55 Multiple choice questions– 3 Essays

Changing The Behavior of

Responsible Parties


• Cost • Profit

• Medicare• Medicaid

• Fee For Service• Length of Stay

• No Copay • No Deductible

PatientsPhysicians

And Hospitals

Insurance Companies Government


BCBS Issue

• Chain of Command • Difficulties with people• Non responsiveness• Insisting on the business model•

Physician Payment

Presented by Kyle Bain

For Kemal ErkanHCM-401 Course

PRESENTATION OUTLINE

• Provider Salary

• Education and Liability

• Obligations

• Comparisons

• Free Market Value v. Salary Caps

• Potential IssuesChanging the Behavior

PROVIDER SALARY

• Based on: Demand , Supply, & Quality

• Not all services are equal1. Music • Professional Artist versus Cover Band– Same song, much different Quality

2. Lawn Care• Licensed Company Versus Neighborhood Kid

– Same job, Quality is completely different.– There needs to be incentives for better quality


EDUCATION & LIABILITY

Education

• Roughly 10 Years of College– $40,000 *10 Years = $400,000– Room and Board + Misc Expenses

• ~$ ½ Million by graduating• Not Guaranteed $ by graduation

• Residency Programs• Top of their class

Liabilities

• Malpractice and Risk of losing license.– Permanently out of practice

• Responsible for your LIFE and WELLBEING.


OBLIGATIONS

• Service versus Human Principles – Healing

• Obligation to the society

• Law – “Duty of Rescue”– “A Party can be liable for failing to come to the rescue of another

party in peril”

• Human Nature to help others in need.– If we are capable, we should all help those in need.


COMPARISON

• Salaries range for different Specialties and Countries– Family Practice versus Industry’s Top Specialist

• Comparison of different professions– Lawyer, CPA, County Executive, senator… – How much Dr. Mehmet Oz makes…


20%

COMPARISON


FREE MARKET V. SALARY CAPS

• Free market:– Supply and Demand determine price of goods and

services. CUSTOMERS/PATIENTS determine physicians value. Creates a “Fair Market Value”• Low Demand, physicians must lower their prices• Low Supply (# of Physicians) – They should charge a

premium.

• With Caps: – Low Demand or Low Supply– Same Quality with no

incentive to provide anything other than minimal Quality.


POTENTIAL ISSUES WITH CAPS

• Competition Drives Innovation and Improved Quality.– With Caps, there is NO Competition. Without

Competition:• No incentives to provide better quality product/service• No incentive to improve technology or improve customers

experience– Providers are going to receive the same benefit

whether they work extremely hard or just meet minimal requirements.

– Small window of incentives between Normal Salary and Industry Cap. No incentive for Top Quality


EXAMPLE

• Ex. Students and College– Let’s say every College is equally beneficial.

(Reputation, Education, Networking, Job Prospecting) (Not cost, effort, or prestige)

– Everyone would go to easiest college possible.• No incentive to go to more expensive school. (Harvard V.

Community College)• No incentive to get 4.0 or 2.o GPA.• No incentive to do extra research, ex curricular activities,

etc.• Only produce minimal effort.


CONCLUSION

• Roughly 10 years of Schooling

• Huge Debt after graduating

• Extreme Liability

• Free Market– Competition drives innovation and improved patient care– Patients are determining their Value/Salary


PROVIDER SALARY

Questions?



New Entity “SEC”• 15 different surgeons• 8 different groups• Change of approach for the call responsibility• From “On Call” to “On Site”• Challenges from the “non-profit” insurance company on credentialing

– Angie started the process• Rejected

– Hazel requested a meeting • No response from the credentialing manager• Rejected by the Medical director

– KE requested a meeting • Rejected

– KE broke the chain of command• Went to the CEO

– KE got a phone call in 7 min of the email after his email to the CEO– The meeting is setup for Nov-15-2011

•


Break Even Analysis


Columbia Memorial HospitalBreak-Even Analysis

• Columbia Memorial Hospital is a highly profitable publicly owned for-profit, 300 bed hospital, with an ER and a walk-in clinic. It has 160 staff physicians. The question posed is related to the walk-in clinic.

• At the present, the clinic physicians provide an average of 45 visits a day. It is believed that the clinic could handle up to 85 visits a day. Patient charges range from $60-200, with discounts for the uninsured. The co-payments are lower than the ER. The clinic is not a big money maker. There were 5 walk-in clinics in the area but 2 have closed.


• Columbia Memorial Hospital• Break-Even Analysis• • Three possible options are under consideration:• Close the clinic• Run the clinic as is• Expand marketing to increase operations in the area of Occupational Health Services (OHS). • Positive Considerations:• The clinic is not affected by a season utilization pattern• One of the recently closed clinics is nearby.• Incremental usage costs are $3.50 per visit ($3.00 med supplies, and $.50 administrative).• The expanded market needs no capital investment • Negative Considerations:• Clinic has a long-term lease with a 3 months rental cancellation clause. The cost would be $37,500 to close.• The biggest competing hospital has just bought the largest primary care practice in the area and plans to buy more.• Expanded treatment requires additional professional and administrative staff.• There would be additional advertising expenses (newspaper, TV, internet, brochures and handouts) and the need to

hire an assistant marketing director,


• Problem:• Using Break-Even Analysis and Exhibits 6.1 and 6.2, answer

the following questions:• If the clinic continues at the current volume what is the

projected profit or loss for the year?• How many additional visits per day would be required to

break even without a new marketing program?• How many additional visits per day would be required to

break even with the new marketing program?• How many additional visits would the new program have to

bring in to make it worthwhile, regardless of the profit or loss of the clinic?




Pay for Performance


Maitland Family PhysiciansPay For Performance

• Maitland Family Physicians• Pay For Performance• • Maitland Family Physicians is a medical group practice organized in 1996 as an equal share partnership. The group

consists of four family practice physicians and a medical support staff consisting of a practice manager, two receptionists, four nurses, two medical assistants, two billing clerks, and one laboratory technician. In addition the practice uses a local CPA to deal with financial matters.

• • At the present time the physicians receive equal compensation with a salary of $12,500 per month and an equal share of

the profits at the end of the year. Last year each partner received $30,000 bonus. • • A recent survey by the Medical Group Management Association indicated that the majority of practices are compensated

on productivity and that less than 10% of practices currently operate on a straight salary basis.• • The partners have agreed that compensation should consist of base salary plus some form of pay for performance. The

partners have all agreed that the proposed system should have the following characteristics:• Both the data and administration of the system must be trusted.• The system must be simple enough to be clearly understood.• The system must be perceived to be equitable.• The incentives offered must be large enough to encourage change• Implementation and administration of the system must be affordable.•



• After researching several other practices the accountant proposed several potential measures: • Productivity Measures:• Number of patient visits -regardless of time per visit or type of visit.• Work RVU’s (Relative Value Units)

– Physician work– Practice expense– Malpractice expense

• Professional Procedures-count number of procedure codes regardless of time per procedure.• • Financial Measures:• Gross charges-total gross charges (ignoring discounts, allowances and costs)• Net collection-total collected revenue (gross charged minus discounts and allowances but ignoring costs.• Net income-total net income (before physician compensation). With allocation of practice costs to individual physicians.• • • Quality Measures:• Average Patient Satisfaction• Blood Pressure Control-Potential for quality payments if performance targets are met.• Breast cancer screening •



• Positive Considerations:• Increased physician productivity increases billable visits by 10-15% and the average physician reimbursement by 5-

10%.• Seeing the most patients is the easiest to calculate. More visits means more billable work.• The most procedures produce the highest revenue. Historically practices that do a lot of procedures do well

financially.• Performance based on quality will maintain the patient base.• Net income calculation holds the physician responsible for both revenues and cost.• The pay for quality approach that CMS is supporting for Medicare patients will improve physician experience and

generate quality payments.• • Negative Considerations:• Elderly and Chronically ill patients take more time per visit than younger patients.• Rewarding procedures rewards a narrow part of clinical practice. • Gross charges do not reflect reimbursement amounts and charges generated at high cost do not help the group

financially.• It is difficult to calculate the cost allocation required to the calculation of net income.• Rewarding physicians for practicing good medicine is unacceptable. Physicians should not be paid to do what is

right. •



• Problem:• Using Exhibits 11.1, 11.2 and 11.3: • • Determine if the physicians should adopt a pay for performance model and if so

follow the following guidelines:• Use the historical allocation between base salary and performance pay as a

starting point. • Assess the sensitivity of physician pay to the various performance measures.• Recommend the system you think is best for this group.• Should pay for performance be based on productivity, financial performance,

and/or quality or any combination?• What total dollar amount should be allocated to performance pay versus base

salary?• What amount of net income (after physician compensation) should the group

target?


Pay for Performance



PHYSICIAN EXTENDER ANALYSIS


• University Faculty Practice• Physician Extender Analysis• • University Faculty Practice is a not-for-profit corporation that controls the clinical operations of the medical faculty at Shasta University. At present, the University Faculty Practice controls 6

hospitals, several outpatient clinics and a Long Term Care Facility. • • The question posed is the financial impact of possibly utilizing physician extenders (ARNP’s, NP’s, or PA’s) in 3 different types of clinics:• 1. An out patient surgery pre-op and post-op clinic• 2. An internal medicine (Family Practice) clinic• 3. An eldercare clinic.• • Currently in medical practices using physician extenders, they perform more than 80% of the primary care patient duties such as taking histories, performing the physical exam, diagnosing

and treating illnesses, ordering and interpreting lab tests and in most cases prescribing medicines. This allows the physician to treat more and higher acuity patients, which expedites the flow and increases revenue.

• • Positive Considerations:• Physician Extenders spend more time with patients and increase patient satisfaction• Patient Extenders are paid $60,000 –80,000 per year while physicians are paid $137,000-$194,000 per year. Cost per patient visit can be lowered.• Increased physician productivity increases billable visits by 10-15% and the average physician reimbursement by 5-10%.• If the Physician Extender and the Physician both see the patient on the same visit, Medicare reimbursement is at 100% of the physician rate.• Physician Extenders can be reimbursed at 100% of services “incident to” a previous service provided by a physician in an office or a clinic.• • Negative Considerations:• Some private practice physicians view Physician Extenders as a threat to their gatekeeper position within the healthcare system. Since the 1997 Balanced Budget Act, Physician Extenders

can operate without the immediate availability of a physician.• Physician Extenders see 10-20% fewer patients than the physician.• If the patient is seen by both the extender and the physician the billable credit goes to the physician.• NP’s and PA’s operate under a different philosophy of care. NP’s follow a nursing model of care (patient health, education and welfare) and PA’s follow a medical model of care (diagnosis

and treatment).• NP’s function under their own license and can operate independently of a physician and may prescribe medication independent of physician supervision.• PA’s are attached to a physician’s license.• •


• Problem:• Using Exhibit 25.1: • Using anecdotal evidence (speculation) of future demand. • • The best estimate is that the patient volume at the surgery pre-op and post-op clinic is increasing at 15%

annually. • • At the internal medicine clinic there is a several month backlog in current scheduling.• • The volume at the eldercare clinic is sporadic and growing slowly.• • Estimate the financial impact of using one physician extender at each clinic.

– How many additional visits might be generated at each clinic if one extender is employed?– Is it possible for an extender to reduce the number of physician FTE’s rather than increase volume?– What is the impact on cost and revenue?

• Recommend the type of extender appropriate for each setting.• • Cases in Healthcare Finance, 4th Ed. (Chapter 25)•


Documents

Operations Management in Healthcare Organizations