Dedicated to Andrew J. Forgash, MD, my first and only true partner
Several decades ago I embarked upon a career in—or more appropriately a love affair with—medicine and surgery. As those of you who are presently laboring at this same endeavor know, the commitment emotionally, mentally, and physically is prodigious. It is also time-consuming, requiring a great deal of delayed gratification before being allowed to practice our chosen profession. While times have changed, especially with respect to knowledge, technology, and regulations (such as the 80-hour restricted workweek), we all eventually arrive at that point in our lives when we must leave the relative comfort and protection of our training program and choose an independent career. Unfortunately, what has not changed is the lack of guidance and education with regards to the myriad options available to us. While we are paid during our training, we by and large have lived a very frugal lifestyle and have been directed as to where we should be, when we should be there, and what we should do. Our major focus relates (appropriately) to patient care and to learning the skills necessary to enhance that care. Most of us do not seriously consider our future outside the world of our medical training background until late in that training.
Few, if any, of us regard our future in terms of types of practice available, earning potential, financial responsibilities, etc. While everyone's goals are unique, certain generalizations can be listed that can give an individual a perspective that will help choose a proper and desirable practice. Understanding the business aspects of medicine is crucial to making an informed decision about one's future. The purpose of this book is to give an overview of the business side of medical practice. As with individuals, businesses and thus practices are often subtly unique, each having its own idiosyncrasies. Because of these unique characteristics coupled with our lack of knowledge regarding business, it is not uncommon for physicians and surgeons, being highly intelligent yet independent thinking individuals, to be unhappy or disillusioned with their initial practice experience. A substantial number (possibly the majority) of physicians and surgeons will participate in more than one medical or surgical practice during their career. This is not truly a failure in career selection; it merely reflects our lack of education and understanding with regards to the nuances of medical practice. Hopefully, the following chapters will enlighten the reader and serve as a guide for making proper decisions regarding practice selection.
I have attempted to organize this book into broad categories. It will become immediately obvious that there is some overlap between categories (such as advantages and disadvantages of various practice models), as such, the readers should keep an open mind with regards to statements made. Having said that, there are three truisms that apply to all practices. The first is (or should be) that as physicians and surgeons we must attend to the welfare of our patients; we want them to do well. Our personal reputation and well-being directly depend upon our ability to properly care for our patients. The second certainty relates to our responsibility to pay for expenses associated with that patient care. And thirdly, we all must provide financially for our own personal needs. For a physician or surgeon to be successful and happy, all three categories must be adequately addressed. While variations and mutations of all practice models exist, and are usually the product of personal inventiveness, they are all designed to accommodate these three truisms.
I have dedicated this publication to Andrew J. Forgash, MD. Andy inspired my love of medicine and surgery while helping me mature as a surgeon. He and I also shared common philosophies with regards to patient care and business (in the latter of which he was my teacher). I would be remiss if I did not acknowledge the constant support that I have received throughout my career, and my life, from my parents, Carl and Jo Ann Schaefer. And last, but not least, I must acknowledge the unwavering support, encouragement, and love that has always been forthcoming from my wife, Carol.
What to Do
Each of us has been asked by our parents, family, friends, etc., “What do you want to do when you grow up?” Obviously, if you are reading this you have already taken several steps toward that answer. The final determination rests with each individual and with personal likes, expectations, and goals. Determining what to do will profoundly influence where one practices and the type of practice in which one becomes involved. “General practices” have the flexibility of working anywhere. These include general surgery, family practice, emergency medicine, internal medicine, etc. “Specialized practices” are usually restricted to communities that can support larger hospitals that have greater resources. The specialties often require additional training (fellowship training) beyond the basics learned during the general residency. Examples include cardiothoracic surgery, orthopedics, plastic surgery, pediatric surgery, cardiology, gastroenterology, neurology, oncology, etc. If you desire to pursue a specialty practice, you will be limited in your choices with regards to where you can practice. Additionally, the choice of general versus specialty practice and the locale will influence the type of practice and size of practice in which you participate. In reviewing the contents of this book, attempt to customize the comments made with your professional area of interest.
Where to Practice
Choosing a place to live and practice can be as difficult as deciding what to do. It becomes more complicated if the decision affects spouse and children. There are essentially three options: urban, suburban, and rural. The relative advantages and disadvantages of each of these locales can profoundly affect professional and domestic happiness.
Practices located in urban and suburban areas usually have access to larger patient populations and more sophisticated medical facilities. Associated with this, there are usually more physicians in urban and suburban settings. Thus, competition may be greater. As a result, most practices are somewhat limited in their scope and diversity. Much more specialization is prevalent in these highly populated areas. This specialization is often necessary to assure adequate income. Quite obviously, physicians and surgeons who do specialize are reluctant to allow “nonqualified” colleagues to share in their field of interest. For example, a new surgeon coming out of residency may have extensive experience in vascular surgery, but unless he or she has taken a fellowship in vascular surgery and is eligible for board qualification, the likelihood that he or she will be granted privileges at a hospital to practice vascular surgery is poor. Conversely, a surgeon may concentrate on one particular disease category (such as hernias) and market himself or herself as a specialist. This would allow him or her to concentrate in this one field and market himself or herself accordingly. The limitations of any practice may be of benefit with regards to on-call responsibilities and leisure activities. A physician with a limited practice may be excused from some emergency department responsibilities (e.g., a general surgeon or hernia surgeon not having to take trauma call). This can allow the physician and family to enjoy the social amenities of the locale (theater, sports, shopping, etc.). The larger patient population may thus support this more limited practice. Suburban areas, in particular, often have greater community support systems, such as schools, community youth and adult organizations, local governmental support/oversight, and, frequently, local college influence. This does, however, come with a downside: suburban communities are usually more expensive with regards to cost of living, taxes, housing costs, etc.
Urban locales can be equally expensive in addition to having the relative advantages and disadvantages of “city life.” While cultural opportunities are often greater, some leisure activities, particularly with regards to family, may be restricted just due to the lack of space. University centers and tertiary centers are often located within urban areas. Usually, even with a practice in a city, a physician can reside in a suburban locale. This does impact on leisure activities in that a fair amount of time is expended traveling between home and business. Commuting, depending upon distances and traffic congestion, can add hours to a regular workday. The extra time necessary for travel can severely impact the time normally spent in leisure activities, domestic responsibilities, and with the family. As with suburban practices, the scope and diversity of the practice is often limited. However, as also seen with suburban practices, reimbursement rates are usually higher. This is due to a usually higher rate of insured patients in an urban or suburban practice. Additionally, most insurance companies, including Medicare, reimburse at a higher rate in urban and suburban areas due to an increased calculated cost-of-living factor. One last factor to consider with regards to urban and suburban practices relates to the number of hospitals, facilities with which a practice is affiliated. If a practice is affiliated with more than one facility, on-call responsibilities will be proportionally increased. Additionally, travel time between those facilities must be considered (this time is not financially compensable).
Typically, rural practices have significant differences. The smaller size of the surrounding population and the lack of sophisticated facilities and subspecialty support usually mandate a practice that is much more diverse than is found in an urban or suburban area. This diversity affords the physician the opportunity to expand a practice into areas of interest or need. Restrictions placed upon a practice are usually related to the lack of facility support as opposed to collegial machinations. Coupled with the necessity of a broad-based practice, on-call coverage issues may be exacerbated. Whereas in an urban or suburban setting emergency department call may be voluntary or limited (by specialties), in the rural setting each physician is expected to provide whatever care as necessary. Thus, a surgeon may be required to respond to scenarios involving trauma, obstetrical emergencies, orthopedic injuries, etc. While the actual number of calls may be reduced, the time required to be available may be increased. Thus, time available for leisure activities, family, domestic responsibilities, etc. may be quite variable. Rural areas usually are less expensive with regards to taxes, housing, and cost-of-living. Community support programs are usually not as abundant. Social amenities (theater, shopping, and sports events) may be less but are usually available if one is willing/able to travel to the city. Rarely will more than one hospital be associated with a practice; as such, commuting between hospitals (and for that matter, between home and hospital) is eliminated or reduced. School systems may be competitive with their urban/suburban neighbors but are often less well financed and do require more travel time for the student. As implied above, reimbursement rates for patient care are usually less due to reduced calculated cost of living factors.
Thus, it should be appreciated that where one practices can influence the type of practice in which one participates. Questions to consider relating to practice location include:
- Size of practice
- Diversity and scope of practice
- Size of community
- Nature of community (financially, ethnically, etc.)
- Community strengths
- Community weaknesses
- School systems
- On-call and coverage responsibilities
- Type and diversity of leisure activities
- Pay or mix (insured versus uninsured; types of insurances)
- Housing costs
- Anticipated income (or average that a physician makes in the community)
A Short Course on Financial Terminology
All practices must make a profit. As stated in the introduction the goal is to generate enough income to pay for expenses and to pocket the residual monies as salary. Ultimately, the success of a practice depends upon the perceived quality of care provided by the practice. However, serious considerations regarding expenses, profit margins, etc. must be taken into account. Regardless of quality of care provided, if a practice fails to cover expenses it will cease to exist.
Patients come into a practice by some form of referral, be it from the emergency department, inpatient consultations, clinics, physician referrals, or referrals from previous patients or their family or friends. Time spent with the patient is billable depending upon the complexity of the problem and the time associated with handling that problem. Additional billable services in a surgical practice relate to procedures performed. Usually nonprocedural billing and procedural billing are not allowed on the same day. There are exceptions to this but they are beyond the scope of this discussion. Consultations and history and physical examinations performed on the day of a procedure are usually included in a “global charge,” which in essence combines the former (called evaluation and management codes) with the latter (called procedural codes).
Once a service is rendered, a charge is assessed to the patient. This assessment will be forwarded either to the patient directly or to a third-party, also known as an insurer. These latter groups include entitlement programs such as Medicare, Medicaid, Veterans Administration, etc. (in essence, they are federally controlled insurance programs) or private insurance programs such as Blue Cross/Blue Shield, Aetna, United Healthcare, etc. The entitlement programs basically set the overall reimbursement rates. Payment from entitlement programs is based upon a complicated formula known as the Relative Value Resource Based Scale (RVRBS) system. Private insurance programs will vary somewhat with regards to reimbursement when compared to the entitlement programs and to each other. However, they will usually be within several percentage points of the entitlement programs. Participation in any program, be it an entitlement program or a private insurance program, is voluntary. Please realize, however, that privileges at a hospital or other facility, or within a group practice, may necessitate participation in one or more programs. Lack of participation enables a physician to bill the patient directly at whatever rate he so desires except for patients involved in entitlement programs. There are usually restrictions with regards to the amount one can bill these patients. Additionally, nonparticipation may restrict a physician from treating patients who are insured by a particular insurer. This can lead to problems receiving reimbursement if a patient is treated outside their insurance plan (usually in an emergency situation) and the insurance company subsequently denies payment based upon the lack of participation by the physician. Please note that a physician cannot refuse to treat a patient with a life-threatening or limb-threatening illness based upon financial considerations. With all of this in mind, different medical surgical practices have varying views with regards to participation in various insurance programs.
With a charge generated for a service, the patient's financial account now has a numerical value called an “account receivable.” In essence this means that the account is open and that any monies received on behalf of the patient can be applied against that open balance. Thus, when someone talks about their “accounts receivable” they are describing the amount of unpaid outstanding bills or charges. It is anticipated that a certain percentage of these outstanding charges will not be paid. This could be for a variety of reasons, including bad debts, overcharges that may be disallowed by a third-party insurer, and denied claims (bills that a third-party insurer may refuse to pay because the service was covered in the global charge, etc.). Considering that it takes several weeks to months to collect monies from either patients or insurers, it is common for a physician or practice to have a substantial amount of “accounts receivable” at any given time.
Collection of accounts receivable is based upon the patient's insurance status, the patient's ability to pay, the age of the particular account receivable, and the service rendered. In most practices, rarely do patients pay at the time of service. The patient's are therefore billed on a regular basis until such time that their personal account receivable is zero. To achieve a zero account receivable, either the entire bill is paid or a portion of the bill is paid and the rest of the bill is forgiven (“written off'). Forgiveness (“write off”) is undertaken at the direction of the practitioner physician. It is usually accorded to the patient who is unable to pay for professional courtesy or for personal reasons (on the part of the physician). Account receivables are matured on a regular basis. This means that every 30 days (or other period of time) the patient or insurer is sent another notification regarding an open balance. After a previously determined time, usually 90 or 120 days, if a balance is not paid the account is referred for collections. Collections can be done “in-house,” with a designated individual within the practice (not a physician) notifying the patient of the delinquent bill and trying to arrange a payment plan, etc., with the patient. However, even with this system there will be the need to refer certain accounts to a lawyer or bill collecting agency. These businesses will contact the patient and will either collect the monies (and charge the practice a percentage of the collection, usually about 35 percent) or they will seek a legal judgment against the patient, attach their wages, and/or affect their credit rating. Bill collecting is, obviously, one of the less attractive necessities of any medical surgical practice. It must be emphasized that for reasons of goodwill the physician must not be directly involved with the patient with regards to reimbursement issues.
Once income is generated it becomes known as the practice's gross income. This is the overall income prior to payment for any expenses. The first priority with regards to expenses relates to payment of any costs incurred by the practice. This includes rent or mortgage, utilities, computer support, telephone, equipment, furniture, durable supplies, expendable supplies, office insurance, practice insurance, malpractice insurance, employee salaries, medical insurance for employees (including physicians), retirement accounts, entertainment fees, continuing medical education costs, taxes, accounting fees, collection service fees, legal fees, etc. When these total office expenses are deducted from the practice's gross income, the result is called the net income of the practice. This residual is in essence the gross income of the physician(s). While the business expenses may be deductible, depending upon the legal structure of the practice, the net income of the practice is viewed as profit and as such is subject to taxation. Following that taxation, the physician is left with a net personal income. Taxation of the physician salary is, of course, dependent upon the physician's personal deductions, expenditures, etc.
Salary structures for physicians vary from practice to practice. Such structures may be straightforward, such as set and equal salary dispersed on a regular basis (e.g., bimonthly, monthly, etc.). For employees, including employed physicians, such agreed-upon salaries must be paid before the physician(s) who owns the practice is paid. Any residual profits, usually identified every six or 12 months, are either reinvested into the practice or distributed as a salary bonus. The bonus may be distributed according to equal shares or some other formula to owners of the practice, employees, etc. Another scenario is for the physician salaries to be tied into production. In this scenario, the physician who brings in the most gets paid proportionally more than other physicians within the practice. Usually, the expenses of the practice are divided equally among the physicians within the practice, although unequal expenses can be attributed to each physician depending upon their utilization of the practice. Similarly, bonuses can be distributed according to production. Production can be earned as either the work done (reflected in charges) or by the gross income brought into the practice. Most practices utilize the work done/charges model. It is appropriate to inquire as to how production is defined since more established physicians often have better-paying patients than do new physicians. Thus, production based upon charges favors the physician who works the hardest, while production based upon income generated favors the physician who is best established or who does the more expensive procedures.
It is additionally important to understand the term collection rate. This pertains to the rate at which the practice collects its accounts receivable. Thus, a collection rate of 60 percent indicates that 60 percent of the billings are collected and 40 percent are turned over to a collection business. Obviously, the collection rate can be varied by changing the charge per procedure (since the compensation from the insurer does not change, the collection rate will go up if the charge is reduced and will go down if the charge is increased) or by not properly maturing accounts receivable (thereby carrying more or less bad debt). While collection rates can be variable, one should be leery of practices that claim very high rates (greater that 85 percent) or very low rates (less than 35 percent).
While most practices do not readily share financial information with prospective employees (including new physicians), it is fair to ask the following:
- What is the gross income of the practice?
- Grossly, what are the expenses of the practice?
- How are accounts receivable handled?
- What is the collection rate?
- How many and which type of insurance programs does the practice participate in?
- Who oversees the financial aspects of the practice?
A Word about Coding
With the increasing regulation and participation by third-party payers, a unified billing system has been developed. This has been broken down into three components: hospital billing (which you will not be involved with), patient diagnostic coding, and patient procedural coding. Hospitals utilize the Healthcare Common Procedure Coding System (HCPCS). This is a billing system based upon Diagnostic Related Groups (DRGs). Physicians utilize diagnostic codes known as International Classification of Diseases, 9th Revision, Clinical Modification (ICD9CM codes). These codes describe the illness or illnesses attributable to the patient. The actual billing codes are known as the Current Procedural Terminology (CPT) codes. Reimbursement is based upon the correlation between the ICD9CM code and the CPT code. Modifiers may be added to the CPT codes to further explain procedures performed. An example would be when a surgeon repairs bilateral inguinal hernias (ICD9CM code 550.92). Repair of a single hernia is CPT code 49505; repair of bilateral hernias is coded 4950580, 80 being the code for bilateral procedures.
Of interest, when using this modifier the surgeon is reimbursed at a lower rate for the second procedure. If the modifier is not used, the surgeon is not reimbursed for the second procedure. A working knowledge of the coding system is important since it will impact upon patient billing and reimbursements. Acquiring that knowledge is a slow process that is best achieved through direct experience and by attending courses devoted explicitly to coding.
Fair questions to ask when interviewing to join a practice, include the following:
- Who does the coding for patient billing?
- Does anyone review these codes?
- If l do my own coding, will I be taught how to do it and/or can I attend a course about coding?
- Will I be reimbursed if I take a course?
Role of the Hospital
Unless you are in a family practice or have a strict office-based practice, you will probably need to interact with a hospital or similar facility. Hospitals provide space, equipment, and support personnel for the care and treatment of patients. In the distant past these facilities were largely run and controlled by medical persons (doctors and nurses). In the last 25 years, however, medicine has become such a big business that medical personnel have been pushed to the sidelines while the running of the hospital has been taken over by business oriented administrators; this despite physicians remaining the true “first customer” of the hospital (since they bring patients to the hospital). This is not a trend that the medical profession is likely to reverse. As such, it behooves the physician to understand, in the most general of terms, the organization of a hospital.
Virtually every hospital is in some fashion incorporated and governed by a board of trustees or board of directors. The board of trustees is usually composed of members of the local community. Representation by various factions (including some physicians, minority leaders, and community advocates, but mostly business leaders) is designed to hopefully provide a strategic vision for health care for the community. Since board members usually elect their own membership, progress for advancing medical care and anticipating community needs may be skewed.
In addition to strategic planning, the board also grants privileges to physicians who are then enabled to admit and treat patients. The actual running of the hospital is controlled by the administration of the hospital. This is a group of individuals hired by the board to implement and oversee the day-to-day activities of the facility, including most importantly (from their perspective), the financial health of the hospital. The chief administrator, also known as the chief executive officer (CEO) and president of the hospital, is a permanent member of the board. His responsibility is directly to the board. Because of his unique position with regards to running the hospital and providing feedback to the board membership, he will often wield disproportionate influence with regards to strategic planning. The CEO is additionally supported by several “officers” of lesser title (chief operating of officer [COO], chief financial officer [CFO], chief medical officer [CMO], chief nursing officer [CNO], etc.), several vice presidents (senior and junior), department heads, supervisors, coordinators, clipboards, etc. The CEO is also a permanent member of every executive committee (board, administration, medical staff, nursing, etc.) within the facility. In truth, this business structure can be advantageous to everyone, especially patients, as long as there is cooperation between the two major concerns (hospital and medical staff) and there is an understanding regarding the limitations of each.
The medical staff has its own organization and hierarchy. Every medical staff is organized into departments (such as the department of medicine, department of surgery, etc.). Each department elects its own chair (in some facilities, particularly academic institutions, the chair is hired by the board of trustees or university/medical college). The medical staff as a whole elects its own president, vice president, and treasurer/secretary. The responsibility of the president of the medical staff is to represent the interests of the physicians at the board of trustees. The president of the medical staff is a permanent member of the board of trustees. The responsibility of the department chairman is to primarily oversee quality of care issues. Medical staff and departmental positions can consume inordinate time.
As such, financial compensation either from the hospital or from the medical staff (via dues) is common. Positions compensated solely from the hospital can and do lead to conflicts of interests, particularly with regards to issues between the hospital and physicians (such as hiring more nurses or building a new wing on the hospital).
While the foregoing suggests a potential degree of tension between the hospital administration and medical staff, cooperative efforts with open lines of communication can enhance patient care while at the same time improve the overall status of the hospital. Bold but controlled leadership, which includes visionary thinking, is essential. Thus, when inquiring about a practice, one should ask about the following:
- The relationship between the medical staff and hospital administration
- The relationship between the practice and hospital administration
- Positions held (present and past) with regards to medical staff and department officers
- The direction/future plans of the hospital.
Types of Practices
While all practices are in some fashion unique, there are basically two distinct types of practices and one increasingly prevalent blend between these two. The differences can be summarized on a financial basis. The first type involves practices supported by third-party institutions. The second type relates to practices which are wholly self-sufficient (unsupported). The blended practice has the advantages and disadvantages of each major practice type.
Supported practices are required to, in some fashion, provide for reasonable profit for the affiliated institution. Examples of these include academic medicine (which is affiliated with a medical school or university), government employment (with the National Health Service, military, Veterans Health Administration, etc.), medical surgical hospitalist (paid for by the hospital), hospital employed physician (expenses and salaries guaranteed by the hospital but otherwise the practice is run more like a self-sufficient practice), and employment by a health maintenance organization (such as Kaiser Permanente, etc.).
Unsupported practices are usually called “private practices.” There is no direct support or subsidy to guarantee salaries or expenses.
There are numerous advantages and disadvantages to each type of practice. Additionally, what may be considered an advantage by some will be considered a disadvantage by others. Thus, the following comments are offered with no bias intended.
Supported practices usually have guaranteed salaries and benefits (such as facility, supplies, support personnel, insurances, etc.). Despite those guarantees, it is expected that some income will be generated by the physician. In academic medicine, for example, there is an expectation that each professor will develop an area of interest to which patients will be referred for that specific problem. Obviously, treatment of that problem will generate income. This income will be used to offset expenses. Additionally, research will require attaining financial support (grants) from either government or private institutions. Such grants will often fund multiple expenses, including a portion of the professor's salary. Note that the services rendered may be billed by the academic institution or by a separate corporation that represents the academic physician from a financial perspective. Physicians employed by the government do not directly generate income. However, the service provided is usually secondary to an entitlement program or support service for which the government is responsible. As such, salaries are often limited. Other employed positions, including hospitalist and supported practice physician programs, are supported through billings by the employer (hospital, HMO, etc.). If the billings do not support the service with its expenses, that service is usually eliminated. The guarantee of salary, etc., is usually accompanied with limitations on the amount that can be earned. The scope of the practice is similarly often limited. This may be due to specialization (such as hiring a highly specialized surgeon); it is often associated with the location of the practice (usually urban or suburban). The presence of a training program affiliated with a hospital carries with that the rewards of teaching and some clinical coverage; for some, however, this may prove burdensome.
There may be additional requirements with regards to administration, particularly in academic centers. The level of control that a physician has over his or her practice is usually limited. That control is usually assumed by the institution providing support. Finally, on-call and coverage responsibilities are usually similar to those found in a private practice.
Unsupported practices have no guarantees with regards to salary, etc. However, there are greater opportunities to earn increased profits both by direct control over expenses and by increasing volume. Increasing volume can be achieved by offering and marketing financially lucrative alternative therapies (such as varicose vein ablation in the office or breast ultrasonography in the office). Additionally, there is direct control of the practice with regards to marketing, expenses, insurances accepted, patient populations seen, number of salaried employees, decisions regarding full-time versus part-time employees, level of health benefits for everyone, and retirement plans for everyone. This self-sufficiency does have a price: on-call and coverage responsibilities are usually greater and more frequent. A larger volume practice requires more effort and time, especially with regards to the management of the practice. Thus, while the unsupported practice has greater potential for financial gain, it also carries potentially greater responsibilities.
The blended practice is essentially an unsupported practice that is partly subsidized by a third party. An example of this would be a private practice that has a contract with a hospital to provide on-call coverage for the emergency department. Another example would be stipends paid for administrative services. Obviously, additional income for “being on call” is appreciated. Considering that hospitals are often paid more than 10 times the reimbursement rate of a physician, sharing that profit would seem to be appropriate. It benefits both the physician practice and the hospital (by guaranteeing a service will be provided). It must be cautioned, however, that commensurate with these stipends is the expectation by the hospital that the contracted physician or group will support whatever ventures the hospital administration desires to pursue. A conflict of interest may arise when that pursuit is of questionable benefit to the medical staff (as a whole) or to patient care. It must be recognized that while cooperative ventures between hospitals and physicians may greatly benefit all parties, subsidation carries unforeseen risks that can deeply divide a medical staff. That said, with increasing bureaucratic demands on physicians and hospitals and decreasing compensation (particularly for physicians), this particular practice model is becoming increasingly popular and prevalent.
When determining the type of practice one wishes to join, appropriate questions include the following:
- Is the practice supported or self-sufficient?
- Who does the billing for the practice?
- Does the practice control itself?
- What control will I have over various aspects of the practice (specifically my part of the practice)?
- What can I bring to the practice?
- Is the practice in any fashion subsidized by the hospital?
- Do I share in any subsidy (such as additional reimbursement for emergency room call)?
- Will I be expected to teach, conduct research, or provide administrative support?
- What is the relationship of the practice with other practices?
Considering the complexity of a medical practice, particularly with regards to the independent nature of each physician/surgeon, there is no easy formula for determining proper group size. Two factors favor large groups. These are on-call coverage and economy of scale. From all other aspects, a solo practice is preferred. The major advantages of a solo practice include the flexibility of the practice to increase or decrease its scope and diversity, the direct control over expenses, the ease of decision making with regards to both clinical and business problems, the lack of intragroup competition, and the ability to more directly connect and relate to the patient population. The major disadvantage is the physician is always on call, and as such cannot readily take time off. While call-coverage arrangements can be made with other physicians or groups (often requiring reciprocal coverage), patient care may suffer since the patient is not known to the covering physician. This can lead to dissatisfaction on the patient's part with their chosen surgeon/physician. Despite this major disadvantage, it is interesting to note that a relatively large percentage of physicians and surgeons remain solo practitioners.
Increasingly, however, physicians and surgeons are seeking partnerships early in their career. The obvious advantages relate to a built-in, on-call coverage system and to the sharing of expenses. The former is important for maintaining a relatively normal lifestyle with regular time off for family and leisure activities. This advantage cannot be overstressed or overemphasized. The latter is important in that it can help maximize a physician's income by reducing expenses. This is important when one considers the falling reimbursement rates that physicians and surgeons are presently experiencing. In an attempt to maximize the advantages of a group practice with the advantages of a solo practice, the physician/surgeon will probably find that a partnership of two individuals is close to ideal. This presupposes that both individuals have similar philosophies with regards to patient care and business goals. The disadvantage of a two-person group is that on-call responsibilities occur every other day and every other weekend. When one partner is vacationing, the other partner is on call continuously. If, however, both individuals have an amiable relationship and similar practice philosophies the downside of more frequent call may be minimal.
The addition of a third individual to a group or partnership can dramatically alter the dynamics of a practice and the relationships within the practice. Careful consideration in partner selection before adding a third (or more) physician is mandatory. While the distinct advantage relates to more time off, the potential need for increasing the employee staff and the size of the office may offset many of the financial advantages. The additional time off must be viewed with regards to nighttime and weekend call responsibilities. It must be remembered that regular working hours persist. The potential disadvantage of adding a third (or more) individual is decisions that must be made regarding the direction of the practice and its associated business interests are now no longer easily achieved. They must be negotiated between all partners. This may lead to feelings of ill will by one or more of the partners. Any disagreement within the group that is not appropriately and immediately addressed can create relationships within the group that are less than advantageous or healthy. The subsequent loss of respect and goodwill will be noted by patients and referring physicians and may lead to the breakup of the group. As one can imagine, the larger the group the greater the possibility of disagreements. Success in a group requires that each partner must be made to feel that his or her interests are being considered and adequately addressed. Large groups can flourish if these efforts are accomplished. As group size increases, the scope and diversity of the services offered may increase. The members of the group may subspecialize and create their own areas of expertise. This in turn may increase patient volume. It may additionally enhance the flexibility of the group from a financial perspective since more patients with more diverse problems can be seen and treated, translating into greater income. Based upon economy of scale economics, expenses may proportionally be less per individual practitioner. On-call responsibilities may be further reduced insofar as the number of times an individual is actually on call; when on call the covering physician will be busier since he must cover a larger and more diverse patient population. The key to any group larger than two individuals relates to the dynamics between members of the group. Strong leadership with constant effort to maintain fairness and equity is mandatory. Joining a large group requires that any new member learn and understand the dynamics and idiosyncrasies of the group and its members.
It is interesting to note that most large groups are found in subspecialty practices such as orthopedic surgery, cardiology, plastic surgery, otolaryngology, etc. In these large groups, usually each individual specializes in a particular area. For instance, in orthopedic surgery there may be specialists in joint replacement, trauma, or sports medicine. Additionally, large groups are difficult to compete against, particularly if they have hospital support (financial or otherwise).
Considerations when joining any group of any size include the following:
- Size of the group
- What do I bring to the group?
- What does the group expect of me?
- Frequency of call/coverage
- Meet all the partners
- Vision of the group for patient care
- Vision of the group for future expansion
- Reimbursement for full partners (equal split versus production)
- Will I be initially treated as employee or as a partner (salary, etc., notwithstanding)?
- Relationship of the group with competitors
- Voting rights within the group
The most important time spent in considering a practice relates to any interview that a prospective candidate has with the established practice. There are several types of interviews. The most common interview is not routinely thought of as an interview. This occurs between a resident and attending physician during training. (This is something that the resident should consciously attempt, if only to learn about practice types and to hone interview skills.) Both individuals are evaluating each other consciously or subconsciously. The positive and negative impressions give each the opportunity to consider the type of individual with whom they would like to work. Even if this does not result in a formal or informal discussion regarding job opportunities, it does give guidance as to the type of individual and/or type of practice with which each would like to be associated. Identifying this information is crucial to making the correct decision in selecting a practice.
The interview is a two-way discussion during which an impression is made by each side. The established practice will be looking for an individual that is compatible with the goals already set forth by that practice. The ability of a new employee to work within the practice and to bring additional support to the practice is crucial. The individual seeking employment must identify several important factors since this decision will profoundly affect his or her life for the foreseeable future. Initial questions should relate to the scope and diversity of the practice. Questions regarding growth potential for the practice are crucial in that it gives a prospective employee a picture as to the future and direction of the practice. Within this discussion, the prospective employee can identify his or her role for participating in practice goals (this also allows the individual to determine whether he/she has the ability or desire to fulfill those goals). These initial points will give an impression with regards to the needs, strengths, and weaknesses of the practice. If there seems to be compatibility between the individual and the practice, the discussion should proceed to what the perceived responsibilities of the new employee will be. This should include discussions regarding the on-call schedule, emergency room responsibilities, clinic responsibilities, administrative responsibilities, and operating room responsibilities. Further discussion should delve into benefits, with special attention to salary, any potential or projected bonuses, financial expectations, vacation, continuing medical education (including time to pursue this), support for taking board examinations, health-care benefits, malpractice, and retirement benefits. One should also inquire as to the degree of responsibility for practice expenses. Some practices have restrictive covenants within the employment agreement (this is a statement in the contract that attempts to keep an individual from leaving the group and practicing within a certain distance of the group; these are often illegal). The prospective employee should ask about the ability to keep any income earned from outside of the practice (such as fees for speaking engagements, legal counseling, expert witness, etc.). The term of the contract should be specified. Questions regarding the future following completion of the contract should also be addressed (i.e., will partnership be offered, will employment continue, will salary increase, etc.). Every effort should be made to meet and talk with all members of the group, including the office manager and office staff. The relative satisfaction of the employees within the office should be noted. With completion of the interview, every effort to leave with a positive remark should be made.
Additional interviews should be undertaken. These should include discussions with hospital administrators and, if possible, referring physicians. The prospective employee needs to have a feeling for the community and needs to determine if the hospital and the practice have a vision with regards to future enhancement of patient care. If this vision is lacking, or if there are no signs of growth or expansion of services (not necessarily facility), attempting to establish oneself in the community may be difficult.
A candidate may run into terminology that is confusing. The first relates to malpractice insurance. There are two types of malpractice insurance: claims-made insurance and occurrence insurance. Claims-made insurance is initially less expensive. While its cost will increase over time, it will usually be less than occurrence insurance. However, when leaving the group (and thus dropping the insurance) the individual will be assessed a prior acts insurance policy or “tail insurance.” This policy, which is usually quite expensive, covers the individual for any malpractice claims that are brought after the date of leaving the practice. It is carried at the last rate of insurance (e.g., if the last rate of coverage was $1 million per occurrence, $3 million per year [three occurrences], the tail insurance will also carry that rate). Occurrence insurance is more expensive but has no need for a prior acts policy (or “tail”). The reason for this is the occurrence policy has the prior acts insurance included in its yearly premium. Any malpractice claim brought after leaving a practice will be covered at the rate of the insurance policy at the date of the alleged malpractice (e.g., if the rate of coverage was $100,000 per occurrence, $300,000 per year [three occurrences] at the time of the alleged malpractice, and the individual retired with a $1 million/$3 million policy, coverage would only extend for $100,000/$300,000). A prospective employee should confirm both the type of insurance and its limits during the interview. It is not inappropriate to ask if there have been any malpractice cases directed toward the group (although one should be careful as to how this is approached).
Fairly frequently a prospective employee, and as such a prospective partner, will hear the term “buy in.” This describes a requirement placed upon the joining individual (after completion of the contract term) in which the individual literally pays the practice to become a partner. It is at times described as buying one's accounts receivable and distributing those monies to the partners over a period of years (usually one to five) to show “goodwill” toward the practice. It may also include buying a percentage of the practice's hard assets (building, equipment, outpatient surgical center, etc.). It may even be stated that this is to offset expenses incurred when the individual was initially hired. Payments are calculated in a variety of ways and are deducted from the regular paycheck. An individual is not truly a partner until all payments are made. Essentially, this is an indentured service from which the established partners. It is unfortunately very common. Of interest, in most successful practices the newly employed physician will have paid for his expenses, including his salary, within the first year. Whether to agree to a “buy in” is a personal decision. However, it is usually not negotiable and, as such, may significantly affect the decision as to whether to join a particular practice.
The “buy in” should not be confused with a “buy out” provision. This is essentially a retirement fee that a full partner is given when he leaves the practice. It usually requires the practice to buy back the partner's share in the hard assets of the practice and pay the partner for his or her portion of the outstanding accounts receivable. Thus the departing partner gets a return on his or her investment in addition to a return of recent earnings.
During the interview, you should do the following:
- Ask about salary and benefits
- Ask about political and practice responsibilities
- Ask about restrictive covenants
- Ask to meet all the partners
- Observe the workings of the office
- Inquire about the future after the contract period
- Ask about “buy in” and “buy out” scenarios
- Ask about obligations if you do not stay with the practice
- Present as positive an impression as possible
- Be truthful
Setting Up a Practice
Most of this book is oriented toward understanding the nuances of joining an already established practice and understanding some of the important aspects of the business of medicine. However, for some a solo practice may be both desirable and appropriate. This has already been alluded to above in the section regarding group size. Setting up a practice can be a daunting experience. It first must be accepted that the advantages of a partnership or group (on-call coverage and economy of scale) are lost. While arrangements between individuals or groups can be made for coverage, any negative patient experience can have a deleterious effect on a practice (particularly a new practice). Sharing office space and/or expenses can reduce financial burden. However, this may compromise both patient and physician access to an office. While this can usually be accommodated, the result is a pseudo-partnership that may or may not be conducive to one's practice. With these considerations, establishing an independent practice may be ideal.
Each practice, particularly with regards to individual or specific medical specialty, has its own requirements. The needs of a family medicine practice are different than the needs of a surgical practice. During training, the requirements to run a practice should become evident. Discussing practice requirements with an established physician (such as a professor, attending, or instructor) can be of great help. With these observations and help, the new physician should take time to compile a detailed list of whatever he or she believes to be necessary to provide appropriate patient care. This should be done well in advance of completion of one's training. Despite significant variability between practices and specialties, there are several common requirements. The most important of these requirements relates to employees. Because of that importance that discussion will be reviewed in detail last.
Most clinicians (physicians who actively see patients) require a facility or office. Considerations regarding an office include its location, its size, and its cost. Location is important in that the office must be easily found by patients, reasonably close to a hospital (particularly if the physician practices in the hospital), safe for patients and staff, externally visually pleasing, and accessible for handicapped individuals. It should have adequate parking. An office should be of an appropriate size to accommodate the needs of the practice. This usually means office space totaling more than 1000 square feet. An office will require a reception area/waiting room, examining rooms (at least two or three), at least one bathroom, possibly a procedural room (particularly for a surgical practice), a personal office, a work area for employees, a kitchen or lounge for employees, and appropriate storage space. Employee work areas may be multiple or combined, although there should be enough room for the various employees to perform their tasks without bothering each other. The cost of an office will depend upon several factors, including its location, size, and age. A decision regarding whether to buy an office (thereby owning it, as an investment and a potential tax deduction) or rent an office (usually less expensive initially, but without investment potential) must be made. Once an office is selected it may require some interior decorating. This may include reconfiguration of the floor plan, additional plumbing or electrical connections, or improved heating/air conditioning. It will almost assuredly require painting and possibly new floors.
The office should be made to appear as bright, cheerful, and warm as possible. Coordination with appropriate furniture is desirable. This includes chairs and tables in the reception area and employee lounge, appropriate desk space in the employee work area with supportive chairs, examining tables with at least one chair and one stool in each exam room, and enough shelf space/bookcases to hold files, books, etc. Filing cabinets may also be necessary. A fireproof, lockable safe of adequate size is necessary for storing important documents and money.
Equipment purchased by a practice is divided into consumable and nonconsumable supplies. Consumable supplies are those that require regular replenishment. They include patient drapes/gowns, gauze, tongue blades, cotton swabs, bandages, syringes, needles, paper, ink cartridges, pens, pencils, lubricating jelly, tape, sterilizing packets, skin preps, knife blades, sutures, local anesthetics, file folders, electrocardiograph (EKG) equipment, etc. Nonconsumable supplies include equipment such as computers, fax machines, printers, blood-pressure cuffs, stethoscopes, flashlights, mirrors, EKG machine, sterilizer, refrigerator, microwave, etc. Obviously, there will be some variability with regards to the supplies with respect to the type of practice or specialty.
Contracts with various insurers will need to be negotiated and completed if the physician decides to accept medical insurance. Medicare will not negotiate a fee schedule but will require credentialing prior to accepting any patient charges (and thus issuing any reimbursement). This credentialing process, along with most private insurance companies’, often takes three to six months to accomplish. Medicaid also requires credentialing but it is usually much more quickly accepted. Companies universally require credentialing. Fee schedules can often be negotiated with the private insurance companies. Usually, however, the reimbursement rates will be close to or slightly higher than Medicare. The credentialing process is similar to that required when applying for privileges at a hospital or medical facility. Proof of licensure, completion of training, letters of reference, and proof of malpractice insurance are often required.
Malpractice insurance will need to be purchased. This is usually done through an independent agent but can also be obtained from the insurer directly. The types of malpractice insurance, claims-made insurance, and occurrence insurance, have been discussed in the section titled “The Interview.” Other insurances which will be necessary (and can often be obtained through a medical support organization such as the American College of Surgeons, American Medical Association, etc.) include office liability insurance, unemployment insurance, fire and hazard insurance, disability insurance, life insurance, medical/health care insurance. Office liability insurance is necessary to protect the practice should a patient or employee be injured in the office. Unemployment insurance is often a requirement of the state. Fire and hazard insurance is usually required on any commercial structure. Disability insurance (for the physician) is necessary to insure that expenses are covered should the physician become ill or disabled. Similarly, life insurance provides practice protection should the physician die. Medical/health care insurance is for all employees and the physician. Additional insurances can be considered (such as “key man” insurance; this is to ensure that the practice is financially covered if a key employee, such as the billing person, is out of work for an extended period of time). Insurance packages are often offered at substantial savings.
Contracts for important support services will need to be accomplished. These include an answering service, cleaning service, collection service, the patient service, telephone service, computer support, internet access, accounting service, pager service, and retirement-investment service. The cost of these will vary according to their utilization. For example, if the office is paperless (has electronic charts and/or utilizes electronic billing) the costs for computer support will increase. Dictation services may be unnecessary if all dictations can be accomplished through the computer system. Retirement and investment services usually are not necessary the first one or two years since the physician must accumulate substantial income before implementing retirement plans or investment. The most important part of a medical practice relates to the employees of the practice. Their satisfaction with their particular job will be reflected in their job performance. Happy employees make a practice more profitable. Their satisfaction is readily appreciated by patients. Two key components to that satisfaction are directly in the control of the physician. The first is to treat all employees with respect and to make them feel as if they are part of an important team whose job it is to maximize the welfare of the patient. The second is to pay all employees an appropriate salary for their efforts. A little generosity will be greatly appreciated and will be reflected in kind. That generosity includes occasional bonuses. Additionally, all employees should be paid promptly and before the physician receives any reimbursement.
Generally, there are two types of employees. The first is the full-time employee. This individual receives not only an appropriate salary but also receives an adequate benefit package. This package should include adequate vacation, medical insurance, access to a retirement plan, and allowances for business related expenses. The second is the part-time employee. This individual receives an adequate salary but usually does not participate in the benefit package available to the full-time employee. Obviously, part-time employees are less expensive. They are also often less loyal to and less involved with the practice.
The number of employees in any one practice depends upon the volume of patients and the complexity of the practice. Additionally, some employees are able to assume more than one role within the practice. These employees should be additionally compensated. Examples of employees normally found in a practice include a receptionist, a secretary, a nurse or medical assistant, a person knowledgeable with billing procedures and insurance programs, and a typist or computer specialist. In a solo practice it is unnecessary to have a true office manager since the physician normally assumes that role.
Selection/hiring of employees can be difficult in that the physician must now become the interviewer. This will require the physician to determine qualifications and experience and ask any prospective candidate why they are seeking employment with this practice (and why they are leaving a previous practice). Public advertising will often result in multiple applicants. However, whether they are adequately qualified will be an important issue. Experience is a premium in any job, but particularly in the medical profession. Experience with the medical terminology, the nuances of insurance companies, billing, reimbursement procedures, diagnostic and procedural codes, credentialing, and previous experience interacting with patients are all important considerations. If possible, it is preferable to hire someone with experience. If that is not possible, an inexperienced employee who is enthusiastic and teachable can learn the necessary requirements from experienced individuals from another practice. Colleagues will often volunteer (if asked), for a price, the services of their personnel for the purposes of that teaching. Truly experienced individuals that are available usually require personal and direct contact to discuss moving from one job to another. Often these individuals will make that contact on their own.
Support from the employees/office staff can “make or break” a successful practice. Once a successful working relationship is developed within a staff, every effort should be made to maintain a positive rapport with and between all members of the staff. This will require careful oversight by the physician. Regularly scheduled staff meetings to discuss any problems should be diligently attended. This can be done over lunch or dinner. Spousal interaction should be considered. The physician support of his staff is crucial to a smoothly operating practice. If the physician supports the staff, the staff will support the physician.
If, however, problems arise with regards to job performance or personality conflicts within the office, the physician, as owner of the practice, must assess the situation and move appropriately and quickly to correct any problems. Occasionally this may require releasing one or more employees.
The overall cost related to establishing a practice can initially be significant, particularly since it will take several months to achieve an adequate gross income. Practice loans will undoubtedly be required. These are usually attained from local banks or financial institutions. The initial loan will probably exceed $150,000. This will pay for the initial office expenses, including salaries. Within three months of the opening of the practice the gross income should be increasing to the point that further loans are unnecessary. However, it may require an additional three months before any loan can be repaid, and then possibly only on a partial basis. The local banking institutions will usually have some experience with this, particularly with regards to the community in which the practice is being opened. Frank discussions with the loan officers can give a physician insight into the prospective success of a practice vis-à-vis the needs of the community. These discussions should be held prior to any significant financial commitments.
Once a practice has been established/opened, communication with potential referring physicians and the community in general is mandatory. Marketing through the local media, speaking engagements, direct contact with physicians (especially after seeing a patient/consultation), and joining local community institutions (churches, service organizations, etc.) should be utilized to make the public aware of the services offered by the new practice. Continuation of this marketing, coupled with a growing reputation for good quality care, will further enhance the success of a practice.
The Successful Practice
Despite each of us being individuals, there are certain common characteristics that can enhance the development of a successful practice. While easily stated, the actual development of these characteristics requires constant adjustment and fine-tuning. Specifically, relationships between prospective partners, competitors, referring doctors, the emergency department, operating room personnel, hospital administrators, nursing staff, support personnel, and (most importantly) patients must be carefully nurtured and developed. The three A's (availability, affability, ability) still apply. Of these, availability may be the most important. Ease of access to care for patients and referring physicians is absolutely necessary to build a successful practice. Being agreeable and communicative is also crucial. Patients and referring physicians would much rather deal with a personable and seemingly enthusiastic physician/surgeon than an ogre. Similarly, nurses and administrators are much easier to deal with when there are no perceived hostilities. Ability is probably (and surprisingly) the least important of this triad. Knowing one's limits and capabilities is imperative for assuring proper patient care and avoiding preventable morbidities or mortalities. There is no shame in recommending a second opinion or a transfer of a patient to a tertiary care center for a complicated problem. This will be appreciated by both the patient and the referring physician. This implies a degree of humility is something which all of us need to at least occasionally acknowledge and practice.
Other factors do contribute to practice success. These include keeping referring physicians and consultants aware in a timely manner of a patient's clinical course, discussions with a patient's family, and discussing options for care with all physicians involved. This gives the impression of a “team approach.” Referring physicians will appreciate this, as will all members of the patient's care team (including nurses). The welfare of the patient remains the prime consideration. Only through it can a physician or surgeon find contentment. Developing respect for one's colleagues, including competitors, will also enhance a physician's status and will help disarm many of one's critics. However, understanding the nuances of the business of medicine and the idiosyncrasies of running a practice are of near equal importance to establishing and maintaining a successful practice.