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The Ideal (Financial) Practice


It would help if we had some reasonable idea of what our potential as business owners and professional employees could be. We know that medical practices leak money, but how much? Maybe we're not as far off the mark as we thought.

When we grouse about all the problems of running a medical practice and our personal financial situations, we seldom stop to think about what the benchmark for "success" is. I'm not talking about pie-in-the-sky incomes, but rather like the "best practices" that we are getting used to thinking of in terms of medical matters. Realistically, it would help if we had some reasonable idea of what our potential as business owners and professional employees could be. We know that medical practices leak money, but how much? Maybe we're not as far off the mark as we thought, or if we are, it helps to know how far and in what area(s) we can improve.

Before we really engage, let's acknowledge that we are looking at finances only; most of medical practice and living our lives, hopefully, is not focused upon our financial affairs alone.

Let's look at the supply side first. We'd all like to have full schedules, without no-shows and/or people who show up on time, and those who we can discharge on time. But none of these things can or will happen. Urgencies do occur in peoples' lives and in every kind of specialty, both leading to and preventing visits. So we should have an adaptive schedule to allow for both planned appointments and same day visits.

Average benchmarks are a 3% no-show rate for same day appointments, and up to 40% don't show for those made far in advance. I know many of you view no-shows as a welcome respite and chance to catch up. Unfortunately this kind of relief is a tacit admission of dysfunction. If your no-show rate is above average, that fact costs you money...a lot of money (do the math). Calling or mailing reminders reduce the numbers of no-shows, but that may not be cost effective, depending upon the method used.

And wouldn't it be grand to have every patient pay cash-in-full for your directed charge at the time of each visit? Perhaps to bill their insurance on their own, with all of the hassles and expense we now face? Not gonna happen. Never did happen, actually. And one small note of compensation, having an accounts receivable does act as a cushion for interruptions in production, like vacation, illness or seasonality.

Billing is an endless headache. Can you at least know that you're doing as well as can be expected? Because there is so much local variation in coverage, I'd hire a consultant to see if you are doing as well as the local benchmark numbers for your practice demographics can be determined. It would also be nice if we could establish and fully receive our own fees, but Medicare and managed care have put paid to that. And worse, as I have catalogued in these pages previously, the medical community at large is, in effect, subsidizing the American insurance industry by allowing them to delay, deny, and reduce our fees.

High overhead is another bugaboo we're not especially deft with. Medicine is a service business, so our number one expense is people. And trained people are in demand as the population grows and the demand for access to medical care grows. Altruistic or not, they (and we) expect to be paid for professional efforts, which in healthcare often go beyond the demands of the average job. Paradoxically, hiring extra help is the key to greater income and better service, not "getting by" with fewer staff. Primary care, the poster child for high overhead, averages 2-3 staff per doc and the best ones I've seen have more, especially if you have extended hours, often another better service and profit strategy.

Group purchasing, through your medical society or hospital, with just-in-time delivery, shopping all the various insurances annually (!), reviewing CPA, lawyer, insurance agent and financial advisor annually (!), phone services annually (!), and so on, can help manage costs. After your review, either you will be reassured that you're doing reasonably well in managing your costs, or you'll have a better idea of areas needing improvement.

You could just ask, "How much does the average doc in my specialty in my area make?" That info is available in a variety of places but it's of limited utility. We vary so much in our goals and methods that you need to be careful about drawing too broad a conclusion from this comparison. I'm pretty sure that most of you have a general idea of what you make in comparison to your area and specialty peers. And those of you who make 50% less or 50% more than your peers probably know exactly why and what the implications are.

My goal in sketching over this subject is to ask you to stop your fretting for a moment and simply think: How much money am I making, what am I doing to get it and do I have a realistic reason to expect differently? I am guessing that even given the skewed incentives in our dysfunctional medical business model, most of us are doing ok and about where we think we should be. Even considering that psychological studies have shown that people always think they want/need/deserve $XXXX more, especially if we are assured that it is more than our neighbor.

If, after all that, we are still disgruntled, the suggestions above, and others in PMD, can make a difference on the margin. Do keep in mind that it does help the blood pressure to recall that, in medical practice and medical finance, as in all areas of life, "perfect" is the biggest obstacle to actual success.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice