Being “in the know” isn’t easy.  Knowing all of the elements that go on within a private practice, or any small company for that matter, can appear to be a daunting task, if not impossible.  As such, delegation takes a prominent role in the management of many important matters responsible for the sink or swim of small healthcare practices, replacing owners’ ”in the know” with “in the dark.”

For any practice owners that think that there are aspects of their businesses that are above (should be taken care of by other partners, practice administrators, consultants, etc.) or below (should be delegated to lower paid or more specialized staff) them, they’ve got another thing coming…and it’s likely not good.

Not knowing how money is spent, decisions are made, or customers are treated can only lead in the wrong direction.  It is not above or below us in the role of practice owner, CEO, or VP to know these things, and it is quite important that we do.

Here is a great example from the Atlanta Journal-Constitution, of the new Grady hospital CEO who has taken it upon himself to be “in the know” within the first few weeks on the job.  He’s charged with a large task - turning around a $740 million budget to save the failing health system that’s been in the red for years - and he’s addressing it not behind a pencil, podium, and PowerPoint presentation that speaks of great vision and execution (well, he might be doing that too, actually).  But he’s doing it by sifting check by check through expenses made during a single week in July.  “‘The best way to figure out what’s going on is to look at the checks,’ he said, noting that he now has made this mini-audit a weekly practice.”

Let’s not forget that if we own the business, it’s ours.  And knowing what’s going on in our business is our responsibility, no matter how far above or below us the tasks may seem.

Good luck to Michael Young and Grady Memorial Hospital.

This is not the usual work of a hospital CEO, especially one overseeing a medical megalopolis like Grady Memorial Hospital. Grady operates a 600-bed hospital, 60 specialty clinics and its own nursing home. It has 4,800 employees and serves as metro Atlanta’s top level trauma center and last refuge of care for the poor.

The Grady health system also runs deficits of up to $40 million a year, so saving money is a priority of the CEO, who officially started work Sept. 2.

Young hit upon checks that shocked him, such as the $100,000 one-week payment for temporary employees, including nurses and X-ray technicians. Not only did Grady have to pay the temp agency — some of the temp nurses made more than a staff nurse, he said.

In healthcare finance, numbers are - unfortunately - a game.  As much as we’d all like to focus on the practice of quality care and little else, the amount we charge for services and the amount we are paid are distinctly different concepts, and therefore must be understood (better yet, managed) as such.

Fee schedules upon which payments for services are (loosely) based, must be higher than the amounts allowed by each payer if a practice is to maximize their revenue.  You can rest assured that an insurance company is never going to whisper into your ear, “achem…you know you can charge a bit more for that,” or better yet, “you’re charging less than we’ll pay, so we’ll give you the higher of the two.”  This isn’t the way it works, or will ever work.  Practices must look out for themselves, and must keep on top of payer contracts on a regular basis to make sure that they are getting paid to the extent allowed.

Now, the difference between the fee schedule and the allowable amount creates a game of sorts (I prefer backgammon myself) when managing practice financials.  Because the fee schedule can generally be what you’d like it to be, as long as it’s above the allowable amounts, this can inflate (or deflate) gross revenue (total charges based on the fee schedule) depending on where it sits in relationship to the allowed amounts.  Net income will be the same, but there can be wide swings in the amount of revenue “discounted” which can be confusing to the practice owner if not entirely understood.

In this post, Peter Lucash over at the Medical Practice Business Blog makes the point that fee schedules must remain consistent with what services are worth, AND be higher than the allowable amounts per payer contract.  By doing so, an accurate representation of the value of services provided as well as the “value” (or lack thereof) of certain contracts can be properly evaluated.

Some disagree with billing at full (private) fee as an exercise in self-deception. But it’s not – it reflects what your services are worth, and what some patients are undoubtedly paying. Financial statements always have to be in context, which is why any footnotes are very important.

I love working with numbers to model sound business decisions for healthcare clinics.  I haven’t always been that way, and in fact it wasn’t until after business school was well underway that I began to understand how truly important numbers are to making good decisions.

One of the most valuable concepts I learned in business school is the concept of opportunity costs.  Opportunity costs are the costs associated with the “opportunity” foregone when decisions are made, or resources are allocated to a certain area - necessitating that those same resources can no longer be applied elsewhere.  By nature, opportunity costs are easily obscured, and for those unfamiliar with the concept, poor decisions can be made in the absence of an opportunity cost analysis.

This concept has tremendous applicability in business, and especially in healthcare.  As the industry becomes more resource intensive and as reimbursement for healthcare services dwindles, making the right decisions about the allocation of resources is critical to the survival of healthcare practices.

I published an article on this topic in Advance for Directors in Rehabilitation that I’d like to share with you here.  The article goes into detail about the concepts that underlie the definition of opportunity cost as well as some practical examples of using opportunity cost analysis to make good business decisions in private practice healthcare.  The principles apply whether your business is a medical clinic, physical therapy practice, dental facility…or even a used car lot.

Opportunity cost is the trade-off associated with a decision or purchase-something that must be given up in order to get something else. Stated differently, opportunity cost is the cost related to not putting your resources to their best alternative use. When speaking of purchases or monetary decisions, the monetary cost of something plus the opportunity cost yields the true cost of the decision.