Career and Life Planning Guidebook for Medical Residents

Understanding The Other Side of Medicine Carow estimates that a hospital that wants to main- tain its impact relative to other hospitals and clinics in the community needs to grow its net assets (‘profit’) by greater than 7% per year. To grow its market share and impact in the community it requires greater than 7% growth in net assets. To do this, managers and physician leaders must understand the fin- ancial health of the organization. Without properly balancing the needs of their constituents today with the needs of future constituents, not-for-profit firms will become a much smaller part of our future communities, depriving the next generation of the important benefits that non-for-profits provide. R E A D : Tracking Business Performance Now that you hopefully recognize the importance of managing a healthcare organization using tools from the business world, let’s dive into some of the details of effective business management. Physician leaders need to understand how dollars flow through the organization, and how revenues, expenses, and profits are determined. Accounting provides the language necessary to learn and track the performance of the organization. How Physicians Generate Revenue A coffee shop generates revenue by selling coffee and other products at prices it determines. The total revenue for a coffee shop in a day is the number of drinks it sells multiplied by the prices it charges for those drinks. Most physician revenue is generated in a similar manner, with the physician providing services to patients in a fee-for-service model. Fee- for-service is a system where healthcare providers are paid based on the quantity of procedures they provide, at prices negotiated between the provider and the payer. Under this model, physicians can generate more revenue only by either providing more services to patients or earning higher prices (reimbursement) for their services. As noted above, reimbursement levels for clinical services are determined by a contract between the payer and the healthcare provider. In practice, physicians often have little negotiating power in these arrangements. The largest payers in the US are Medicare and Medicaid, who determine reimbursement levels for services. Healthcare organizations must accept those payment levels, or else choose not to participate in the network and not treat those patients. In some cases, physician groups may have more ability to negotiate prices with third-party insurance networks. However, these networks are often quite large and powerful, leaving small andmedium sized groupswith limited 121 WWW.PHYSICIANCAREERPLANNING.COM