Assignment:
Exercises:
- Why should program evaluation be used for public health and not-for-profit institutions in the development of adaptive strategies?
- Explain the strategic position and action evaluation (SPACE) matrix. How may adaptive strategic alternatives be developed using SPACE?
Professional Development:
Case Study #8: “Dr. Louis Mickael: The Physician as Strategic Manager”
Develop an environmental assessment and an internal capabilities analysis using decision support tools that have been introduced in this module (such as PLC analysis, BCG portfolio analysis, SPACE analysis and so on). Analyze alternative strategies to include pros and cons of each alternative, then conclude with a recommended strategy and brief implementation plan.
CASE 8: DR. LOUIS MICKAEL590
By the early 1980s, costs to provide these health care services reached epic proportions; and the financial ability of employers to cover these costs was being stretched to breaking point. In addition, new government health care regulations had been enacted that have had far-reaching effects on this US industry. The most dramatic change came with the inauguration of a prospective payment system. By 1984, reimbursement shifted to a prospective system under which health care providers were paid preset fees for services rendered to patients. The procedural terminology codes that were initiated at that time designated the maximum number of billed minutes allowable for the type of procedure (service) rendered for each diagnosis. A diagnosis was identified by the International Classification of Diseases, Ninth Revision, Clinical Modification, otherwise known as ICD-9-CM. The two types of codes, procedural and diagnosis, had to logically correlate or reimbursement was rejected. Put simply, regardless of which third-party payor insured a patient for health care, the bill for an office visit was determined by the number of minutes that the regulation allowed for the visit. This was dictated by the diagnosis of the primary problem that brought the patient into the office and the justifiable procedures used to treat it. These cost-cutting measures initiated through the government-mandated prospective payment regulation added to physicians’ overhead costs because more paperwork was needed to submit claims and collect fees. In addition, the length of time increased between billing and actual reimbursement, causing cash flow problems for medical practices unable to make the procedural changes needed to adjust. This new system had the effect of reducing income for most physicians, because the fees set by the regulation were usually lower than those physicians had previously charged. Almost all other operating costs of office practice increased. These included utilities, maintenance, and insurance premiums for office liability coverage, workers’ compensation, and malpractice coverage (for which costs tripled in the late 1980s and early 1990s). This changed the method by which government insurance reimbursement was provided for health care disbursed to individuals covered under the Medicare and Medicaid programs. Private insurors quickly adopted the system, and health care as an industry moved into a more competitive mode of doing business. The industry profile differed markedly from that of only a decade earlier. Hospitals became complex blends of for-profit and not-for-profit divisions, joint ventures, and partnerships. In addition, health care provided by individual physician practitioners had undergone change. These professionals were forced to take a new look at just who their patients were and what was the most feasible, competitively justifiable, and ethical mode of providing and dispensing care to them. For the first time in his life, Dr. Mickael read about physicians who were bankrupt. In actuality, Dr. Charles, who shared office space with him, was having a financial struggle and was close to declaring bankruptcy.
The last patient had just left, and Dr. Lou Mickael (“Dr. Lou”) sat in his office thinking about the day’s events. He had been delayed getting into work because
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a patient telephoned him at home to talk about a problem with his son. When he arrived at the office and before there was time to see any of the patients waiting for him, the hospital called to tell him that an elderly patient, Mr. Spence, admitted through the emergency room last night had taken a turn for the worse. “My days in the office usually start with some sort of crisis,” he thought. “In addition to that, the national regulations for physician and hospital care reimbursement are forcing me to spend more and more time dealing with regulatory issues. The result of all this is that I’m not spending enough time with my patients. Although I could retire tomorrow and not have to worry financially, that’s not an alternative for me right now. Is it possible to change the way this practice is organized, or should I change the type of practice I’m in?”
Practice Background When Dr. Lou began medical practice the northeastern city’s population was approximately 130,000 people, most of whom were blue-collar workers with diverse ethnic backgrounds. By 1994, suburban development surrounded the city, more than doubling the population base. A large representation of service industries were added, along with an extensive number of upper and middle managers and administrators typically employed by such industries.
Location
Dr. Lou kept the same office over the years. It was less than one-half mile from the main thoroughfare and located in a neighborhood of single-family dwellings. The building, constructed specifically for the purpose of providing space for physicians’ offices, was situated across the street from City General, the hospital where Dr. Lou continued to maintain staff privileges. Three physicians (including Dr. Lou) formed a corporation to purchase the building, and each doctor paid that corporation a monthly rental fee, which was based primarily on square footage occupied, with an adjustment for shared facilities such as a waiting room and rest rooms.
Office Layout
One of the physicians, Dr. Salis, was an orthopedic surgeon who occupied the entire top floor of the building. Dr. Lou and the other physician, Dr. Charles, were housed on the first floor. Total office space for each (a small reception area, two examining rooms, and private office) encompassed a 15′ × 75′ area (see Exhibit 8/1). The basement was reserved for storage and maintenance equipment. The reception area and each of the other rooms that made up the office space opened on to a hallway that Dr. Lou shared with Dr. Charles. The two physicians and their respective staff members had a good rapport; and because the reception desks opened across from each other, each staff was able to provide support for the other by answering the phone or giving general information to patients when the need arose.
PRACTICE BACKGROUND
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The large, common waiting room was used by both physicians. After reporting to their own doctor’s reception area, patients were seated in this room, then paged for their appointment via loudspeaker. Dr. Charles was in his mid-forties and in general practice as well. His patients ranged in age from 18 to their mid-eighties, and his office was open from 10:00 A.M. until 7:30 P.M. on Mondays and Thursdays, and from 9:30 A.M. until 4:30 P.M. on Tuesdays and Fridays; no office hours were scheduled on Wednesday. He and Dr. Lou were familiar with each other’s patient base, and each covered the other’s practice when necessary.
Staff and Organizational Structure
Dr. Lou’s staff included one part-time bookkeeper (who doubled as office manager) and two part-time assistants. The assistants’ and bookkeeper’s time during office hours was organized in such a way that one individual was always at the reception desk and another was “floating,” taking care of records, helping as needed in the examining rooms, and providing office support functions. There were never more than two staff people on duty at one time, and the assistants’ job descriptions overlapped considerably (see Exhibit 8/2 for job descriptions). Each staff member could handle phone calls, schedule appointments, and usher patients to the examining rooms for their appointments. Although Dr. Lou was “only a phone call away” from patients on a 24-hour basis, patient visits were scheduled only four days a week. On two of these days (Monday and Thursday) hours were from 9:00 A.M. to 5:00 P.M. The other two were “long days” (Tuesday and Friday), when office hours officially were extended to 7:00 P.M. in the evening, but often ran much later.
Front Desk Treatment Room 1
Treatment Room 2
Private Office
Dr. Charles’ Office Space
Front Door
Common Waiting Room
75′
15′
Job Description: Bookkeeper/Office Manager In addition to responsibility for bookkeeping functions, ordering supplies, and reconciling the orders with supplies received, this person knows how to run the reception area, pull the file charts, and usher patients to treatment rooms. In addition, she can handle phone calls, schedule appointments, and enter office charges into patient accounts using the computer.
Job Description: Assistant 1 The main responsibility of this position is insurance billing. Additional duties include running the reception area, pulling and filing charts, ushering patients to treatment rooms, answering the phone, scheduling appointments, entering office charges into patient accounts, and placing supplies received into appropriate storage areas.
Job Description: Assistant 2 This is primarily a receptionist position. The duties include running the reception area, pulling and filing charts, ushering patients to treatment rooms, answering the phone, scheduling appointments, entering office charges into patient accounts, and placing supplies received into appropriate
The fifth weekday (Wednesday) was reserved for meetings, which were an important part of Dr. Lou’s professional responsibilities because he was a member of several hospital committees. He was one of two physicians residing on the ten-member board of the hospital, and this, along with other committee responsibilities, often demanded attendance at a variety of scheduled sessions from 7:00 A.M. until late afternoon on “meetings” day. Wednesday was used by the staff to process patient insurance forms, enter patient data into their charts and accounts receivables, and prepare bills for processing. When paperwork began to build after the PPS regulations came into effect in the 1980s, patients had many problems dealing with the forms that were required for reimbursement of services received in a physician’s office. It was the option of physicians whether to “accept assignment” (the standard fee designated by an insurance payor for a particular health care service provided in a medical office). A physician who chose to not accept assignment must bill patients for health care services according to a fee schedule (“a usual charge” industry profile) that was preset by Medicare for Medicare patients. Most other insurances followed the same profile. Dr. Lou agreed to accept the standard fee, but the patient had to pay 20 percent of that fee, so the billing process became quite complicated. In 1988, Dr. Lou decided that he needed to computerize his patient information base to provide support for the billing function. He investigated the possibility of using an off-site billing service, but it lacked the flexibility needed to deal with regulatory changes in patient insurance reporting that occurred with greater
Exhibit
CASE 8: DR. LOUIS MICKAEL594
and greater frequency. Dr. Charles was asked if he wished to share expenses and develop a networked computer system. But the offer was declined; he preferred to take care of his own billing manually. An information systems consultant was hired to investigate the computer hardware and software systems available at that time, make recommendations for programs specifically developed for a practice of this type, and oversee installation of the final choice. After initial setup and staff training, the consultant came to the office only on an “as needed” basis, mostly to update the diagnostic and procedure codes for insurance billing. Computerization was an important addition to the record-keeping process, and the system helped increase the account collection rate. However, at times problems would arise when the regulations changed and third-party payors (insurance companies) consequently adjusted procedure or diagnosis codes. For example, there was often some lag time between such decisions and receipt of the information needed to update the computer program. Fortunately, the software chosen remained technologically sound, codes were easily adjusted, and vendor support was very good. Although the new system helped to adjust the account collection rate, fitting this equipment into the cramped quarters of current office space was a problem. To keep the computer paper and other supplies out of the way, Dr. Lou and his staff had to constantly move the heavy boxes containing this stock to and from the basement storage area.
January 8, 1994 (Morning)
On Dr. Lou’s way in that day, the bookkeeper told him that something needed to be done about accounts receivable. Lag time between billing and reimbursement was again getting out of hand, and cash flow was becoming a problem (see Exhibits 8/3 through 8/6 for financial information concerning the practice). Cash flow had not been a problem prior to PPS, when billing for the health care provided by Dr. Lou was simpler, and payment was usually retrospectively reimbursed through third-party payors. However, as the regulatory agencies continued to refine the codes for reporting procedures, more and more pressure was being placed on physicians to use additional or extended codes in reporting the condition of a patient. Speed of reimbursement was a function of the accuracy with which codes were recorded and subsequently reported to Medicare and other insurance companies. In part, that was determined by a physician’s ability to keep current with code changes required to report illness diagnoses and office procedures. Cathy, the receptionist, had a list of patients who wanted Dr. Lou to call as soon as he came in. She also wanted to know if he could squeeze in time around lunch hour to look at her husband’s arm; she believed he had a serious infection resulting from a work-related accident. The wound looked pretty nasty this morning, and Cathy thought maybe it should not wait until the first available appointment at 7:00 P.M.
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Exhibit 8/3: Trial Balance at December 31
1991 1992 1993
Debits Cash $15,994 $9,564 $8,666 Petty cash 50 100 100 Accounts receivable 19,081 25,054 28,509 Medical equipment 11,722 11,722 11,722 Furniture and fixtures 3,925 3,925 3,361 Salaries 117,455 124,608 132,325 Professional dues and licenses 1,925 1,873 1,816 Miscellaneous professional expenses 1,228 2,246 3,232 Drugs and medical supplies 2,550 1,631 2,176 Laboratory fees 2,629 524 1,801 Meetings and seminars 2,543 838 3,880 Legal and professional fees 5,525 2,057 5,400 Rent 16,026 16,151 18,932 Office supplies 4,475 3,262 4,989 Publications 1,390 406 401 Telephone 1,531 1,451 2,400 Insurance 8,876 9,629 11,760 Repairs and maintenance 3,547 4,240 5,352 Auto expense 1,009 1,487 3,932 Payroll taxes 3,107 2,998 3,780 Computer expenses 846 938 1,905 Bank charges 438 455 479 $225,872 $225,159 $256,918 Credits Professional fees $172,281 $172,472 $204,700 Interest income 992 456 210 Capital 46,122 43,137 40,117 Accumulated depreciation (furniture and fixtures) 1,692 2,151 2,796 Accumulated depreciation (medical equipment) 4,785 6,943 9,095 $225,872 $225,159 $256,918
Exhibit 8/4: Gross Revenue and Accounts Receivable
December 31 1979 1986
Gross revenue $116,951 $137,126 Accounts receivable 15,684 32,137
JANUARY 8, 1994 (MORNING)
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“I’m just starting to see my patients, and I’ve already done a half-day’s work,” Dr. Lou thought when he buzzed his assistant to bring in the first patient. He was 45 minutes late.
Patient Profile
When Dr. Lou walked into Treatment Room 1 to see the first patient of the day, Doris Cantell, he was thinking about how his practice had grown over the years. His practice maintained between 800 and 900 patients in active files. In comparison to other solo practitioners in the area, this would be considered a fairly large patient base. “Well, how are you feeling today?” he asked the matronly woman. Doris and her husband, like many of his patients, were personal friends. In the beginning years of practice, Dr. Lou’s patients had been primarily younger people with an average age in the mid-thirties; their average income was approximately $15,000. Their families and careers were just beginning, and it was not unusual to spend all night with a new mother waiting to deliver a
