Katharina Scharruhn, MD

Healthcare is a product. Those of us in private practice are keenly aware of this. The practice itself is a business and it needs to be treated as such in order to be financially viable.

My husband and I are both family physicians in Northern California. We met in residency and together we opened a private practice in 1993. In our medical school and residency training, it was drilled into us that speaking of money was unethical. They even failed to teach us what ICD-9 and CPT codes were. We were so naÃ¯ve when we first began practice that we thought an ICD-9 code was a page number. Our debt burden was huge because of our combined educational debt as well as a maxed-out credit line which paid for our office and medical equipment.

To add to the stress, we had no idea how we made money. We hired medical practice consultants with MBAs and financial advisers. But they could only counsel us; in the end, we had to make the decisions. Not having had any formal practice-management training made these financial decisions even more difficult. We learned on the job and consequently made some costly mistakes that have taken us years to recover from. We thought that being doctors was enough, and that if we continued to work hard, the money would somehow take care of itself.

 take care of itself, nor does the business of medicine. We continued to be in denial and kept working harder and harder. Consequently, we became frustrated, exhausted, and unhappy. We had thought that the difficult times were over after medical school and residency were completed. In reality, our education began when we entered "the real world."

I forced myself to admit that I did not know how money works. I also realized a conflict between the compassion in caring for our patients and the relentless need for money to pay overhead. In order to solve our dilemma, I began studying and modeling successful self-made millionaires and implementing their strategies.

Simply stated, treating medical practice management as a business involves the following: the front end, which is about making the money, and the back end, which is about keeping the money. The ability to read financial statements and respond appropriately connects the front end to the back end. Five key steps are outlined below.

Build adequate volume, and efficiently manage the work flow.

 Since we are family physicians, we are on the lower end of the pay scale. It is imperative that we have a high volume of patients. Our goal is to provide high-quality patient care in a compassionate and efficient manner. The efficiency of the office revolves around the physician, who is the main asset. Efficiency begins with proper scheduling, proper patient flow, obtaining referrals, filling prescriptions, patient callbacks, handling the mail, completing deposits, etc. We have developed successful systems for each of these positions and everything that we do. We track the efficiency and when things change, we respond accordingly. Because we are in private practice, we have the ability to implement these changes immediately and to our liking. As a consequence, we have a happy office where the physician is happy, the employees are happy, and the patients are happy. The end result is a full practice. Our patient waiting list is 10 pages long.

Step two: Keep on top of your billing process

. Also on the revenue side is the billing service that turns our hard work into cash. When we began our practice, we did the billing ourselves because we had the time and needed to learn the process. Now we not only know what the ICD-9 and CPT codes are, but we also have an appreciation for the difficulty that the billing service has in obtaining our money. If you are not receiving the reimbursement you think you deserve, ask the following questions: Are you coding properly? Is the billing service doing its job adequately? Or is the insurance company finding yet another way not to pay you? (After all, they want to keep their money as well.) The billing is a complex system. Through the years we have learned the pros and cons of doing the billing in-house versus outsourcing it.

 Delegating the bookkeeping was a difficult task for me to do. I admit that my ego played a factor. After all, I am a doctor. How hard could it be to categorize something as an expense? However, if the bookkeeping isn't done properly then the financial statements will not be helpful. The end result of poor bookkeeping is paying more taxes and not having the ability to find your financial problems. Proper bookkeeping is the beginning of the back end of medical practice management.

Implement a careful asset protection/risk management plan.

 This step is essential, but often overlooked by those who don't like to believe that a lawsuit can happen to them. Recently, an OB/GYN colleague of ours received a $74 million judgment against him. Although judgments this large are rare, it can happen. Whenever I brought up the issue of using entities as a means of asset protection with my colleagues, the overwhelming response that I received was that "the insurance will cover me." Well, my malpractice carrier has a $1 million cap per incident. If you are sued and receive a judgment against you in excess of the covered amount by your insurance company, you are on the hook for the difference. However, if your assets are protected in the proper entity structure, they become untouchable. We have such an entity structure in place that protects our assets, and I absolutely love our asset-protection attorneys! They allow me to sleep better at night.

. I believe in paying my fair share in taxes. However, paying more than I need to because I don't know enough about the tax system is unfair. Let's face it, the tax system is complex, but in that complexity lays the opportunity. The key is to have an exceedingly competent accountant. Most are not. Again, with the correct entity structure, you can legally reduce your tax liability. I work too hard for my money just to give it back in taxes.

In summary, the bookkeeper takes your actions as a doctor and turns them into numbers and ultimately into reports known as financial statements. With a little effort you can learn how to read the financial statements. Based on the numbers, you can make changes on the revenue side and then track the results on the back end. It doesn't take long to interpret them, when you know what to look for.

By treating our medical practice as a business, the financial stability of our office is no longer left to chance. We are happier, have more autonomy, and no longer feel like victims of the system. We are able to adapt easier to the forever changing healthcare climate. I wish that the "old us" would have had people like the "current us" to turn to for advice and guidance, especially in the beginning. This would have given us a foundation from which to start. I am not an attorney, an accountant, or a bookkeeper. I am a family physician in a successful private practice.

and her husband, Bill Barley, MD, are both family physicians based in Placerville, Calif. They opened a private practice together in 1993. Dr. Scharruhn now practices administrative medicine; her mission is to help other physicians solve financial problems in their practices. She can be reached at 

This article originally appeared in the September 2012 issue of 

Articles

How family physician Katharina Scharruhn and her partner-husband learned to treat their practice like a business.

'My Best Practice Management Idea'

Because doctors run on a tight time schedule, patients often view us as too busy to give them the personal attention they would like to receive. Because we have so little time, we can appear uncaring and unwilling to listen to the needs of our patients. Worse, if you believe the media, we are pill pushers influenced by the two-cent pens that the pharmaceutical companies once provided us. Apparently, despite our many years of training, we are incapable of making our own informed decisions that are in the best interest of the patient.

In addition, we must not care about the high cost of the medications we are prescribing since we do not take the time to ask our patients whether they cut their meds in half to save money. And, with regard to the prescription meds that are sold on the street, we physicians are at fault here as well. After all, we are prescribing them, aren't we? (If I remember correctly though, weren't we taught to always believe the patient? Well, that must make us appear gullible and stupid.)

Even though it is 2011, I think the public still views a doctor's lifestyle as consistent with the 70s TV show "Marcus Welby, M.D." You know the one; an easy life where physicians spent much of their time on the golf course. I remember a patient telling me that he was surprised that golf lessons weren't part of the med school curriculum. After all, isn't it required to play golf to obtain your MD?

I think the public also views doctors as an integral part of the current healthcare crisis - in part because of all the money we make. We are still seen as overpaid. We apparently are cheap and do not tip well either. However, with regard to money management and investing, we easily fall victim to financial predators.

As doctors we want our patients to participate equally with us in clinical decisions that affect their healthcare. We are here to help guide them to better health; even though ultimately, they are responsible for their own well being. We continually strive for a balance between risk and benefit, between science and technology, and the needs of patients as human beings. What may be seen as a bad bedside manner could actually be shyness or a focus on work. It is sometimes difficult to admit what we don't know.

In order to make our practices work financially, we are on a tight time schedule. We are not paid for preventive medicine. This is a pet peeve of mine, but here again, insurance companies dictate what we get paid for. My hope is that this continues to get better. We are allopathic physicians. For us to embrace and be open to all the different modalities of alternative medicine is unrealistic; we are bound by a standard of care. If we feel this will end up in a court of law, and the plaintiff's attorney is jumping down our throats, we will not endorse anything alternative. You cannot go to an allopathic physician expecting to have your chakras aligned with crystals. It's just not something we do.

We are caring, dedicated and passionate. When a patient does not do well, we take it personally. If the patient does not speak up and ask for clarification, we assume he understands what is being said.

When we sign the contracts with insurance companies to take care of their patients, the insurance company essentially becomes our employer. We have agreed to the terms of the contract and need to work within the constraints of their regulations and formularies. Therefore, we walk a tight rope between what the insurance company allows under the specific healthcare plan that the patient signed up for and what is best for the patient. We are advocates for the patients but at times it seems the insurance companies pit the doctors against the patients and make us look like the bad guys.

Because of the fear of a potential lawsuit, we do practice defensive medicine. When we are sued, we take it very personally. Anyone who says it is not personal is a flipping idiot. I often find it ironic that we have to pay so much for malpractice insurance just to protect ourselves from the very people we are dedicated to helping. The calls that we take after hours are gratis, yet we are liable for what we say and the advice we give.

We are human just like our patients. We are not exempt from illness or fear or worry or doubt. We sacrifice time with our families because of our devotion to our patients. We work despite being ill or injured ourselves. It wasn't uncommon for me to be sicker than the patient I was treating.

With regard to golf, most of the doctors we know don't even play. Surprise! Just like anyone else, though, we need an outlet to recapture some sanity, so we can effectively deal with the stress and the demands of our jobs. But if you take golf as an example, since it is a difficult sport to master, the physical challenge of golf rivals the intellectual challenge of medicine and therefore provides a nice balance.

MD does not stand for Mucho Dinero. Becoming a doctor is not some financial bonanza. Many residents these days accumulate educational debt in the hundreds of thousands of dollars that accrues interest at a very high rate. I wonder if they will ever be able to pay it off. We do not endure many years of grueling work and sacrifice to become doctors for the money. We love science and medicine. If we were to do the math, it really doesn't pay to become a doctor. Just like you, the patient, we are also victims of the inability of the government to handle money effectively.

When patients accuse us of making too much money, I would like to know relative to whom; a movie star perhaps. Granted they have entertainment value, but could they save your life? Or, when was the last time you spoke to an attorney at 3:00 a.m. to obtain free advice?

For the small minority of us still in private practice, our overhead is exceptionally high, and we are not afforded some of the tax breaks other small businesses have because we are a medical office. Our take home pay is not anywhere near what the surveys state. Our health insurance premiums increased 43 percent this year. Personally, I am wondering where the extra money is going. I know it's not to the doctors.

In closing, we are frustrated with all the politics and the turmoil of the healthcare crisis in this country. We love medicine and hope that it will all work out in the end. In the meantime, we are here for you.

and her husband are both family physicians based in Placerville, Calif. They opened a private practice together in 1993. Dr. Scharruhn now practices administrative medicine; her mission is to help other physicians solve financial problems in their practices.

Why physician Katharina Scharruhn thinks about the public's view of doctors and the image she wishes they would see as diametrically opposed.