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How family physician Katharina Scharruhn and her partner-husband learned to treat their practice like a business.
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.
News flash: The money does not 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.
On the front end:
Step one: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.
On the back end:
Step three: Proper bookkeeping. 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.
Step four: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.
Step five: Don't overpay your taxes. 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.
Katharina Scharruhn, MD, 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 email@example.com.
This article originally appeared in the September 2012 issue of Physicians Practice.