Complete Assignment Exercise 16-1: Budgeting on page 559 in your course text
Case Study appearing in Chapters 31
Using the organization selected, create a budget for the next fiscal year. Set out the details of all assumptions you needed in order to build this budget.
Use the “Checklist for Building a Budget” (Exhibit 16–2) and critique your own budget.
Exhibit 16–2 Checklist for Building a Budget
- What is the proposed volume for the new budget period?
- What is the appropriate inflow (revenues) and outflow (cost of services delivered) relationship?
- What will the appropriate dollar cost be?
(Note: this question requires a series of assumptions about the nature of the operation for the new budget period.)
- Forecast service-related workload.
- Forecast non-service-related workload.
- Forecast special project workload if applicable.
- Coordinate assumptions for proportionate share of interdepartmental projects.
- Will additional resources be available?
- Will this budget accomplish the appropriate managerial objectives for the organization?
CHAPTER 31: Case Study: The Doctor’s Dilemma
THE OFFER: “SELL YOUR PRACTICE TO US”
This case study explores a doctor’s dilemma: Should he sell his practice? Dr. John Matthews, a cardiac surgeon, has been approached by the administrator of Clinton Memorial Hospital to ascertain his level of interest in selling his practice. Dr. Matthews has admitting privileges at the hospital. He has been reading about the Feds’ speeding up plans for value‐based payments, wherein half of provider payments in five years will be linked to quality of care. In essence, the intent according to DHHS (U.S. Department of Health & Human Services) officials is to cut down on the volume of unnecessary procedures while improving patient outcomes.
Dr. Matthews understands that a complex time lies ahead. As the shift from volume to value gains momentum, both Clinton Memorial and his own practice will need to move quickly to understand the likely trajectory in their markets, to identify their desired role, and to make the significant structural and operational changes needed to succeed in the changing business model.
SEEKING TO UNDERSTAND HEALTHCARE FINANCE REFORM
While still considering the hospital’s entreaty, Dr. Matthews feels that he needs to learn more about these concepts that constitute healthcare finance reform. At hospital medical staff meetings, accountable care organizations (ACOs) and bundled payments are frequently on the agenda. In general, Dr. Matthews has been able to ascertain that providers are wary of jumping head first into risk‐sharing payment models, or risk contracting based on quality and cost.
Dr. Patrick Conway, Chief Medical Officer for the Centers for Medicare and Medicaid Services (CMS), said that through its Medicare Shared Savings Program (MSSP), 50% of all fee‐for‐service payments to providers will be tied to quality incentives (hitting quality metrics) through alternative payment models—-particularly ACOs and bundled payments, which are also expected to slow the growth of healthcare costs. As the name implies, MSSP providers share in the savings through a percentage of funds that goes back to the ACO.
ACOs are provider groups that accept responsibility for the cost and quality of care delivered to a specific population of patients cared for by the groups’ clinicians. Under these risk- and value‐based payment models that reward achieving cost and outcomes of care, provider organizations have incentives to keep people well.1 The organizations also provide data to be used in assessing their performance on cost and quality criteria.2
A bundled payment is a single payment to providers and/or healthcare facilities for all services to treat a given condition or provide a given treatment. Payments are made to the providers on the basis of expected costs for clinically defined episodes that may involve several practitioner types, settings of care, and services or procedures over time. When designed to improve value, bundled payments should include clear quality metrics focused on desired clinical outcomes that providers must achieve to maximize their payment.3 These payments are perhaps even more key to reforming healthcare finance because they address specific issues of care and quality directly and could be more quickly adopted than ACOs.
RESEARCHING ACQUISITION VIEWPOINTS AND INDUSTRY TRENDS
Having achieved a better understanding of contemporary healthcare finance, Dr. Matthews turned his attention back to the acquisition question. Interestingly, Clinton Memorial’s inquiry comes amidst a trend that, at first, found the acquisition rate of hospitals acquiring medical groups slowing in the past few years, with the apex having already occurred in 2011.4
A Negative View
The budgets of many of these same hospitals that once prioritized physician practice acquisitions are now in the red, causing administrators to rethink their practice acquisition strategies. A 2013 report from the Medical Group Management Association calculated a median loss for employing a physician to be $176,463.5 This has led analysts such as Moody’s to predict a pullback on physician practice acquisitions as costs continue to outpace revenue. In fact, Moody’s identified physician employment as one of the largest expenses impacting hospitals’ margin pressure.
Hospitals acquire physician practices in order to expand their networks, which they hope will in turn boost their revenues. However, in doing so, they also incur the costs associated with physician/employee salaries, benefits, office space, and necessary upgrades to IT infrastructures.
A Positive View
The above notwithstanding, the emerging macro view suggests something quite different. Provider mergers and acquisitions in the first three quarters of 2014 were up a robust 13.4% over the same period in 2013 according to Modern Healthcare’s Merger and Acquisition Report.6 This suggests that mergers, acquisitions, and partnerships will continue apace as healthcare reform reshapes the industry.
In fact, an outsize example of this trend is Baylor Healthcare System’s recent merger with Scott & White Healthcare, a move that resulted in Texas’s largest nonprofit healthcare provider. The merger produced a system that includes 48 hospitals, more than 40,000 employees, and more than $9 billion in assets.7
Another Industry Trend
Moreover, consolidation in the health industry is also occurring among insurers, with Anthem poised to acquire rival Cigna, and Aetna and Humana agreeing to a $37 billion marriage.8 It should be noted, however, that regulators are not standing by idly.
The Federal Trade Commission is planning to block a merger between two large Illinois hospital groups, Advocate Health Care and North-Shore University Health System. Should the merger be approved, it would create a 16-hospital system that would dominate the North Shore area of Chicago.9
CONSIDERING OTHER PHYSICIANS’ REACTIONS
Dr. Matthews also wants to know what other physicians think about practice acquisitions. He approaches the question from two directions, as follows.
What Others Who Sold May Have Believed
Amidst these complex trends, Dr. Matthews knows that many physicians who choose to sell their practices to a hospital or hospital system believe that doing so will allow them to spend more time with their patients. While it may appear that they have more regular hours and thus encounter fewer administrative hassles, they also end up feeling less productive because they lose the ability to have final say on their schedules. Instead, hospital administrators become the individuals in charge of setting doctors’ office and on‐call hours.
How Colleagues of His Who Sold Have Reacted
At this juncture, Dr. Matthews deemed it wise to call recently acquired physician colleagues to monitor how they reacted to the transition. He also knows there is a need for evidence‐based management and business practice information that help physicians to better understand the business aspects of their practice.
WHAT WILL DR. MATTHEWS DECIDE?
We cannot predict the doctor’s decision, because we do not have enough information about his practice’s situation. But we can pose a question: Are doctors happier now, or are cost‐cutting measures causing them to miss the autonomy of being a private-practice owner? And one thing is clear: Healthcare organizations must do better in incorporating change management and cultural integration into their merger and acquisition strategy.
Last Updated on June 5, 2019 by EssayPro