Practice Management Series 2004 - 2005

1. ASCO Clinical Practice Series Practice Management Series2004 - 2005

2. Practice Management Curriculum 1. Adapting to Changes in Medicare 2. Generating Practice Efficiencies 3.Organizing for Service Expansion

3. Who should attend • Physician Leader of the Practice • President of the PA, Founder • Practice Administrator • CEO, Executive Director, COO • Contracting Officer • Contract Administrator, Director of Billing • Clinical Manager • Medical Director, Nursing Team Leader

4. After this session, you will be able to: • Express changes needed in the practice • Understand “investment mentality” and classify your practice in terms of investment potential • List the common characteristics of effective physician practice leaders • Understand the relationship between the physician practice leader and the practice administrator • Apply simple self-assessment tools to position your group to take advantage of market changes today

5. The Old DaysMedian Per FTE Medical OncologistCompiled from MGMA Cost Survey through 2004 Report on 2003 Data. 2004 trending by third order polynomial by Oncology Metrics, LP Why Change?

6. Eroding MarginsPer Oncologist with projections by Oncology Metrics Why Change? Now Then

7. Why Change • Because we must change • Population economics demand it • GDP growth can’t match Boomers’ march into SEER cohorts • Other sectors of medicine have done it • DRGs, Cardiology, Radiology • Market dynamics support it • “Everywhere the old order changes, and happy are those who can change with it.” Sir William Osler, 1895 Because it is wise to change

8. Developing Investment Mentality Rising Demand Increasing Market Share Problem Child Rising Star ? Mature Investment Dog $ Modified BCG Business Growth Matrix

9. Practice sees a low % of new cancer cases in market Overall market for cancer services is stagnant, shrinking, or being consumed by competitors Presently failing, either rapidly or slowly and showing declining period-to-period revenue Stagnation of capital investment Susceptible to sudden closings Smart dogs join up to form a dog pack Typical of a new practice or outreach clinic in a new service area Operations need investment Offer the potential of rapid growth Always have high costs initially Must be properly capitalized to keep from running out of money just before they take off Shows real potential Has a sustainable customer base Dog ? Problem Child

10. High market share Stable business with revenue growth driven by existing customers and products Weak need or desire to innovate means low to no capital needed Profits are high and the contribution margin is also high Must maintain the strong market position as competition wants to enter and claim margin Certain growth in demand for cancer services Declining or stable number of providers able to meet increasing demand Significant barriers to entry for new competitors Financing mechanism for many service buyers Legacy of inefficient operations offer significant process improvement opportunities Promising new technology offering significant opportunity for service line expansion $ Mature InvestmentRising Star

11. Evaluating Product and Service Lines for Additional Investment Investment Mentality • In-house pharmacy is a Product Line • Research is a Product Line • Chemo. Admin. is a Service Line • Patient E&M is a Service Line • Laboratory is a Service Line • RT is a Service Line • CAT/PET is a Service Line ? ? $ $

12. To execute growth, you must have Management • Physician Leader • Seeing patients but on a reduced schedule • About .5 FTE physician • One of the founders or otherwise senior • Active in hospital or community • Can say “I don’t know, let me think about that” • Was (or is) the productivity leader • Trusts the administrator

13. To execute growth, you must have Management • Administrator • Trained – MBA, CPA, MHA • Can read and write basic contracts • Computer literate and analytically proficient • Can say “I don’t know, let me think about that” • Trusts the physician leader

14. To execute growth, you must have Patients Investment Mentality • Counting the number of new patients that are seen in your practice is the starting point of most feasibility studies • New patients are the denominator across which to leverage investment and costs • 1,500 new patients/yr. can generally support a CT and/or PET with reasonable margins

15. New Patients / PhysicianAOHA/MGMA 2003 Report on 2002 Data

16. Building New Patient Flow:Physician Practice Leader’s Role • Promote and support the ability of the physician team to build and maintain a powerful referral system that will provide at least 400 new patients/year/physician • Design clinical staffing pattern sufficient to support time for physicians to pay attention to referral patterns

17. Building New Patient Flow:Physician Practice Leader’s Role • Build partnership and pay policy that rewards individual and group efforts to build patient referrals • Routinely measure and discuss referral patterns. • Support your administrator by not allowing staff to circumvent or undermine your joint initiatives

18. Building New Patient Flow:Administrator’s Role • Develop reliable ways to count new patients and their referral source • Monitor and understand the insurance status of incoming patients looking for patterns by referral source • Reward front office staff for facilitating incoming calls from referrals sources to a physician • Support your physician leader by not allowing staff to circumvent or undermine your joint initiatives

19. To plan for growth, you must have Managerial Measurement • Not for tax purposes • You get to make estimates and judgments • On an accrual basis • Revenue is booked in the month it is generated • Expenses are booked when they are incurred, whether they are paid or not • Example: malpractice insurance • Cash basis – paid in January, considered January expense • Accrual basis – paid in January, expensed 1/12 each month

20. To plan for growth, you must have Managerial Measurement • Balance sheet shows what you own and what you owe • Profit & Loss Statement shows what you earned, (whether you have been paid or not) and what you bought (whether you have paid for it or not)

21. Sample Balance Sheet

22. Managerial measurements produce Financial Indicators that are: • Important to the bottom line • Easy and reliable • Benchmarked on a FTE physician basis • Tied to new patient accrual

23. Sample P&L Per Physician

24. Managerial Measurement:Physician Practice Leader’s Role • Learn to read your basic financial statements: Balance Sheet, P&L, Statement of Cash Flows • After you learn to read them, don’t insist that other physicians do the same • Understand how the basic financial statements inform your managerial measurements

25. Managerial Measurement: Physician Practice Leader’s Role • Be the one who reports managerial measures to the physicians of your group • Only report the three managerial metrics you think are most important: for example • New patients/FTE MD ytd. vs. goal vs. prior period • Revenue/FTE MD– ytd. vs. goal vs. prior period • Cost/FTE MD - ytd. vs. goal vs. prior period • Support your administrator by not allowing staff to circumvent or undermine your joint initiatives

26. Managerial Measurement: Administrator’s Role • Learn to read your basic financial statements: Balance Sheet, P&L, Statement of Cash Flows • After you learn to read and understand them, review these regularly with your physician practice leader • Understand how the basic financial statements inform your managerial measurements

27. Managerial Measurement: Administrator’s Role • Be prepared to provide supporting details when the physician leader reports managerial measures to the physicians of your group • Double check the managerial measures to make sure they agree with the basic financial statements and are consistent with past reports • Support your physician leader by not allowing staff to circumvent or undermine your joint initiatives

28. To execute growth, you must have Capital • All business expansion requires capital investment • All business expansion that is properly executed supports both the cost of capital and repayment of capital • ROI means “Return on Investment”

29. To execute growth, you must have Capital Investment Mentality • IRR means “Internal Rate of Return” • Retained Earnings are the source of most business capital • Debt is a tool of expansion

30. Capital Resources:Physician Practice Leader’s Role • Understand the clinical drivers behind all capital investments • Assure yourself that new patient referrals are not threatened by capital projects • Talk to other physicians who have made similar decisions and learn from them

31. Capital Resources:Physician Practice Leader’s Role • Be the financial spokesperson to your groups’ physicians • Explain the need to create capital reserves and retain earnings • Be willing to equitably shoulder capital risk • Support your administrator by not allowing staff to circumvent or undermine your joint initiatives

32. Capital Resources: Administrator’s Role • Perform all analysis for new product line development • Capital requirements, affect on referral relationships, cash flow, and staffing needs • Development convincing managerial measurements that inform capital decisions • Establish banking relationships and instruments that cushion practice from capital shocks

33. Capital Resources: Administrator’s Role • Plan a margin of safety into every capital project • Establish an internal “Hurdle ROI” and only recommend projects that are above that rate • Be willing to equitably shoulder capital risk • Support your physician leader by not allowing staff to circumvent or undermine your joint initiatives

34. “Risk comes from not knowing what you’re doing.” Why do all of this? Warren Edward Buffett (1930- ), Reasonably successful American financier, chairman of Berkshire Hathaway Inc.