May 20, 2015
Thanks for all your hard work. We wanted to send you this ‘heads-up’ and also encouragement to attend our forthcoming GRMA membership meeting on Thursday, May 28th. In advance, we wanted to let you know that two important events occurred on Thursday, April 23, 2015, we learned more about our system’s finances and we learned that physician (WRVU) productivity hit a record breaking all time high. Thank you again for your commitment. Regarding the first, we heard the results of an independent audit on our health system’s finance and governance. The detailed report confirmed what we have been observing and experiencing over the past several years. It was refreshing to hear the whole story; truth has value and virtue like nothing else. Figures 1 and 2 below are indeed worth a thousand words.
Figure 1. This graph shows the financial performance of our health system for the first three quarters of this year. Net margin is the difference between total income and total expenses. As of March 31st, 2015, we have spent $19.2 million more than we have received.
Some of this deficit is the result of the way we do accounting. For example, when expenses are recorded relative to when funds are set aside, which may differ by years, this creates higher expenses relative to income when the funds are actually used. However, the reduction in our reserves is indisputable. We are spending down our reserves by the millions each year, and that has to be halted. Figure 2 shows this explicitly.
Figure 2. This graph shows the gradual and unrelenting depletion of departmental reserve funds, commonly known as the “D Fund.” The concepts of net present value, or NPV, and compound annual growth rate or CAGR, are important here. There is always an opportunity cost. With any asset, we must take into consideration how it could generate more assets through interest or dividend-bearing accounts. Thus, the total value lost is what we could have earned in interest with $15.5 million during the 5 years from 2010 to 2014, plus the $ 15.5 million. This is particularly important as the economy was recovering and the market, measured by S and P 500, was performing consistently and considerably above 10%. Using the equation Pn=Po (1+r)n, with Po=15.5 million and r= annual return=10%, and n=5 years, the number is $24.96 million (15.5 principle + 9.46 in cumulative interest). Of course, we did not spend all of it in 2010. There are strategic investments which must be made within our system. Still, we must ask what have we bought with almost a quarter of million dollars? And is this the best way to spend our precious reserve?
Paraphrasing a recent JAMA editorial (in an attempt to explain why there is a lack of better quality improvements in NSQIP hospitals compared to those that did not implement NSQIP): simply measuring something does not automatically make it better, just like weighing a pig does not make the pig grow. Each month, we receive a massive amount of data measuring every aspect of our organization. It is what to do with the information that is hard as there are so many variables. Importantly, many of these variables interact while some do not. The result is cycles within cycles due to weather, season, day of the week, national meetings, and even local sports events, to name just a few. Physicists use phase space maps to study the behavior of periodical systems, such as the speed and position of a pendulum. They can understand the number of manipulated variables that affect the behavior of that system. Our health system is obviously infinitely more complex than a pendulum, but the concept of using such phase space maps to look at the overall systems behavior still holds. Figure 3 below is an approximation of such, showing the variability in monthly physician charges of GRMA going back 163 months.
Figure 3. Phase space map of our monthly charges is constructed by plotting the actual charge amount, Ct, against a delay, d, giving each point the coordinate (Ct, Ct+d, or January charge, July charge for d=6 months). As d approaches the real cycle length, the phase space map opens up maximally from the line of identity. The center of the lower cluster is $20 million, and that of the upper one is $26 million. The green circles represent the magnitude of maximum monthly variations which has increased from about $3.75 million to $6 million.
The complex nature of the oscillations is obvious with concentration towards two large clusters. These are attractors, a term given to where system behavior tends to gravitate. We entered the first, smaller, attractor around 2002, with the center at $20 +/- 3.75 million charge/month and the second, current, one around 2010 centered at $ 26 +/- 6 million charge/month. The purpose of this graph is to show the actual complexity of historical GRMA productivity. Based on that, we can predict higher charges/month with larger variations. Even more important than charges are the collections, which show similar complex oscillations but centered at a point 31% of the charges, our current gross collection rate. Charges and collections are the core of revenue cycle management. For any entity, accumulated = what is taken in – what is given out. As a practice group, we have not been in equilibrium based on operations: we consume more than we take in for years.
The second unique event was for the first time ever, data showed that we have produced more than 163,000 RVUs per month. We should all be very proud of Figure 4 below.
The cause of this increase in monthly output is partly due to the length of March, with more working days. Still, we are working harder than ever, and that is indisputable. Thank you all for that.
There is, however, a persistent problem. Based on operating income and expenses, our group has spent more than $1 to make $1 since 2003, when such data tracking started. A Ford factory produces cars; we produce clinical output measured by relative value units, or RVUs. Ford cannot continue as a business if they spend more to make a car (unit cost) than the revenue they get for it (unit revenue). To figure the unit cost of producing 1 RVU, the total operating expense is divided by the total work RVU produced. To arrive at the unit revenue, the total clinical income is divided by the total work RVU. Figure 5 shows the unit cost stubbornly staying higher than the unit revenue for the past 12 years.
The simple fact is that we have to reduce the unit cost or increase the unit revenue, preferably both. One of the ways to achieve this is to function as a truly integrated practice group, with highly efficient and effective inter- and intra-group referrals, communications, billings, and collections.
To further assist us in tracking our business operations, each one of us must be acutely aware of his or her financial performances. Soon – for the first time ever – we will be able to look up our key personal data on line in a password protected manner. Figure 6 below shows the summary page and more detailed information used to produce this dashboard will also be made available.
Figure 6. This type of data what will soon be available to all faculty members of GRMA, it summarizes the RVUs, the charges and collections, among other important financial data.
Such monitoring will permit each and every member to know precisely what she or he has produced, the date of the encounter, charge lag, the amount billed, when the reimbursement was received and how much. Importantly, it will close the loop by providing the feedback to the members and improve the entire process by reducing denials. This will be a great step forward. Knowledge is powerful.
Going forward, we must continue to work as a coherent group, with better communication, more transparency, higher clinical output and better quality. This past year, we are well on the way and have exceeded prior year finances, volume, and – most impressively – quality outcomes. Many complex issues and problems such as revenue cycle management, efficiency of business operations, managed care contracts, Columbia County initiatives, governance structure, and new compensation plan, among others are in play and we can expect these to be worked out over the coming academic year. We, the members of the practice group, must engage, remain engaged, and engage substantively as a team for here is where we treat our patients, conduct our research, teach our students, and train our residents.
We deeply appreciate the opportunity to represent you and look forward to reporting to you in person at our spring membership meeting next week. Please feel free to contact us with any questions or concerns. Our emails are email@example.com, firstname.lastname@example.org, email@example.com, and firstname.lastname@example.org and our cells are 706-831-0613, 706-825-2330, 706-414-0690, 706-833-2941.
We also would greatly appreciate your attendance and support of our GRMA membership meeting on Thursday, May 28, 2015. Our collective efforts are paying off and while there is still much to do, we have a considerable amount of progress and good news to share in person with each of you.
Jack Yu, Chair of Foundation, GRMA
Jatinder Bhatia, Chair-Elect of Foundation, GRMA
Adam Berman, Secretary/Treasurer of Foundation, GRMA
David Bogorad, Immediate Past Chair of Foundation, GRMA