grab it

HSA 4170 Healthcare Financial Management

Section U01C

Group Project – Business Plan

Due July 22, 2015

Overview:

Dr. Bruce Wayne was approached by Dr. James Gordon who owned a medical practice in

Homestead, a city in Miami-Dade County, and was planning on retiring within the next couple of

years. He had a large practice but due to healthcare reform, he thought this was the right time to

retire. He wanted to leave his patients with a reputable and caring group of physicians that

would be in a better position for the future of healthcare. His practice consisted of a large cash

paying patient base complemented with Medicaid, Medicare and Managed Care.

Dr. Wayne, Dr. Tim Drake and Dr. Alfred Pennyworth were the general partners in Gotham

Internal Medicine Physicians, LLC, a physician group of eight (8) internal medicine physicians

in the Kendall and Westchester areas. GIMP is in its fifth year of operations and the centers have

been profitable for the last three years with a large population of Medicare and Commercial

patients.

The physicians met three days ago to discuss the opportunity presented by Dr. Gordon and

expanding to the Homestead area. They were enthusiastic and agreed to hire your firm to do the

business plan before they make the final decision.

Current State:

Dr. Gordon's medical practice:

The office is open from 8:00am to 4:30pm Monday through Friday with the staff taking one half

hour for lunch. The practice has a total of 3,500 active patients (patients that have been seen or

assigned within the last 24 months). Other charts for patients that were seen or assigned over

two years but less than four years ago totals 2,000 for a combined total patient base of 5,500

patients.

Dr. Gordon currently has contracts with various HMOs and is also participating with Medicare

and Medicaid. Dr. Gordon volume is averaging approximately 3.5 patients per hour which

represents approximately 6,700 visits annually. He works an average of 240 days a year after

vacation and holidays. His staff consists of one check-in/out clerk, one referral coordinator, two

medical assistants and a part-time billing clerk. Barbara Gordon, Dr. Gordon’ wife, is the office

manager.

Dr. Gordon's office is approximately 2,500 square feet with 3 exam rooms and a patient room

serving for blood drawing and taking vitals. The lease for the office does not expire for another

two years. His current rent expense is $37,500 for the year with 3% annual increases over the

next two years.

Exhibits A - C show current statistical data and Statement of Operations for Dr. Gordon

Exhibit D shows GIMP's contracted rates.

GIMP:

GIMP currently has a total of three locations, two in Kendall and one in Westchester. Each of

the general partners is located in one of the centers, the other five physicians are scheduled to see

patients in no more than two different locations. All physicians cover for each other for after

hours on-call coverage, vacation, travel and sick time.

The group has been successful in their negotiations with the HMOs, implemented an electronic

medical record (EMR) two years ago, and have attended several symposiums on the future of

healthcare. This led them to meet with the CEOs of the hospitals where they mutually serve the

community to form an alliance under healthcare reform.

Expectations for the External Environment:

Healthcare Reform

Dr. Wayne has notated the following items that directly impact GIMP of the changes that have

taken place since The Affordable Care Act was implemented.

 Medicaid and Medicare will transition this population to Managed Care

 Accountable Care Organizations will be formed in order to provide better quality healthcare while reducing costs

 The uninsured and cash paying patients will be enrolled in some insurance plan within the Managed Care Organizations; most probably in lower coverage plans with high

deductibles.

The Economy

As more individuals are insured, it is still uncertain how the ACA or the state of Florida actions

on Medicaid will impact total healthcare spending.. Dr. Wayne has concerns about how the

economy and healthcare reform will impact the payor mix in the community that Dr. Gordon

practices. In addition, the Medicare population is also expected to increase as the Baby Boomers

approach 65 years of age.

Due to budget limitations for the State, Medicaid is not expected to increase its rates for next

year. After much consideration, Medicare will only increase the rates by 1.5%.

Inflation for next year is expected to be approximately 2.5%

Consultant Engagement:

GIMP has approached your firm to review Dr. Gordon's data and prepare a business plan that

will include the impact of healthcare reform, the economy and opportunities in the acquisition of

his practice into GIMP. They prepared a list of potential opportunities in addition to some of the

costs that would be incurred for the acquisition:

 GIMP contracted rates with Dr. Gordon’ insurance companies are at higher rates. In addition, GIMP medical practices perform additional services such as EKGs,pulmonary

function tests and other minor procedures. See Exhibit D.

 GIMP’s EMR came with a billing module. They do their own billing but will still need the part-time billing clerk for the additional volume.

 GIMP has done some marketing in the past but have concerns if this would be a great opportunity to do a major marketing campaign that will include all locations.

 GIMP offers benefits to their employees which cost 8% of salaries for taxes plus $5,200 per employee for insurance. Insurance is only offered to full time employees.

 Annual salary increases average 3%

 Because they buy in larger quantities, GIMP has been able to get lower prices for medical supplies. They expect 5% savings.

 Dr. Wayne has visited Dr. Gordon's office and estimated that some of the furniture would have to be replaced. He estimates that it would cost approximately $8,000.

 They would also need to buy new equipment, including EKG machine, spirometry machine and computers costing approximately $15,000. The initial purchase for a six-

month inventory of EKG and spirometry supplies will cost approximately $3,000.

 To implement the EMR in Dr. Gordon's office will cost approximately $9,000 in software and initial set up plus $4,000 in annual maintenance and license fees. The set up fee

includes patient demographic data transfer from Dr. Gordon's billing system to the new

EMR. In addition, they will need to hire a temporary clerk that will scan Dr. Gordon's

medical records and save them in the new system. They estimate this will cost

approximately $6,000.

 Dr. Gordon is asking for $150,000 for the practice and a part time position with GIMP for three days a week and a salary of $110.000. He will also accept GIMP's general benefits.

Dr. Wayne is considering paying $80,000 for the practice and a two year contract with

Dr. Gordon for a three day per week part-time position at $100,000 in the first year and

5% increase in second year. He will also receive 25% bonus of any profits, if any, in

each year of his contract.

 The general partners at GIMP are willing to contribute $15,000 each ($45,000 total). The balance of the start up costs and operational losses, if any, will have to be borrowed at

8% interest rate. Payments would have to be funded by operational profits

Dr. Wayne wants your firm to do some research as to the demographics of the Homestead area to

determine if Dr. Gordon’ patient base is representative of the community in terms of payor mix.

He also wants your firm to assess: a) healthcare reform and advise them how this acquisition,

together with their existing centers will fare under the new healthcare law, including payor mix

b) will GIMPs rates be feasible for the Homestead area and what changes would have to be made

c) which sales offer is most feasible for them to take: should they accept Dr. Gordon's

counterproposal or stick to their proposal.

The deliverable

Prepare a business plan as requested by Dr. Wayne with all appropriate exhibits and references

that will include:

Table of contents

Executive summary (one page)

Industry Analysis (1/2 to one page)

Market Analysis - Homestead (1/2 to one page)

Marketing Plan (1/2 to one page)

Financial Plan and Funding (one page to 1 and 1/2 page - does not include the exhibits/tables)

with the following tables and exhibits:

1. Statement of Operations for three years (2015 - 2017) 2. Capital Requirements - total amount invested by physicians and how much would need

to be borrowed.

3. Depreciation schedule using straight line depreciation and useful life for the equipment of 7 years and furniture 10 years. No salvage value.

4. Patient growth and payor mix table 5. Revenue Stream table

Appendices/Exhibits and Reference Page

Business Plan must be in APA format and all references must be in a reference page. The plan

will be submitted through "Blackboard's Turnitin" and a hard copy will be submitted in class on

due date.

Exhibit A

James Gordon, MD

Reimbursement and Utilization by Payor Type

Exhibit B

James Gordon, MD

Position Control with Salaries

Payor Type

Reimbursement

Type

Reimb.

Rate

Unit of

Service

Utilization

per month

Number

of

Patients

Annual

Visits

Cash Fee for Service $75 Visit 11% 1,100 1,452

Commercial Payor Capitation $14 PMPM 12% 600 864

Medicare Fee for Service $65 Visit 34% 450 1,836

Medicaid Fee for Service $36 Visit 17% 500 1,020

Medicaid HMO Capitation $8 PMPM 15% 850 1,530

Total Patients/Visits 3,500 6,702

Position FTEs Salary

Physician 1 150,000$

Office Manager 1 40,000$

Referal Coordinator 1 30,000$

Medical Assistant 1 1 27,000$

Medical Assistant 2 1 29,000$

Desk Clerk 1 23,000$

Billing Clerk 0.5 14,000$

Exhibit C

James Gordon, MD

Financial Report

2012 2013 2014

Patient Visits 7,025 7,240 6,702

Net Patient Revenues 430,900$ 435,670$ 447,360$

Expenses:

Salaries & Benefits 318,635 328,194 338,040

Medical Supplies 4,215 4,344 4,021

Office Supplies 5,669 5,952 6,250

Repairs & Maintenance 600 1,150 700

Utilities 3,200 3,350 3,500

Malpractice Insurance 8,500 8,800 8,800

Rent 35,348 36,408 37,500

Telephone 2,800 2,850 3,000

Travel 1,640 2,500 500

Miscellaneous 455 830 975

Depreciation 1,430 1,430 -

Total Expenses 382,492$ 395,808$ 403,286$

Net Income 48,408$ 39,862$ 44,074$

James Gordon, MD

Statement of Operations

For the Years 2012 - 2014

Exhibit D

Gotham Internal Medicine Physicians

Reimbursement Rates and Utilization by Payor Type

Payor Type

Reimbursement

Type

Reimb.

Rate

Unit of

Service

Utilization

per month

Commercial Payor A Fee for Service $140 Visit 13%

Commercial Payor B Capitation $18 PMPM 10%

Medicare Fee for Service $71 Visit 35%

Medicaid Fee for Service $39 Visit 12%

Medicaid HMO Capitation $15 PMPM 12%