case study week 2

5 8 9

C A S E

Dr. Louis Mickael:

The Physician as

Strategic Manager

Industry Background

In the early 1900s, hospitals were perceived by the majority of the population in the United States as places where very sick people went to die. However, in the past five decades, rapid progress in medical technology, knowledge base, and expertise enhanced professional capability, and the public then demanded high levels of health care services.

In 50 years, many demographic changes occurred. The popu- lation, longevity, and standard of living continued to increase. To address the needs of this changing population, government health care insurance programs for the older and needy segments of society were instituted. Private insurance companies prolifer- ated, and although workers had begun to expect employers to share with them the financial responsibility for their health serv- ice needs, employers were searching for less expensive ways to provide such care. The government was also attempting to reduce costs associated with the insurance programs it sponsored.

This case was written by C. Louise Sellaro, Youngstown State University. It is intended as a basis for classroom discussion rather than to illustrate either effec- tive or ineffective handling of an administrative situation. The names of firms, individuals, locations, and financial information have been disguised to preserve the organization’s desire for anonymity. Presented and accepted for the Refereed Society for Case Research. All rights reserved to the author and SCR. Copyright © 1992 by C. Louise Sellaro. Used with permission of Louise Sellaro.

8

both08.indd 589both08.indd 589 11/11/08 11:46:24 AM11/11/08 11:46:24 AM

C A S E 8 : D R . L O U I S M I C K A E L5 9 0

By the early 1980s, costs to provide these health care services reached epic proportions; and the financial ability of employers to cover these costs was being stretched to breaking point. In addition, new government health care regula- tions had been enacted that have had far-reaching effects on this US industry.

The most dramatic change came with the inauguration of a prospective pay- ment system. By 1984, reimbursement shifted to a prospective system under which health care providers were paid preset fees for services rendered to patients. The procedural terminology codes that were initiated at that time designated the maximum number of billed minutes allowable for the type of procedure (ser- vice) rendered for each diagnosis. A diagnosis was identified by the International Classification of Diseases, Ninth Revision, Clinical Modification, otherwise known as ICD-9-CM. The two types of codes, procedural and diagnosis, had to logically correlate or reimbursement was rejected.

Put simply, regardless of which third-party payor insured a patient for health care, the bill for an office visit was determined by the number of minutes that the regulation allowed for the visit. This was dictated by the diagnosis of the primary problem that brought the patient into the office and the justifiable procedures used to treat it.

These cost-cutting measures initiated through the government-mandated pro- spective payment regulation added to physicians’ overhead costs because more paperwork was needed to submit claims and collect fees. In addition, the length of time increased between billing and actual reimbursement, causing cash flow problems for medical practices unable to make the procedural changes needed to adjust. This new system had the effect of reducing income for most physicians, because the fees set by the regulation were usually lower than those physicians had previously charged.

Almost all other operating costs of office practice increased. These included utilities, maintenance, and insurance premiums for office liability coverage, workers’ compen- sation, and malpractice coverage (for which costs tripled in the late 1980s and early 1990s). This changed the method by which government insurance reimbursement was provided for health care disbursed to individuals covered under the Medicare and Medicaid programs. Private insurors quickly adopted the system, and health care as an industry moved into a more competitive mode of doing business.

The industry profile differed markedly from that of only a decade earlier. Hos- pitals became complex blends of for-profit and not-for-profit divisions, joint ven- tures, and partnerships. In addition, health care provided by individual physician practitioners had undergone change. These professionals were forced to take a new look at just who their patients were and what was the most feasible, competitively justifiable, and ethical mode of providing and dispensing care to them.

For the first time in his life, Dr. Mickael read about physicians who were bank- rupt. In actuality, Dr. Charles, who shared office space with him, was having a financial struggle and was close to declaring bankruptcy.

January 6, 1994

The last patient had just left, and Dr. Lou Mickael (“Dr. Lou”) sat in his office thinking about the day’s events. He had been delayed getting into work because

both08.indd 590both08.indd 590 11/11/08 11:46:25 AM11/11/08 11:46:25 AM

5 9 1

a patient telephoned him at home to talk about a problem with his son. When he arrived at the office and before there was time to see any of the patients waiting for him, the hospital called to tell him that an elderly patient, Mr. Spence, admitted through the emergency room last night had taken a turn for the worse.

“My days in the office usually start with some sort of crisis,” he thought. “In addition to that, the national regulations for physician and hospital care reim- bursement are forcing me to spend more and more time dealing with regulatory issues. The result of all this is that I’m not spending enough time with my patients. Although I could retire tomorrow and not have to worry financially, that’s not an alternative for me right now. Is it possible to change the way this practice is organized, or should I change the type of practice I’m in?”

Practice Background

When Dr. Lou began medical practice the northeastern city’s population was approx- imately 130,000 people, most of whom were blue-collar workers with diverse ethnic backgrounds. By 1994, suburban development surrounded the city, more than doubling the population base. A large representation of service industries were added, along with an extensive number of upper and middle managers and administrators typically employed by such industries.

Location

Dr. Lou kept the same office over the years. It was less than one-half mile from the main thoroughfare and located in a neighborhood of single-family dwell- ings. The building, constructed specifically for the purpose of providing space for physicians’ offices, was situated across the street from City General, the hospital where Dr. Lou continued to maintain staff privileges. Three physicians (including Dr. Lou) formed a corporation to purchase the building, and each doctor paid that corporation a monthly rental fee, which was based primarily on square footage occupied, with an adjustment for shared facilities such as a waiting room and rest rooms.

Office Layout

One of the physicians, Dr. Salis, was an orthopedic surgeon who occupied the entire top floor of the building. Dr. Lou and the other physician, Dr. Charles, were housed on the first floor. Total office space for each (a small reception area, two examining rooms, and private office) encompassed a 15' × 75' area (see Exhibit 8/1). The basement was reserved for storage and maintenance equipment.

The reception area and each of the other rooms that made up the office space opened on to a hallway that Dr. Lou shared with Dr. Charles. The two physicians and their respective staff members had a good rapport; and because the reception desks opened across from each other, each staff was able to provide support for the other by answering the phone or giving general informa- tion to patients when the need arose.

P R A C T I C E B A C K G R O U N D

both08.indd 591both08.indd 591 11/11/08 11:46:25 AM11/11/08 11:46:25 AM

C A S E 8 : D R . L O U I S M I C K A E L5 9 2

The large, common waiting room was used by both physicians. After report- ing to their own doctor’s reception area, patients were seated in this room, then paged for their appointment via loudspeaker.

Dr. Charles was in his mid-forties and in general practice as well. His patients ranged in age from 18 to their mid-eighties, and his office was open from 10:00 A.M. until 7:30 P.M. on Mondays and Thursdays, and from 9:30 A.M. until 4:30 P.M. on Tuesdays and Fridays; no office hours were scheduled on Wednesday. He and Dr. Lou were familiar with each other’s patient base, and each covered the other’s practice when necessary.

Staff and Organizational Structure

Dr. Lou’s staff included one part-time bookkeeper (who doubled as office manager) and two part-time assistants. The assistants’ and bookkeeper’s time during office hours was organized in such a way that one individual was always at the recep- tion desk and another was “floating,” taking care of records, helping as needed in the examining rooms, and providing office support functions. There were never more than two staff people on duty at one time, and the assistants’ job descrip- tions overlapped considerably (see Exhibit 8/2 for job descriptions). Each staff member could handle phone calls, schedule appointments, and usher patients to the examining rooms for their appointments.

Although Dr. Lou was “only a phone call away” from patients on a 24-hour basis, patient visits were scheduled only four days a week. On two of these days (Monday and Thursday) hours were from 9:00 A.M. to 5:00 P.M. The other two were “long days” (Tuesday and Friday), when office hours officially were extended to 7:00 P.M. in the evening, but often ran much later.

Front Desk Treatment

Room 1 Treatment

Room 2 Private Office

Dr. Charles’ Office Space

Front Door

Common Waiting Room

75'

15'

Exhibit 8/1: Shared Office Space of Dr. Mickael and Dr. Charles

both08.indd 592both08.indd 592 11/11/08 11:46:26 AM11/11/08 11:46:26 AM

5 9 3

The fifth weekday (Wednesday) was reserved for meetings, which were an important part of Dr. Lou’s professional responsibilities because he was a mem- ber of several hospital committees. He was one of two physicians residing on the ten-member board of the hospital, and this, along with other committee responsibilities, often demanded attendance at a variety of scheduled sessions from 7:00 A.M. until late afternoon on “meetings” day. Wednesday was used by the staff to process patient insurance forms, enter patient data into their charts and accounts receivables, and prepare bills for processing.

When paperwork began to build after the PPS regulations came into effect in the 1980s, patients had many problems dealing with the forms that were required for reimbursement of services received in a physician’s office. It was the option of physicians whether to “accept assignment” (the standard fee designated by an insurance payor for a particular health care service provided in a medical office). A physician who chose to not accept assignment must bill patients for health care services according to a fee schedule (“a usual charge” industry profile) that was preset by Medicare for Medicare patients. Most other insur- ances followed the same profile. Dr. Lou agreed to accept the standard fee, but the patient had to pay 20 percent of that fee, so the billing process became quite complicated.

In 1988, Dr. Lou decided that he needed to computerize his patient informa- tion base to provide support for the billing function. He investigated the possib- ility of using an off-site billing service, but it lacked the flexibility needed to deal with regulatory changes in patient insurance reporting that occurred with greater

Exhibit 8/2: Job Descriptions for Dr. Mickael’s Office Staff

Job Description: Bookkeeper/Office Manager

In addition to responsibility for bookkeeping functions, ordering supplies, and reconciling the orders with supplies received, this person knows how to run the reception area, pull the file charts, and usher patients to treatment rooms. In addition, she can handle phone calls, schedule appointments, and enter office charges into patient accounts using the computer.

Job Description: Assistant 1

The main responsibility of this position is insurance billing. Additional duties include running the reception area, pulling and filing charts, ushering patients to treatment rooms, answering the phone, scheduling appointments, entering office charges into patient accounts, and placing supplies received into appropriate storage areas.

Job Description: Assistant 2

This is primarily a receptionist position. The duties include running the reception area, pulling and filing charts, ushering patients to treatment rooms, answering the phone, scheduling appointments, entering office charges into patient accounts, and placing supplies received into appropriate storage areas.

S T A F F A N D O R G A N I Z AT I O N A L S T R U C T U R E

both08.indd 593both08.indd 593 11/11/08 11:46:29 AM11/11/08 11:46:29 AM

C A S E 8 : D R . L O U I S M I C K A E L5 9 4

and greater frequency. Dr. Charles was asked if he wished to share expenses and develop a networked computer system. But the offer was declined; he preferred to take care of his own billing manually.

An information systems consultant was hired to investigate the computer hardware and software systems available at that time, make recommendations for programs specifically developed for a practice of this type, and oversee installation of the final choice. After initial setup and staff training, the con- sultant came to the office only on an “as needed” basis, mostly to update the diagnostic and procedure codes for insurance billing.

Computerization was an important addition to the record-keeping process, and the system helped increase the account collection rate. However, at times prob- lems would arise when the regulations changed and third-party payors (insurance companies) consequently adjusted procedure or diagnosis codes. For example, there was often some lag time between such decisions and receipt of the informa- tion needed to update the computer program. Fortunately, the software chosen remained technologically sound, codes were easily adjusted, and vendor support was very good.

Although the new system helped to adjust the account collection rate, fitting this equipment into the cramped quarters of current office space was a problem. To keep the computer paper and other supplies out of the way, Dr. Lou and his staff had to constantly move the heavy boxes containing this stock to and from the basement storage area.

January 8, 1994 (Morning)

On Dr. Lou’s way in that day, the bookkeeper told him that something needed to be done about accounts receivable. Lag time between billing and reimburse- ment was again getting out of hand, and cash flow was becoming a problem (see Exhibits 8/3 through 8/6 for financial information concerning the practice).

Cash flow had not been a problem prior to PPS, when billing for the health care provided by Dr. Lou was simpler, and payment was usually retrospectively reimbursed through third-party payors. However, as the regulatory agencies continued to refine the codes for reporting procedures, more and more pressure was being placed on physicians to use additional or extended codes in reporting the condition of a patient. Speed of reimbursement was a function of the accur- acy with which codes were recorded and subsequently reported to Medicare and other insurance companies. In part, that was determined by a physician’s ability to keep current with code changes required to report illness diagnoses and office procedures.

Cathy, the receptionist, had a list of patients who wanted Dr. Lou to call as soon as he came in. She also wanted to know if he could squeeze in time around lunch hour to look at her husband’s arm; she believed he had a serious infec- tion resulting from a work-related accident. The wound looked pretty nasty this morning, and Cathy thought maybe it should not wait until the first available appointment at 7:00 P.M.

both08.indd 594both08.indd 594 11/11/08 11:46:29 AM11/11/08 11:46:29 AM

5 9 5

Exhibit 8/3: Trial Balance at December 31

1991 1992 1993

Debits

Cash $15,994 $9,564 $8,666 Petty cash 50 100 100 Accounts receivable 19,081 25,054 28,509 Medical equipment 11,722 11,722 11,722 Furniture and fixtures 3,925 3,925 3,361 Salaries 117,455 124,608 132,325 Professional dues and licenses 1,925 1,873 1,816 Miscellaneous professional expenses 1,228 2,246 3,232 Drugs and medical supplies 2,550 1,631 2,176 Laboratory fees 2,629 524 1,801 Meetings and seminars 2,543 838 3,880 Legal and professional fees 5,525 2,057 5,400 Rent 16,026 16,151 18,932 Office supplies 4,475 3,262 4,989 Publications 1,390 406 401 Telephone 1,531 1,451 2,400 Insurance 8,876 9,629 11,760 Repairs and maintenance 3,547 4,240 5,352 Auto expense 1,009 1,487 3,932 Payroll taxes 3,107 2,998 3,780 Computer expenses 846 938 1,905 Bank charges 438 455 479 $225,872 $225,159 $256,918 Credits

Professional fees $172,281 $172,472 $204,700 Interest income 992 456 210 Capital 46,122 43,137 40,117 Accumulated depreciation (furniture and fixtures) 1,692 2,151 2,796 Accumulated depreciation (medical equipment) 4,785 6,943 9,095 $225,872 $225,159 $256,918

Exhibit 8/4: Gross Revenue and Accounts Receivable

December 31

1979 1986

Gross revenue $116,951 $137,126 Accounts receivable 15,684 32,137

J A N U A R Y 8 , 1 9 9 4 ( M O R N I N G )

both08.indd 595both08.indd 595 11/11/08 11:46:29 AM11/11/08 11:46:29 AM

C A S E 8 : D R . L O U I S M I C K A E L5 9 6

“I’m just starting to see my patients, and I’ve already done a half-day’s work,” Dr. Lou thought when he buzzed his assistant to bring in the first patient. He was 45 minutes late.

Patient Profile

When Dr. Lou walked into Treatment Room 1 to see the first patient of the day, Doris Cantell, he was thinking about how his practice had grown over the years. His practice maintained between 800 and 900 patients in active files. In com- parison to other solo practitioners in the area, this would be considered a fairly large patient base.

“Well, how are you feeling today?” he asked the matronly woman. Doris and her husband, like many of his patients, were personal friends.

In the beginning years of practice, Dr. Lou’s patients had been primarily younger people with an average age in the mid-thirties; their average income was approximately $15,000. Their families and careers were just beginning, and it was not unusual to spend all night with a new mother waiting to deliver a

Exhibit 8/5: Statements of Income for the Years Ended December 31

1991 1992 1993

Operating Revenues

Professional fees $172,281 $172,472 $204,700 Interest income 992 456 210

Total revenues 173,273 172,928 204,910

Operating Expenses

Salaries (Dr. Mickael, Staff) 117,455 124,608 132,325 Professional dues and licenses 1,925 1,873 1,816 Miscellaneous professional expenses 1,228 2,246 3,232 Drugs and medical supplies 2,550 1,631 2,176 Laboratory fees 2,629 524 1,801 Meetings and seminars 2,543 838 3,880 Legal and professional fees 5,525 2,057 5,400 Rent 16,026 16,151 18,932 Office supplies 4,475 3,262 4,989 Publications 1,390 406 401 Telephone 1,531 1,451 2,400 Insurance 8,876 9,629 11,760 Repairs and maintenance 3,547 4,240 5,352 Auto expense 1,009 1,487 3,932 Payroll taxes 3,107 2,998 3,780 Computer expenses 846 938 1,905 Bank charges 438 455 479

Total operating expenses 175,100 174,794 204,560 Net Income (Loss) ($1,827) ($1,866) $350

both08.indd 596both08.indd 596 11/11/08 11:46:30 AM11/11/08 11:46:30 AM

5 9 7

baby. Although often dead tired, he enjoyed the closeness of the professional rela- tionships he had with his patients. He believed that much of his success as a physician came from “going that extra mile” with them.

Many things had changed. Today all pregnancies were referred to specialists in the obstetrics field. His patients ranged in age from 3 to 97, with an average of 58 years; their median income was $25,000. Most were blue-collar workers or recently retired, and their health care needs were quite diverse.

Approximately 60 percent of Dr. Lou’s patients were subsidized by Medicare insurance, and most of the retired patients carried supplemental insurance with other third-party payors. Three types of third-party payors were involved in Dr. Lou’s practice: (1) private insurance companies, such as Blue Cross and Blue Shield; (2) government insurance (Medicare and Medicaid); and (3) preferred provider organizations.

Preferred provider organizations and health maintenance organizations were forms of group insurance that emerged in response to the need to cut the costs of providing health care to patients, which resulted in the prospective payment system. Both types of organizations developed a list of physicians who would

Exhibit 8/6: Balance Sheets at December 31

1991 1992 1993

Assets

Capital equipment Medical equipment $11,722 $11,722 $11,722 Furniture and fixtures 3,925 3,925 3,361 Less-accumulated depreciation (6,477) (9,094) (11,891)

Total capital equipment 9,170 6,553 3,192 Current assets

Cash 15,994 9,564 8,666 Petty cash 50 100 100 Accounts receivable 19,081 25,054 28,509

Total current assets 35,125 34,718 37,277 Total assets $44,295 $41,271 $40,467

Liabilities

Current liabilities Income taxes payable ($639) ($653) $122 Dividends payable 1,158 1,154 1,154

Total current liabilities 519 501 1,276 New income (1,188) (1,213) 228 Less dividends 1,158 1,154 1,154 Retained earnings (2,346) (2,367) (926) Capital 46,122 43,137 40,117

Total owner’s equity 43,776 40,770 39,191 Total liabilities and owner’s equity $44,295 $41,271 $40,467

PAT I E N T P R O F I L E

both08.indd 597both08.indd 597 11/11/08 11:46:30 AM11/11/08 11:46:30 AM

C A S E 8 : D R . L O U I S M I C K A E L5 9 8

accept their policies and fee schedules; using the list, subscribers chose the doctor from whom they preferred to obtain health care services.

Contrary to reimbursement policies of most other major medical third-party payors, PPOs and HMOs covered the cost of office visits, and the patient might not be responsible for any percentage of that cost. Although the physician had to accept a fee schedule determined by the outside organization, there was an advantage to working with these agencies. A physician might be on the list of more than one organization, and a practice could maintain or expand its patient base through the exposure gained from being listed as a health service provider for such organizations.

Those patients who were working usually had coverage through work bene- fits. Some were now members of a PPO. Dr. Lou was on the provider list of the Northeast Health Care PPO; only a few of his patients were enrolled in the government welfare program.

“How’s your daughter doing in college?” Dr. Lou asked. He had a strong rap- port with the majority of his patients, many of whom continued to travel to his office for medical needs even after they moved out of the immediate area. “Are you heading south again this winter, and are you maintaining your ‘snowbird’ relationship with Dr. Jackson?”

It was not unusual for patients to call from as far away as Florida and Arizona during the winter months to request his opinion about a medical problem, and Doris had called last year to ask him to recommend a physician near their winter home in the South. Because of this personal attention, once patients initiated health care with him, they tended to continue. Dr. Lou had lost very few patients to other physicians in the area since he began to practice medicine. The satisfac- tion experienced by his patients provided the only marketing function carried out for the practice. Any new patients (other than professional referrals) were drawn to the office through word-of-mouth advertising.

Dr. Lou: Profile of the Physician

Dr. Lou had grown older with many of his patients. His practice spanned more than three generations; a lot of families had been with him since he opened his doors in 1961. Caring for these people, many of whom had become personal friends, was very important to him. However, as the character of the health care industry was changing, Dr. Lou was beginning to feel that he now spent entirely too much time dealing with the “system” rather than taking care of patients.

Eighty-year-old Mr. Spence was a good example. Three weeks before, he was discharged from the hospital after having a pacemaker implanted. He had been living at home with his wife, and although she was wheelchair bound, they managed to maintain some semblance of independence with the assistance of part-time care. Lately, however, the man had become more and more confused. The other night he wandered into the yard, fell, and broke his hip. His reentry to the hospital so soon meant that a great deal of paperwork would be needed to justify this second hospital admission. In addition, Dr. Lou expected to receive

both08.indd 598both08.indd 598 11/11/08 11:46:30 AM11/11/08 11:46:30 AM

5 9 9

calls from their children asking for information to help them determine the best alternatives for the care of both parents from now on. He had never charged a fee for such consultation, considering this to be an extension of the care he norm- ally provided.

“Things are really different now,” he thought. “Under this new system I don’t have the flexibility I need to determine how much time I should spend with a patient. The regulations are forcing me to deal with business issues for which I have no background, and these concerns for costs and time efficiency are very frustrating. Medical school trained me in the art and science of treating patients, and in that respect I really feel I do a good job, but no training was provided to prepare me to deal with the business part of a health care practice. I wonder if it’s possible to maintain my standards for quality care and still keep on practic- ing medicine.”

Local Environment

The actual number of city residents had not changed appreciably since the early 1960s, although suburban areas had grown considerably. In the mid-1970s, a four-lane expressway, originally targeted for construction only one mile from the center of the downtown area, was put in place about eight miles farther away. Within five years, most of the stores followed the direction of that main highway artery and moved to a large mall situated about five miles from the original center of the city. Many of the former downtown shops then became empty. Government offices, banking and investment firms, insurance and real estate offices, and a university occupied some of this vacated space; it was used for quite different (primarily service-oriented) business activities.

Numerous residential apartments devoted to housing for the elderly and low- income families were built near the original, downtown shopping area. Several large office buildings (where much space was available for rent) and offices for a number of human services agencies relocated nearby.

As he headed across the street to lunch in the hospital dining room, Dr. Lou was again thinking about how things had changed. At first, he had been one of a few physicians in this area. Within the past ten years, however, many new physicians had moved in.

Competition

Two large (500-bed) hospitals within easy access of the downtown area had been in operation for over 40 years. One was located immediately within the city lim- its on the north side of the city; the other was also just inside city limits on the opposite (south) side. They were approximately three miles apart and competed for a market share with City General, a 100-bed facility. This smaller hospital was only two blocks from the old business district; it was the only area hospital where Dr. Lou maintained staff privileges. Exhibit 8/7 contains a map showing the loca- tion of the hospitals and Dr. Lou’s office.

C O M P E T I T I O N

both08.indd 599both08.indd 599 11/11/08 11:46:31 AM11/11/08 11:46:31 AM

C A S E 8 : D R . L O U I S M I C K A E L6 0 0

The two large hospitals had begun to actively compete for staff physicians (physicians in private practice who paid fees to a hospital for the privilege of bringing their patients there for treatment). In addition, these two health care institutions offered start-up help for newly certified physicians by providing low-cost office space and ensuring financial support for a certain period of time while they worked through the first months of practice.

City General recently began subsidizing physicians coming into the area by providing them with offices inside the hospital. Most of these physicians worked in specialty fields that had a strong market demand, and the hospital gave them a salary and special considerations, such as low rent for the first months of practice, to entice them to stay in the area.

These doctors served as consultants to hospital patients admitted by other staff physicians and could influence the length of time a patient remained in the hos- pital. This was an extremely important issue for the hospital, because under the new regulations a long length of stay could be costly to the facility. All third-party insurors reimbursed only a fixed amount to the hospital for patient care; the pay- ment received was based on the diagnosis under which a patient was admitted. Should a patient develop complications, a specialist could validate the extension of reimbursable time to be added to the length of stay for that patient.

In the past few years, many services to patients provided by all these hospitals changed to care provided on an outpatient basis. Advancements in technology made it possible to complete in one day a number of services, including tests and some surgical procedures, which formerly required admission into the hospital and an overnight stay. Many such procedures could also be done by physicians in their offices, but insurance reimbursement was faster and easier if a patient had them done in a hospital. As an example of the degree of change involved,

W. P ost R

d.

Airport

W. Ridge Rd. W 31

St ar

r R d.

Be ac

h

PE N

N R

R

Hospital

NYC RR

E. P ost

Rd.

E. Ridge Rd.

W ar

re n R

d .

HospitalTownhall Rd.

Dr. Mickael

Pe nt

ar R

d.

City General

E 31

Exhibit 8/ 7: Map of the Hospitals and Dr. Mickael’s Medical Office

both08.indd 600both08.indd 600 11/11/08 11:46:31 AM11/11/08 11:46:31 AM

6 0 1

in the mid-1980s, outpatient gross revenue was only 18 percent of total gross revenue for City General. In 1992 this figure was projected to be approximately 30 percent.

January 8, 1994 (Lunchtime)

“May I join you?” Dr. Lou looked up from his lunch to see Jane Duncan, City General’s hos-

pital administrator, standing across the table. “I’d like to talk with you about something.”

Dr. Lou thought he knew what this was about. The hospital had been recruit- ing additional staff physicians (doctors who owned private practices in and around the city). A number of these individuals held family practice certification, a prerequisite for staff privileges in many hospitals. The recruitment program offered financial assistance to physicians who were family practice specialists wish- ing to move into the area, and also subsidized placement of younger physicians who had recently completed their residencies. In contrast to physicians designated as general practitioners, who had not received training beyond that received through medical school and a residency, “family practitioners” received additional training and passed state board exams written to specifically certify a physician in that field.

Last week after a hospital staff meeting, Duncan had caught him in the hall and wanted to know if Dr. Lou had thought about his retirement plans. “It’s really not too soon,” she had said. Dr. Lou knew that one of the methods used to bring in “new blood” was to provide financial backing to a physician wishing to ease out of practice, helping pay the salary of a partner (usually one with family practice certification) until the older physician retired.

“She wants to talk to me again about retirement and taking on a partner,” he thought. “But I’m only in my late fifties. And I’m not ready to go to pasture yet! Besides, there’s really no room to install a partner in my office.”

January 8, 1994 (Afternoon)

After lunch Dr. Lou ran back to the office to take a look at Cathy’s husband’s arm before regular office hours started. This was a work-related case. As he treated the patient, he began thinking about industrial medicine as an alternative to full-time office practice. Right then the prospect seemed quite appealing. He had invest- igated the idea enough to know that there were only a few schools that provided this kind of training but one was within driving distance (Exhibit 8/8 contains information on industrial medicine).

As health costs rose over the past decade, manufacturing organizations began to feel the cost pinch of providing health care insurance to employees. Some larger companies in the area began to recognize the cost benefit of maintaining a pri- vate physician on staff who was trained in the treatment of health care needs for

J A N U A R Y 8 , 1 9 9 4 ( A F T E R N O O N )

both08.indd 601both08.indd 601 11/11/08 11:46:32 AM11/11/08 11:46:32 AM

C A S E 8 : D R . L O U I S M I C K A E L6 0 2

industrial workers. Dr. Lou had been considering going back for postgraduate training in industrial medicine, and while wrapping the man’s arm, he began to think about working for a large corporation.

“Work like that could have a lot of benefits; it would give me a chance to do something a little different, at least part time for now,” he thought. “The income was almost comparable to what I net for the same time in the office, and some days I might even get home before 9:00 P.M.!”

End of the Day

As he was putting on his coat and getting ready to leave, Dr. Charles, the physi- cian from across the hall, phoned to ask if Dr. Lou might be interested in buying him out. “I think you could use the space,” he said, “and my practice is going down the tubes. I can’t seem to get an upper hand with the finances. I’ve had to borrow every month to maintain the cash flow needed to pay my bills because patients can’t keep up with theirs. City General has offered me a staff position, and I’m seriously considering it. I thought I’d give you first chance.” After some minutes of other “office talk,” Dr. Charles said good night.

“If I wanted to take on a new partner, that could work out well,” thought Dr. Lou. “It might be interesting to check into this. I wonder what his asking price would be? It could not be too much more than the value of my practice; although his patients are a bit younger and some of his equipment is a little newer. The

Exhibit 8/8: Industrial Medicine as a New Career for Dr. Mickael

“Industrial Medicine” is an emerging physician specialty. Training in this new field entails postgraduate work and board certification.

As yet, only a few schools provide such training. One is located in Cincinnati, Ohio, which is geographically close enough to be feasible for Dr. Mickael. The time spent in actual attendance amounts to one two-week training period beginning in June of the year in which a physician is accepted for the training. Two additional training periods are each one week in duration: these take place in the months of October and March. After this, the physician was expected to individually study for and take the board certification exams, which were given only once per year; the exams were comprehensive and extended over a two-day period.

Training Program Costs: Industrial Medicine

University Residency: Three, on-site class sessions $4,000.00 Per night cost for room 47.87 Books and supplies (total) 580.53 Transportation, Air:

Three, round-trip fares $1,650.00 Transportation, Ground:

Car rental, per week with unlimited mileage $125.45

both08.indd 602both08.indd 602 11/11/08 11:46:32 AM11/11/08 11:46:32 AM

6 0 3

initial hospital proposal to buy me out indicated that my practice was worth about $175,000. So that means I should be able to negotiate with Dr. Charles for a little less than $200,000.”

It was 9:30 P.M. when Dr. Lou finally left the office, and he still had hospital rounds to make. “This is another situation caused by these insurance regula- tions,” he thought. “I feel as though I’m continuously updating patients’ hospital records throughout the day, and more of my patients require hospitalization more often than they did when they were younger. All things being equal, I’m earning considerably less for doing the same things I did a decade ago, and in addition the paperwork has increased exponentially. There has to be a better way for me to deal with this business of practicing medicine.”

E N D O F T H E D AY

both08.indd 603both08.indd 603 11/11/08 11:46:33 AM11/11/08 11:46:33 AM