I had an awesome first week at the Banner Medical Group Corporate Office! The first thing I learned: finance is really complicated! Banner is huge corporation grossing over 1 billion dollars in revenue every month and employing over 40,000 people. Things are slower at the beginning of the year here, for most of the budgeting and management occurs towards the end of the year. However, I’m still learning a lot about the medical industry. This week, I learned about the accrual based accounting model, as opposed to the cash model that most people are familiar with.
My mentor told me that under the accrual basis of accounting, revenues are reported on the income statement when they are earned, and expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.
This first time my mentor explained this to me, I was more confused than I had ever been in my life, but he later elaborated, essentially telling me that it was just a more accurate way for accounting for expenses by taking count of expenses when they made and subtracting them later when the expense is actually processed.
I also learned about the process of taking on a new doctor. Physicians produce large amounts of revenue, up to millions of dollars. However, they also have many expenses. They need medical assistants, nurses, technicians, and equipment. On top of this, financial analysts in the medical industry need to account for the physician's productivity. Variations in their productivity make the process of budgeting a hospital system especially difficult. In order to simplify this process, the financial managers at Banner have found a way to quantify a doctor’s productivity. They account for tangible values, such as the number of patients that a doctor visits in a day, a specific doctor’s specialty, and how often these patients return. Then, they simplify this value into a number that they call a relative value unit (RVU). Then, hospitals project the doctor’s productivity to determine how efficient they will be. Typically they become progressively more productive for 5 years. After this process, the management knows how long it will take for this doctor to become profitable and whether to hire her.
As someone who has never had a doctor in the family, I hadn't thought about how important accounting and finance was in a medical environment; seeing this from different angles is pretty eye opening. Now that you have been in Banner for a week and seen some of the financial inner workings, what side do you take on the following debate: On one side, some people believe that hospitals and pharmaceuticals should be charity organizations because it is immoral to charge people for the state of their health, and on the other side, some people say that doctors are heroes who deserve to be paid for saving someone's life?
ReplyDeleteGreat post! How much might a doctor's productivity vary from one hospital to another?
ReplyDeleteThis is pretty interesting. Are you going to focus on the accrual model? Also, you mentioned doctors' RVU. Do the hospitals measure other individuals' RVU like that of the technicians or of the nurses or even of the equipment?
ReplyDeleteIt's really exciting how you learned about the accrual model. I have a few questions to ask. Why does the productiveness of a doctor increase over the first five years? I understand that, as time passes, the doctor is able to find better solutions to problems and etc. but why won't it increase after that. I hope to continue to learn more from your service project!
ReplyDeleteHi Manu. Really interesting project about Medicial Finance. Except for Banner, did you try to interact with any other Medicial Companies? Why I'm asking is because maybe different hospitals have different opinions right? So that is why I'm asking if you took a overall decision. Thank you in advance.
ReplyDeleteRegards,
Harikrishna
Hi Manu, thanks for the very insightful blog post. I understand that large medical corporations like Banner would engage in accrual accounting. Are you aware of any benefit for a small, independent medical group to employ accrual accounting? Are there any down sides for a large medical corporation like Banner to measure efficiency using RVU's?
ReplyDeleteRegards,
Armaan
Hello Manu! Thanks again for choosing such an under-researched topic that is so important to so many! With absolutely no experience medically in my family or friends, I had no idea medicine was so financially involved. That being said, do you think this close involvement in finance will impact the performance of a medical professional in a significant positive or negative fashion? And if so, do you think the continuation of this practice is healthy as an industry?
ReplyDeleteHey Manu, your research has been very intriguing and interesting to read and I have learned some things that I never would have really stumbled upon otherwise. Does the type of doctor, whether he or she is a surgeon in a particular field or a primary physician, have a high impact on determining the quantifiable productivity of the doctor?
ReplyDeleteHey Manu,
ReplyDeleteI didn't know it took so much just to employ one physician! How much time does it take to account for a single physician's productivity? I look forward to your next post.
Wow the process of hiring new doctors seems a lot more complicated than I imagined. Also, is there any particular reason they look at productivity trends over a 5 year period?
ReplyDelete