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.
