Introduction-Background The case study our group will be presenting on is Bandon Medical Associates (BMA), a small physician group practice based in Oregon founded by Dr. Delgado and a colleague about 20 years ago. The small practice is unfortunately, facing a serious budget crisis in excess of $145k, when the senior physician and others believed there would be a surplus of nearly $100k. With this unforeseen quandary, BMA will not be able to procure new equipment that is in high demand or pay physicians their anticipated annual bonuses.
Our goal is to analyze the perplexity of how BMA could possibly be facing a deficit of $145k and present our findings after carefully reviewing their financial processes and overall budget. BMA is comprised of six physicians, medical assistants as extenders and during the times of high demand, additional physicians and medical assistants. BMA has been successful over the years and developed a reputable reputation within in the community. Several years age.
BMA joined Coos Bay Health System which is a large integrated delivery system encompassed primary care & multi-specialty group practices, free-standing laboratory, a free-standing radiology unit, two acute care hospitals, a nursing home, a home health agency, and a hospice. In addition to these services being provided, Coos Bay is a primary service provider in negotiating third party contracts in which BMA allocated a portion to Coos Bay. One problematic area that raised concern was lowering the rate of one of the group’s visit types in addition to other problematic areas within the physician group practice.
BMA’s physicians are paid a base salary and a bonus. There are a variety of methods used to establish physicians pay rates. For example, if a psychiatrist is joining a new practice, annual pay scales may be set according to the national average for psychiatrists and bonuses might then be paid based on the individual psychiatrist’s income to the practice compared to the national average. Organizational Problems Some of the financial difficulties that stifled BMA were the third party payers which can be costly and create problems for the practice with billing mistakes and inconsistencies.
Each of the four visit type: initial visit, routine physical, intensive follow up, and routine follow up were allocated into the budget. They were allocated based on the number of visits and affixed a price per visit – which was different between the four visits. Physicians were available 1,500 hours a year which is about 47 weeks out of the year. However, physicians were available to see outpatients 32 hours a week and patients in the hospital as needed, leaving time for continuing medical education and vacations.
However, physicians only worked 1,100 hours annually and extenders worked 1,400 hours annually with no foreseen bonus. The immense predicament here was, physicians were paid separately from BMA when they saw patients at the hospital, extenders were paid straight salary no bonus & physicians could opt to share “their” bonuses with extenders if they so choose to, and 42 percent of physicians base salary was pre-set as expected revenue generated; ten percent would be kept in reserve until the year end.
The rationale behind the 42 percent and ten percent reserve was to account for the physicians reaching 95 percent of the group practice total revenue in order to receive a bonus. During the current year’s budget, physicians, extenders and medical supplies were treated as variable expenses for budgeting purposes – this budgeting approach was used to capture costs to each visit type.
Some of the budgets fixed expense included rent, cleaning, administrative costs, receptionists, office supplies, and other overhead cost associated. Other administrative services were provided by Coos Bay – billing, collections, and information services and were allocated for in the budget. Some of the budgetary issues include the cost responsibility centers and how their allocated, as mentioned above – the salaries & bonuses structure coupled with the work hours of physicians, and the four visit types of each group.