I am not sure how I ended up here, but I really like working in spreadsheets. I tend to think in spreadsheets. For a guy who talks a lot, you’d think my go-to application would be the word processor, but most often I default to a spreadsheet.
If I am at my laptop, odds are high there is an open spreadsheet lurking somewhere on my desktop. Generally, I am graphing a set of data – yes, I use Excel more to make pictures than to stare at numbers. But one of the things I most like about Excel is model building. A model is simply a numeric representation of some particular idea about the future – a set of inputs, a set of assumptions, some formulas that define how the inputs and assumptions interact with one another, then some outputs that show how the world would work out if all the math in the model somehow proved to be right.
The great thing about a model is that it forces you to take a stand on the assumptions. When asking, ‘how much will this cost?’ or ‘how fast with that grow?’ Excel tolerates no wishy-washy answers like, ‘A lot’ or ‘I don’t know.’ Be right or be wrong, but you must be specific. It is really good exercise for clarifying your strategic thinking.
So, I have a little modeling question for you about the financial future of your practice and the income of your partners.
The big question, the one we want our imaginary model to answer, is, ‘What is our overhead rate going to look like in five years?’ And the more important corollary, ‘What will that mean to physician income?’
As administrators can attest, physicians focus on the overhead question – a lot. So, consider this a public service whether you are on the asking or receiving end of the question.
When we think of overhead expenses, it is right and best to think of them in terms of a percentage of revenue. How much of our revenue do we spend on staff? Rent? Billing? IT? Donuts?
So, let’s start with the revenue assumptions that go into our little model.
Odds are your reimbursement rates have been flat, at best, over the past several years. We know the Medicare numbers. In 1998, the Medicare conversion factor used to determine physician reimbursement was $36.69 per RVU. This year, it is $36.04. No typo there…two decades and the most important number in your Medicare reimbursement is technically, absolutely down a smidge. Commercial rates are all over the place, but it is probably a safe assumption that your commercial rates, as a multiple of Medicare, were higher in 1998 than they are now, right?
Let’s set the assumption on future reimbursement rate increases to 0.
Dang, this will take more time than I thought, so we’ll continue with a surprise bonus post tomorrow. Two in one week! Christmas in July!