The value of money

I have come to find little more annoying than when people bandy about the saying, “it’s not worth my time.” “It’s not worth my time,” and its variations, are said very frequently by people in all walks of life. I have heard it uttered by accountants and lawyers and doctors; high and low income employers and employees alike. I used to say it. I even used to believe it.

I no longer do and I no longer allow “it’s not worth my time” to be said in my office. You should not either. It is a dangerous way to go through life, and probably contributes to our nation’s debt problem. From the perspective of a small business owner in start-up, it is financial foolhardy. If you don’t agree, I’ll convince you. Here is list of what things are worth.

5 UA’s per day = 1.5 hours of your receptionist = 3 months of website hosting

1 new patient = 15 hours for you employee = 2 ½ months of internet access

1 follow-up patient = monthly cell phone bill = one 100 quantity container of UA dipsticks = monthly utility bill

2 vasectomies = 1 year of VOIP phone service = 1 week of print advertising

And on and on and on! It’s endless. If you own your own small business, you will come to view money in this way. If you don’t, you may not own your small business for very long. This view of money does not mean you are cheap and certainly does not mean that you are a money grubber. It simply means that you have a healthy respect for money. People who lived through the great depression, like my grand parents, viewed money in this way, as do many successful small business owners, entrepreneurs, and professionals, regardless of their actual, W2, income levels. I believe that the majority of people that buy lots of toys, whether those toys are expensive clothing or iPods or cameras or jewelry etc, do not value money, or at least they don’t understand the value of money. Perhaps these spenders have never been taught to view money from the proper perspective. If you are an employee, earning $15/hour, here is what things cost: I mean actually cost factoring income taxes and social security.

iPOD = $250 = 23 hours of work

Earrings = $400 = 46 hours of work

Camera phone = $500 = 53 hours work

Expensive dinner = $100 = 10 hours work

Wedding = $25K = 2333 hours work (Don’t scoff. I actually know an employee at my former job that did just this, incredible as it seems.)

Now lets assume you are the small business owner, for example a doctor. The typical doctor has an overhead of 50% (actually, it’s higher). Therefore, to purchase the above items, really all toys, you must earn the following, factoring in overhead and taxes:

· iPod = $250 = actually costs $750 = 6 new patients

· Earrings = $400 = actually costs $1000 = 333 UA’s

· Camera phone = $500 = actually costs $1250 = 25 follow-up patients

· Expensive dinner = $100 = actually costs $300 = 75 venopunctures (blood draws)

· Wedding = $25K = actually costs $75K = on average 625 patient encounters

Sobering, eh?

So, the next time you decide not to squeeze in the add-on client or to see the consult or to buy the iPod, think first about the costs. Perform the analysis, and then decide. You may decide that the activity is worth your time or it isn’t, but the decision will be a rational one.

## Friday, February 23, 2007

### Going Solo?: Learn the value of money

## Tuesday, February 20, 2007

### Regression to the mean and your solo practice

Understanding Regression to the Mean

Several weeks ago I wrote a post on my blog concerning the seemingly inexplicable fluctuations in patient volume and business that occur from time to time. The post commented that no matter when business is slow, people could come up with a reason that explains it; be it hot weather, cold weather, rain, sun, school, vacation, flooding, drought, what-ever. But here is the actual reason. Are you ready? The answer is. . . regression toward the mean and standard deviation. Yes, that is it. Nothing sexy. Nothing that will end up on the OPRAH Show. Not THE SECRET. No, nothing metaphysical. Just basic statistics. The variations in patient flow, or most any set of numbers, can all be explained by regression towards the mean and standard deviation.

Mean means average. What’s average? Go back to school. Standard deviation is a measure of scatter, or variance, around the average number. Actually, standard deviation is the square root of the variance. Regression to the mean is a concept that states that within a set of numbers, like sales figures, or weekly patient encounters, or golf scores, values will vary, or scatter, around an average, but ultimately they will tend towards the average number. For example, an amateur golfer may have an average score of 92, but may shoot anywhere from 86 to 105, depending on the day. Therefore, if he has 3-4 rounds in the 80’s, rather than feeling as if he “gets” the game of golf, he should realize that based on regression to the mean, he will ultimately be brought back to reality and have 3-4 rounds in the hundreds. Regression to the mean will teach him that he never “got” golf and he is likely not improving, but that he hit a hot streak that will unfortunately reverse itself. Enjoy it while you can. It’s fleeting.

In medical practice, and I suspect in sales and other similar businesses, regression towards the mean has real significance. I have friends in commercial sales that constantly have ups and downs in their numbers. Regression to the mean can explain these hot streaks and cold streaks. Medical practice is no different. For example, let’s say you have a new practice and you see 30 patients per week, on average. Some weeks you may see 35, and other weeks you may see 25. Then after 4 weeks in a row of seeing 33 patients, your office manager tells you that she believes it is time to hire additional staff to accommodate the increased volume. Maybe you should and maybe you shouldn’t, but you may just be experiencing normal variability. You may want to consider standard deviation and regression to the mean as an explanation, especially before you hire additional staff and take on additional expenses. Conversely, when things are slow, and you are in the throws of a downturn, you may wish to determine if this is within your typical variability. Weekly patient volume may simply tend toward the mean. You don’t need to panic or lay off staff. Or maybe you do, but you can calculate it pretty easily.

Let’s go a bit deeper into the terms average, variance, and standard deviation. Mean is the average number, variance is the scatter around that number, and standard deviation is the square root of the variance. In English, if an entire population takes a test, 95% of people should have results that fall within 2 standard deviations from the mean. For our amateur golfer, we’ll take his previous 20 scores, average them and compute the standard deviation. Sparing you the math, his average score is 92 and his standard deviation is 3. This means that 95% chance, on any given day he’ll score between 86 and 98. If he tells you he broke 80, he’s full of it. Statistically speaking, it’s not possible. From your practice’s perspective, you can go back and calculate the average number of visits per week x 6 months, and then compute the standard deviation (use Excel, its easy), on that number. If you saw, on average, 27.1 visits and had a standard deviation of 3.7, then you can determine that any variation in weekly traffic between ~19 and 34 patients per week (2 Standard deviations from the mean) is normal, 95% chance, and will even out over time.

You may find my argument/explanation overly analytical. It certainly is not the stuff that winds up in best selling self-help books. It is way too boring! Yet I find it very comforting to know the wild fluctuations in busy-ness that I have seen in my own practice have such mundane explanations, rather than magical ones. Now I can turn my positive energy, you know, the-send-a-positive-vibe type, toward increasing my average number of encounters per week and to decreasing my standard deviation by eliminating no shows, etc. Or I can pray that my average goes up, while I market myself.

Hope you stayed awake.

Several weeks ago I wrote a post on my blog concerning the seemingly inexplicable fluctuations in patient volume and business that occur from time to time. The post commented that no matter when business is slow, people could come up with a reason that explains it; be it hot weather, cold weather, rain, sun, school, vacation, flooding, drought, what-ever. But here is the actual reason. Are you ready? The answer is. . . regression toward the mean and standard deviation. Yes, that is it. Nothing sexy. Nothing that will end up on the OPRAH Show. Not THE SECRET. No, nothing metaphysical. Just basic statistics. The variations in patient flow, or most any set of numbers, can all be explained by regression towards the mean and standard deviation.

Mean means average. What’s average? Go back to school. Standard deviation is a measure of scatter, or variance, around the average number. Actually, standard deviation is the square root of the variance. Regression to the mean is a concept that states that within a set of numbers, like sales figures, or weekly patient encounters, or golf scores, values will vary, or scatter, around an average, but ultimately they will tend towards the average number. For example, an amateur golfer may have an average score of 92, but may shoot anywhere from 86 to 105, depending on the day. Therefore, if he has 3-4 rounds in the 80’s, rather than feeling as if he “gets” the game of golf, he should realize that based on regression to the mean, he will ultimately be brought back to reality and have 3-4 rounds in the hundreds. Regression to the mean will teach him that he never “got” golf and he is likely not improving, but that he hit a hot streak that will unfortunately reverse itself. Enjoy it while you can. It’s fleeting.

In medical practice, and I suspect in sales and other similar businesses, regression towards the mean has real significance. I have friends in commercial sales that constantly have ups and downs in their numbers. Regression to the mean can explain these hot streaks and cold streaks. Medical practice is no different. For example, let’s say you have a new practice and you see 30 patients per week, on average. Some weeks you may see 35, and other weeks you may see 25. Then after 4 weeks in a row of seeing 33 patients, your office manager tells you that she believes it is time to hire additional staff to accommodate the increased volume. Maybe you should and maybe you shouldn’t, but you may just be experiencing normal variability. You may want to consider standard deviation and regression to the mean as an explanation, especially before you hire additional staff and take on additional expenses. Conversely, when things are slow, and you are in the throws of a downturn, you may wish to determine if this is within your typical variability. Weekly patient volume may simply tend toward the mean. You don’t need to panic or lay off staff. Or maybe you do, but you can calculate it pretty easily.

Let’s go a bit deeper into the terms average, variance, and standard deviation. Mean is the average number, variance is the scatter around that number, and standard deviation is the square root of the variance. In English, if an entire population takes a test, 95% of people should have results that fall within 2 standard deviations from the mean. For our amateur golfer, we’ll take his previous 20 scores, average them and compute the standard deviation. Sparing you the math, his average score is 92 and his standard deviation is 3. This means that 95% chance, on any given day he’ll score between 86 and 98. If he tells you he broke 80, he’s full of it. Statistically speaking, it’s not possible. From your practice’s perspective, you can go back and calculate the average number of visits per week x 6 months, and then compute the standard deviation (use Excel, its easy), on that number. If you saw, on average, 27.1 visits and had a standard deviation of 3.7, then you can determine that any variation in weekly traffic between ~19 and 34 patients per week (2 Standard deviations from the mean) is normal, 95% chance, and will even out over time.

You may find my argument/explanation overly analytical. It certainly is not the stuff that winds up in best selling self-help books. It is way too boring! Yet I find it very comforting to know the wild fluctuations in busy-ness that I have seen in my own practice have such mundane explanations, rather than magical ones. Now I can turn my positive energy, you know, the-send-a-positive-vibe type, toward increasing my average number of encounters per week and to decreasing my standard deviation by eliminating no shows, etc. Or I can pray that my average goes up, while I market myself.

Hope you stayed awake.

## Friday, February 16, 2007

### Going Solo?: How to start a lab.

As a physician, whether you are solo or part of a group, you will need access to laboratory services. One year ago, when I was first venturing off into my new, grand experiment, I had no clue about the most basic of basics: how I was going to order tests such PSAs or urine cultures or cytologies or a CBCs or anything for that matter, because in my prior offices, where I was an employee, I just told someone to do it and it got done, usually. Now, I would have to make it happen. Fortunately, we have a free market economy and numerous commercial labs exist and they compete for your business. All you need to do is set up an account with them. This is quite easy, and if the lab is good, at least with regard to business development, they will send a representative to you without you even having to ask, and the lab rep will do all the work. The lab itself will supply you with equipment needed to collect the specimens, such as blood tubes and specimen cups and tourniquets, and some sort of mechanism to get your patients’ clinical specimens to their lab for processing and reporting, be it a drop box or a UPS Bag, etc. Often, they will even supply a centrifuge. It is really quite easy, and you will find that after setting up accounts with 1 or 2 labs that you can function as a doctor. Pretty cool, eh? National labs include Quest Diagnostics and LabCorp, among others.

Of course, setting up an account with a lab like Quest Diagnostics is not really what I mean when I talk about setting up a lab. At some point, you may decide that you need to bring certain tests that you rely upon heavily in-house. In my case, as a male infertility specialist, I felt the need to do semen analyses on-site. Blood work I could send out, but the semen analysis, well, this needed to be done by me since it is the cornerstone of the male infertility evaluation. In addition, as a urologist, I needed to do urine analysis dip sticks. Urine cultures could go out, but UA’s need to be done while the patient is in the examination room. You may have your own reasons to bring a certain test in-house, but this decision should not be taken lightly since running a lab can be challenging and expensive, and yes, a pain in the unowhat. But it can also be profitable and can help you transition your medical practice into a medical enterprise that can serve as a source of income in and of itself, independent from your own physical labor.

In the USA, physician office labs are classified into several categories; waived, moderate complexity, and high complexity. Getting into the details of each is way outside the scope of this post, but suffice it to say that most physician office labs (POLs) fall into the waived or moderate complexity umbrellas. Waived tests actually include a subset of tests known as the PPM, which stands for physician performed microscopy. You can just perform waived tests in your office without having to go through any licensing or credentialing paperwork from a federal agency known as CLIA. Waived tests do not require a CLIA number. Everything else does. A dipstick UA is a waived test, as is a urine pregnancy test or a home blood glucose kit, among others. You can find a list on CLIA’s website. Basically, any test that is so easy to do and so difficult to misinterpret that a lay person can do it may be classified as waived. PPM’s include looking at a urine sediment for red blood cells or looking at semen sample for the presence or absence of sperm. Again, you can find a list of other PPM’s on CLIA’s website. Google, CLIA.

High complexity tests include things like cell culture and PCR and FISH and certain blood smears etc. High complexity tests demand a tremendous degree of expertise to perform and the outcome of these tests may result in major impact on a patient’s care. These tests require that you have a CLIA license that allows you to do high complexity tests. In order to get this authority, you must have either a PhD in that particular field, be a Board Certified Pathologist, or have 12 months or more of continuous basic science lab experience doing the type of work you plan to do in your office lab. Or you can hire one of the above people. Very few physicians have high complexity labs in their offices.

Most physician office labs fall into the moderate complexity sphere. Examples of moderate complexity tests include automated CBC’s and SMA’7s and my test, the semen analysis. Similar to performing high complexity labs, in order to perform moderate complexity labs in your office, you must have a CLIA authorization, ie a CLIA ID number.

Obtaining a CLIA ID is not difficult. All you need to do is locate CLIA’s website (Google) or via your state’s department of health website, and download an application. You fill it out, pay a $100 fee, and several weeks later you have a CLIA ID number. With that CLIA ID number, you can then legally do the tests and bill insurance companies for them. Sometimes, the insurers will even pay!

Of course, having a CLIA ID number does not mean that you do the tests well or that you have a good quality lab. It just means that you jumped through a licensing hoop. You do, however, want to run a high quality lab. It is important. I believe that you should strive to maintain high standards of quality in your lab for the following reasons; because it is just plain right, because you take pride in your work, because patient care requires it, and because referring physicians rely upon it. It is also the law. Agencies exist that can help you in this regard and after you enroll in their courses and follow their recommendations, these agencies will provide your lab with accreditation. I used an agency named COLA. I don’t know what COLA stands for, but you can google, COLA, and you’ll find it. COLA accredited my lab and through their 20 hour Lab Director Course I learned how to run and maintain a high quality andrology lab. I learned lessons on topics such as quality control and quality assurance; lessons that have spilled over into how I run my entire office. Having my own lab has been not only profitable for me, but has been a marvelous professional growth experience. I recommend it.

Now there is a new system on the market, and I recommend it highly. You know why, I designed it. Here is the link www.ilabtqm.org.

Good luck.

Of course, setting up an account with a lab like Quest Diagnostics is not really what I mean when I talk about setting up a lab. At some point, you may decide that you need to bring certain tests that you rely upon heavily in-house. In my case, as a male infertility specialist, I felt the need to do semen analyses on-site. Blood work I could send out, but the semen analysis, well, this needed to be done by me since it is the cornerstone of the male infertility evaluation. In addition, as a urologist, I needed to do urine analysis dip sticks. Urine cultures could go out, but UA’s need to be done while the patient is in the examination room. You may have your own reasons to bring a certain test in-house, but this decision should not be taken lightly since running a lab can be challenging and expensive, and yes, a pain in the unowhat. But it can also be profitable and can help you transition your medical practice into a medical enterprise that can serve as a source of income in and of itself, independent from your own physical labor.

In the USA, physician office labs are classified into several categories; waived, moderate complexity, and high complexity. Getting into the details of each is way outside the scope of this post, but suffice it to say that most physician office labs (POLs) fall into the waived or moderate complexity umbrellas. Waived tests actually include a subset of tests known as the PPM, which stands for physician performed microscopy. You can just perform waived tests in your office without having to go through any licensing or credentialing paperwork from a federal agency known as CLIA. Waived tests do not require a CLIA number. Everything else does. A dipstick UA is a waived test, as is a urine pregnancy test or a home blood glucose kit, among others. You can find a list on CLIA’s website. Basically, any test that is so easy to do and so difficult to misinterpret that a lay person can do it may be classified as waived. PPM’s include looking at a urine sediment for red blood cells or looking at semen sample for the presence or absence of sperm. Again, you can find a list of other PPM’s on CLIA’s website. Google, CLIA.

High complexity tests include things like cell culture and PCR and FISH and certain blood smears etc. High complexity tests demand a tremendous degree of expertise to perform and the outcome of these tests may result in major impact on a patient’s care. These tests require that you have a CLIA license that allows you to do high complexity tests. In order to get this authority, you must have either a PhD in that particular field, be a Board Certified Pathologist, or have 12 months or more of continuous basic science lab experience doing the type of work you plan to do in your office lab. Or you can hire one of the above people. Very few physicians have high complexity labs in their offices.

Most physician office labs fall into the moderate complexity sphere. Examples of moderate complexity tests include automated CBC’s and SMA’7s and my test, the semen analysis. Similar to performing high complexity labs, in order to perform moderate complexity labs in your office, you must have a CLIA authorization, ie a CLIA ID number.

Obtaining a CLIA ID is not difficult. All you need to do is locate CLIA’s website (Google) or via your state’s department of health website, and download an application. You fill it out, pay a $100 fee, and several weeks later you have a CLIA ID number. With that CLIA ID number, you can then legally do the tests and bill insurance companies for them. Sometimes, the insurers will even pay!

Of course, having a CLIA ID number does not mean that you do the tests well or that you have a good quality lab. It just means that you jumped through a licensing hoop. You do, however, want to run a high quality lab. It is important. I believe that you should strive to maintain high standards of quality in your lab for the following reasons; because it is just plain right, because you take pride in your work, because patient care requires it, and because referring physicians rely upon it. It is also the law. Agencies exist that can help you in this regard and after you enroll in their courses and follow their recommendations, these agencies will provide your lab with accreditation. I used an agency named COLA. I don’t know what COLA stands for, but you can google, COLA, and you’ll find it. COLA accredited my lab and through their 20 hour Lab Director Course I learned how to run and maintain a high quality andrology lab. I learned lessons on topics such as quality control and quality assurance; lessons that have spilled over into how I run my entire office. Having my own lab has been not only profitable for me, but has been a marvelous professional growth experience. I recommend it.

Now there is a new system on the market, and I recommend it highly. You know why, I designed it. Here is the link www.ilabtqm.org.

Good luck.

## Thursday, February 15, 2007

### I'm better, not so upset.

I guess it was theice storm, but my phones are back up. I was able to forward to my cell and home all day yesterday and did not miss a call. I actually had a nice day, spent with my family.

## Wednesday, February 14, 2007

### I'm very, very upset!

I know have written in the past extolling the virtues of VONAGE VOIP phone service. Today, there is no service on my lines, and there website is down. When I call customer support, after an extensive phone tree, I get a message that says, "All our technitions are busy. Call back later."

Not good! Your service is only as good as its support systems. Yet my optimum voice VOIP is working. Dare I switch? I may. . .

At least I can vent to the blogosphere.

Not good! Your service is only as good as its support systems. Yet my optimum voice VOIP is working. Dare I switch? I may. . .

At least I can vent to the blogosphere.

## Monday, February 12, 2007

### Going Solo?: Become familiar with Bayes Theorem

If you remember having taken statistics 101 class, you may remember Bayes Theorem. If you don’t remember it, I’ll tell you about it. Bayes Theorem deals with probabilities and allows you to calculate, mathematically, the likelihood of possible outcomes. Bayes Theorem has been around for many years, and has many useful applications, from gambling to medicine to business; even to the military.

Mathematically, Bayes Theorem has a formula that for an outcome involving 2 variables, A and B, is as follows:

Outcome = Probability A x Probability B or P(A) x P(B)

For 3 variables, the formula would read:

Outcome = P(A) x P(B) x P(C)

For example, with a coin toss, there are 2 possible outcomes, head or tails, and each outcome has a probability of 0.5, or 50%. Therefore, the probability of flipping 2 heads in a row is:

Outcome = 0.5(H) x 0.5(H) = 0.25 or a 25% probability that you will flip heads twice in a row.

Flipping it 3 times in a row can be calculated to have a probability of:

Outcome = 0.5(H) x 0.5(H) x 0.5(H) = 0.125 or a 12.5% chance that you will successfully calls “head” thrice in row.

So what? How can this be applied in a real world setting. Well here are some examples.

In the 1960’s, a military transport jet exploded over the mid-Atlantic ocean. The plain happened to be carrying 3 nuclear weapons. Not good! The military had to find them. So using a complex Bayesian formula, the scientists imputed multiple probabilities to output an outcome, in this case the most likely location of the nuclear devices. The inputs were variables such as likely wind speed and direction, flight speed and altitude, weapon trajectory, debris scatter, etc. And you know what. They found the 3 devices. True story.

In medicine, Bayes theory is quite helpful as well. We use it to help guide patients toward or away from treatment/evaluation plans as part if an informed consent discussion. We may not actually do the math, but the logic is Bayesian. For example, let’s say a patient has a 3mm ureter stone. We know that this stone will have a 75% chance of passing spontaneously, or on its own, and that some forms of surgical intervention can have a 5% complication likelihood. We therefore use our mental Bayes Theorem calculation to guide the patient towards an observational approach.

In the business side of medicine, we use this as well, or at least you should if you want to be successful. Lets say you want to buy a CT scanner (I don’t, but other urologist have been). The CT costs $250K. You look back through your records and determine that you order 1000 CT scans per year for a variety of diagnoses. Therefore, in theory, by charging $500 per CT scan, you can get $500K in revenue in year 1. Hey!!! Not bad, I may do dat! But here is where Bayes Theorem ought to be invoked, in my view.

You know that Medicare will pay this year for the CT scans, but you figure that, let’s say 20% chance, they may not pay next year. That’s just how it goes. And you have 200 potential Medicare patients. In addition, you don’t know whether the commercial payers will pay at all, but you figure that 20% of patients will have insurance that pays off the bat, and after an extensive application process, insurance for another 50% will ultimately pay within the first year, but not before you spend 50K on staff salaries to get credentialed. For 30% of patients, you will not get paid, period. You then figure that the carriers will pay on average $250 per scan, including Medicare. Therefore, here is the calculation:

Outcome = 200x250(Medicare) + 800x250x0.20 + 800x250x 0.50 -50,000 = $140K in year one.

Outcome year 2 = 200 x 250 x 0.8 – 200 x 250 x 0.2 + 800 x 250 x 0.75 = $150K in year 2.

See, you can tell for a medical practice that orders 1000 scans per year, it may be worth it to buy a CT scanner for $250K since you can make back your investment in 2 years. You can play with the numbers for best, and even more importantly, worse case scenarios. For example, let’s change the Medicare number to 100 scans per year and the commercial number to 200 scans per year, with the dollar amount per scan held constant.

Outcome year 1 = 100 x 250 + 200 x 250 x 0.2 + 200 x 250 x 0.5 -50K = negative $2500.

Obviously, here it is not worth it. In fact, even if you decided not do scans on the 50% of patients whose insurers would ultimately pay, given the expensive and timely application process, it is still not a worthwhile endeavor, since you’d only recoup $22,500 in year one. This number might not even cover a yearly payment if you financed the CT scanner with a bank loan. And, you would not even make back your investment for 10 years. Since every year, reimbursements go down or are cut entirely, you would likely never make back the investment.

Of course, most of us don’t actually do the math, the actual math, in Bayes Theorem, but we think this way. We perform what are called heuristic algorithms. It is how we determine whether or not to invest in a certain piece of office equipment or software etc. If you find yourself on the fence and unsure about whether or not to invest in an expensive piece of equipment, you may want to use Bayes Theorem to run the numbers and help you decide.

Hope you liked the post.

Mathematically, Bayes Theorem has a formula that for an outcome involving 2 variables, A and B, is as follows:

Outcome = Probability A x Probability B or P(A) x P(B)

For 3 variables, the formula would read:

Outcome = P(A) x P(B) x P(C)

For example, with a coin toss, there are 2 possible outcomes, head or tails, and each outcome has a probability of 0.5, or 50%. Therefore, the probability of flipping 2 heads in a row is:

Outcome = 0.5(H) x 0.5(H) = 0.25 or a 25% probability that you will flip heads twice in a row.

Flipping it 3 times in a row can be calculated to have a probability of:

Outcome = 0.5(H) x 0.5(H) x 0.5(H) = 0.125 or a 12.5% chance that you will successfully calls “head” thrice in row.

So what? How can this be applied in a real world setting. Well here are some examples.

In the 1960’s, a military transport jet exploded over the mid-Atlantic ocean. The plain happened to be carrying 3 nuclear weapons. Not good! The military had to find them. So using a complex Bayesian formula, the scientists imputed multiple probabilities to output an outcome, in this case the most likely location of the nuclear devices. The inputs were variables such as likely wind speed and direction, flight speed and altitude, weapon trajectory, debris scatter, etc. And you know what. They found the 3 devices. True story.

In medicine, Bayes theory is quite helpful as well. We use it to help guide patients toward or away from treatment/evaluation plans as part if an informed consent discussion. We may not actually do the math, but the logic is Bayesian. For example, let’s say a patient has a 3mm ureter stone. We know that this stone will have a 75% chance of passing spontaneously, or on its own, and that some forms of surgical intervention can have a 5% complication likelihood. We therefore use our mental Bayes Theorem calculation to guide the patient towards an observational approach.

In the business side of medicine, we use this as well, or at least you should if you want to be successful. Lets say you want to buy a CT scanner (I don’t, but other urologist have been). The CT costs $250K. You look back through your records and determine that you order 1000 CT scans per year for a variety of diagnoses. Therefore, in theory, by charging $500 per CT scan, you can get $500K in revenue in year 1. Hey!!! Not bad, I may do dat! But here is where Bayes Theorem ought to be invoked, in my view.

You know that Medicare will pay this year for the CT scans, but you figure that, let’s say 20% chance, they may not pay next year. That’s just how it goes. And you have 200 potential Medicare patients. In addition, you don’t know whether the commercial payers will pay at all, but you figure that 20% of patients will have insurance that pays off the bat, and after an extensive application process, insurance for another 50% will ultimately pay within the first year, but not before you spend 50K on staff salaries to get credentialed. For 30% of patients, you will not get paid, period. You then figure that the carriers will pay on average $250 per scan, including Medicare. Therefore, here is the calculation:

Outcome = 200x250(Medicare) + 800x250x0.20 + 800x250x 0.50 -50,000 = $140K in year one.

Outcome year 2 = 200 x 250 x 0.8 – 200 x 250 x 0.2 + 800 x 250 x 0.75 = $150K in year 2.

See, you can tell for a medical practice that orders 1000 scans per year, it may be worth it to buy a CT scanner for $250K since you can make back your investment in 2 years. You can play with the numbers for best, and even more importantly, worse case scenarios. For example, let’s change the Medicare number to 100 scans per year and the commercial number to 200 scans per year, with the dollar amount per scan held constant.

Outcome year 1 = 100 x 250 + 200 x 250 x 0.2 + 200 x 250 x 0.5 -50K = negative $2500.

Obviously, here it is not worth it. In fact, even if you decided not do scans on the 50% of patients whose insurers would ultimately pay, given the expensive and timely application process, it is still not a worthwhile endeavor, since you’d only recoup $22,500 in year one. This number might not even cover a yearly payment if you financed the CT scanner with a bank loan. And, you would not even make back your investment for 10 years. Since every year, reimbursements go down or are cut entirely, you would likely never make back the investment.

Of course, most of us don’t actually do the math, the actual math, in Bayes Theorem, but we think this way. We perform what are called heuristic algorithms. It is how we determine whether or not to invest in a certain piece of office equipment or software etc. If you find yourself on the fence and unsure about whether or not to invest in an expensive piece of equipment, you may want to use Bayes Theorem to run the numbers and help you decide.

Hope you liked the post.

## Friday, February 09, 2007

### The Joy of Insomnia

Many very successful people have insomnia, at least from time to time. Contrary to what big pharma might lead us to believe, intermittent insomnia is normal, and I think even healthy. I get my best thinking done while in the throws of it. If you have insomnia, don’t reach for the pills, but instead take comfort in the fact that you have sleepless nights in common with history's great thinkers; Edison, Einstein, Churchill, Lincoln,etc. Embrace it.

Insomnia, its a friend to the solo practitioner. Insomnia means you are being challenged, and challenge means change, and change means growth. During a sleepless night, when the house is silent and phone is quiet and you have no interruptions, plan your practices’s next move. Brainstorm, run numbers, question, challenge. You’ll be fine tomorrow and you'll sleep tomorrow night, or the next night or the night after that. Embrace the insomnia. It’s good.

Insomnia, its a friend to the solo practitioner. Insomnia means you are being challenged, and challenge means change, and change means growth. During a sleepless night, when the house is silent and phone is quiet and you have no interruptions, plan your practices’s next move. Brainstorm, run numbers, question, challenge. You’ll be fine tomorrow and you'll sleep tomorrow night, or the next night or the night after that. Embrace the insomnia. It’s good.

## Wednesday, February 07, 2007

### Payroll

Unless you mother is your only employee and you plan to never take an income, you will have to do payroll. In fact, unless you have a true micropractice, or a really efficient mother, payroll will most likely be your largest single expense. When I was first going solo, payroll caused me a significant amount of stress because I had no idea how to do it or what it involved. Now I do, and because I’m a nice guy, I’m going to save you stress.

Payroll is broken down into 2 parts; salary and taxes. Salary is how much you pay your workers, for example $10.00 per hour x 40 hours per week. Most people in the US are paid bimonthly, or every 2 weeks. Therefore, you will shell out $10.00 per hour x 40 hours per week x 2 weeks, or $800 per $10/hr employee per pay period. Right? Wrong. You forgot taxes. And the taxes ain’t insignificant.

In my state, NY, I must add ~12.5% to every pay check per pay period per employee. That covers my portion, as the employer, for things like Medicare, Social Security, FICA, and NY state unemployement insurance. It may vary in your local, but not by much. So, in actuality, I must pay ($800 x 12.5%) = $100 + $800 = $900 per $10/hr employee per pay period. So that’s it, right? Maybe.

If you do your own payroll, I mean really do it, and calculate the taxes and pay the taxes to the appropriate governmental agencies at the appropriate times, then that is it. And I do know people who do this, some of them even successfully. The problem with doing this “nitty gritty” of payroll is that any mistakes and miscalculations, even honest ones, that you may make are dealt with via draconian fines and penalties. Perhaps for an experienced small business owner, bringing this degree of payroll management in house makes sense, but for you—and certainly me—in the beginning, it does not.

Instead you can outsource payroll services to one of many payroll companies, such as ADP or Paychex. I happen to use Paychex. For their services, I pay an additional $40 per employee per pay period. Not cheap, but worth it, at least for right now. They call me every other Tuesday and I give them the hours. They do the rest. 2 minutes on a bad day to do payroll. Though in my practice I am frugal, I believe that this represents money well spent. Any other way, for me, is to have frugality cross over into the realm of penny wise and pound foolish.

So there you have it, payroll, as taught by The Independent Urologist School of Bidness.

Payroll is broken down into 2 parts; salary and taxes. Salary is how much you pay your workers, for example $10.00 per hour x 40 hours per week. Most people in the US are paid bimonthly, or every 2 weeks. Therefore, you will shell out $10.00 per hour x 40 hours per week x 2 weeks, or $800 per $10/hr employee per pay period. Right? Wrong. You forgot taxes. And the taxes ain’t insignificant.

In my state, NY, I must add ~12.5% to every pay check per pay period per employee. That covers my portion, as the employer, for things like Medicare, Social Security, FICA, and NY state unemployement insurance. It may vary in your local, but not by much. So, in actuality, I must pay ($800 x 12.5%) = $100 + $800 = $900 per $10/hr employee per pay period. So that’s it, right? Maybe.

If you do your own payroll, I mean really do it, and calculate the taxes and pay the taxes to the appropriate governmental agencies at the appropriate times, then that is it. And I do know people who do this, some of them even successfully. The problem with doing this “nitty gritty” of payroll is that any mistakes and miscalculations, even honest ones, that you may make are dealt with via draconian fines and penalties. Perhaps for an experienced small business owner, bringing this degree of payroll management in house makes sense, but for you—and certainly me—in the beginning, it does not.

Instead you can outsource payroll services to one of many payroll companies, such as ADP or Paychex. I happen to use Paychex. For their services, I pay an additional $40 per employee per pay period. Not cheap, but worth it, at least for right now. They call me every other Tuesday and I give them the hours. They do the rest. 2 minutes on a bad day to do payroll. Though in my practice I am frugal, I believe that this represents money well spent. Any other way, for me, is to have frugality cross over into the realm of penny wise and pound foolish.

So there you have it, payroll, as taught by The Independent Urologist School of Bidness.

## Tuesday, February 06, 2007

### Going Solo?: Build your practice by bootstrapping.

Going solo requires a huge commitment personally and financially and is an enormous undertaking. The task of developing a mature practice can seem daunting if approached with the wrong frame of mind; that is if you only see the end product and how much work and effort and money must be needed to get there. Do not think this way and do not try to get there to fast. Successful entrepreneurs don’t try for everything at once. They start their businesses with what they have available to them, financially, skill wise, etc, and they simply start-up. As they grow, they re-invest the capital they acquire into their business and grow it. They outsource, hire people, get expert advice, but really, in essence, they just do it. No excuses. The founders of Nantucket Nectars started their company from an apartment and sold the beverages from a skiff in the harbor. They said, in later interviews, that if they knew all that would be needed to start and grow their business, they would never have done it in the first place. Interesting! Professional services are the same, only easier.

If you look at a mature medical practice or law firm, you’ll see a large office with numerous staff, furniture, complex phone systems, equipment, supplies, credentialing issues, licensing, financing, etc. When you start your practice, you have none of that, nor do you have any chance of getting it anytime soon. But you do have 2 of the most important things, a brain and drive. With those 2 qualities, you can bootstrap your way to the rest. You can pick yourself up by the bootstraps and grow. Here is an example.

You have $15000 to put into the practice. Ok. You get a laptop computer, leased over 2 years, for $26 per month. You get a cell phone with service contract for $75 per month. You search for a 1-3 session per week sublease from another doctor for $300 per session. Voila’, you’re in business. You outsource your billing and credentialing, and you do the rest. As you grow, you reinvest and decide to bring your billing in house and have your biller double duty as a receptionist and a medical assistant. You grow some more, and decide that now is a good time to rent an office of your own and you find a small one. You grow some more and decide to take some laboratory work, such as doing a CBC, in-house. It turns out to be profitable, and you re-invest the earnings to purchase an ultrasound unit. You grow some more, and decide to hire a nurse practitioner to see patients as well. You grow some more and decide to reinvest and buy an office. You grow some more, and sell your office to buy an office building and now you lease unused office space to others. And on and on and on. You get the point.

Over the course of your career, by this method, you can develop into a significant and sizable enterprise that has true value, and you started it from scratch. You bootstrapped and built one success upon another. You used early successes to bankroll future successes. You are self made. It is not easy, but neither is working for someone else. Feels good, eh? I believe that this is the perspective that one must take when faced with the challenge of going solo.

Good luck!

If you look at a mature medical practice or law firm, you’ll see a large office with numerous staff, furniture, complex phone systems, equipment, supplies, credentialing issues, licensing, financing, etc. When you start your practice, you have none of that, nor do you have any chance of getting it anytime soon. But you do have 2 of the most important things, a brain and drive. With those 2 qualities, you can bootstrap your way to the rest. You can pick yourself up by the bootstraps and grow. Here is an example.

You have $15000 to put into the practice. Ok. You get a laptop computer, leased over 2 years, for $26 per month. You get a cell phone with service contract for $75 per month. You search for a 1-3 session per week sublease from another doctor for $300 per session. Voila’, you’re in business. You outsource your billing and credentialing, and you do the rest. As you grow, you reinvest and decide to bring your billing in house and have your biller double duty as a receptionist and a medical assistant. You grow some more, and decide that now is a good time to rent an office of your own and you find a small one. You grow some more and decide to take some laboratory work, such as doing a CBC, in-house. It turns out to be profitable, and you re-invest the earnings to purchase an ultrasound unit. You grow some more, and decide to hire a nurse practitioner to see patients as well. You grow some more and decide to reinvest and buy an office. You grow some more, and sell your office to buy an office building and now you lease unused office space to others. And on and on and on. You get the point.

Over the course of your career, by this method, you can develop into a significant and sizable enterprise that has true value, and you started it from scratch. You bootstrapped and built one success upon another. You used early successes to bankroll future successes. You are self made. It is not easy, but neither is working for someone else. Feels good, eh? I believe that this is the perspective that one must take when faced with the challenge of going solo.

Good luck!

## Saturday, February 03, 2007

### Going solo?: Here is a brief, incomplete, and novice view on money.

Why did you go to medical school? I’m sure you went, in the first place, for noble reasons, and medicine is certainly a noble profession. But nobility don’t pay the bills. For that you need cash. You need money. I don’t think I ever understood money until I went into solo practice. After 10 months in practice, I have a much clearer understanding of money, one in which I wish I had earlier in my career. Oh well.

Money in a medical practice, or I suppose any business, takes various forms: income, revenue, cash flow, and cash reserves.

Money in a medical practice, or I suppose any business, takes various forms: income, revenue, cash flow, and cash reserves.

Revenue is how much money comes into the practice over the course of, lets say, a year. For example, a business that does $200,000 per year in sales has $200,000 a year in revenue. A busy 4 man urology practice in Long Island may bring in $3 million per year in revenue generated from seeing patients and doing procedures. Another practice may have revenue of $1 million per year.- Income, on the other hand, is revenue minus expenses. If the less busy practice in the above example has $200,000 in expenses, than the income is, potentially, $800,000, divided amongst the number of partners. Not too shabby. Income is how much you make. Income is the number on the bottom of your yearly W2.
- Cash reserves, the 3rd form of money, represents the pile of money that is left over after you pay your expenses and take your income. Cash reserves are how much you have in the bank, or brokerage account, or CD etc. In the above example, if the $1 million dollar per year practice paid only $500,000 in income to the doctors, it would have $300,000 in cash reserves, minus Uncle Sam’s cut, at the end of year. Cash reserves are extremely important because they insulate the practice from fluctuations in cash flow, can be used to secure low interest loans, and grow with interest if placed in interest baring accounts. Cash reserves keeps your business alive when things get slow and

cash reserves enable you to grow through capital improvements.

Finally we have cash flow. Cash flow defines how the money moves though your practice. Cash flow is basically what happens to money once it enters your practice; where it goes, what is it used for, and, perhaps most importantly, when it leaves. Cash flow is a very important concept that you will one day become very familiar with in your new practice. Cash flow is determined by a variety of factors and is similar to expenses, but has a more dynamic quality to it. Cash flow dictates many of the operational decisions that a practice must make on a regular basis and when managed poorly, it can drag a practice down to the bottom of the sea. Cash flow is the life’s blood of a practice.

Income is what most young physicians, in-fact most physicians and most people—value most. Higher incomes are better, of course! And for employees, this is the most important number. However, as an owner I can tell you this: of the various forms that money can take, income, by far, is the least important to the growing practice. Let me tell you why.

Practice A has $1,000,000 per year in revenue minus $900,000 in expenses that include payroll for staff and the doctors. The corporation/practice has $100,000 left over, which the physicians take in bonus income. The following year, the sono probe breaks, is off warranty, and needs repair. The repair costs $15,000. Now the doctors have 4 options: pay cash out of their personal accounts, use a loan or line of credit, lease a whole new sono unit (this option is, surprisingly, actually not much more expensive then repairing a broken probe), or do nothing. The physicians essentially bled the practice dry by converting what should have been cash reserves into income and the emergency money will cost the practice a premium, either in higher interest rates, higher tax burdens, early withdrawal penalties, lease pre-payment penalties, etc. Emergency money costs the most to obtain, and when you don’t have cash reserves, it costs even more.

For a start-up and growing practice, in my view, the order of importance should be cash reserves, cash flow, revenue, then income.

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