Rogue Valley Physicians finds innovative ways to provide cost-effective care

William Husum, MD, president, Rogue Valley Physicians PC, Medford, Ore., believes in a practical, reliable and cost-effective approach to providing healthcare. The group’s MGMA high-performer achievement in profitability, cost management and accounts receivable (A/R), suggests he is meeting that goal. 

“We aim for optimum health outcomes,” he explains. “Since each patient has a distinct health profile and differing needs over time, a physician must be free to decide on the length of any given visit so provider time is decidedly not something you want to slim down and dictate.”

How they did it

The group operates as a corporation. Patients are considered customers; employees are physicians or physician groups; and the assets are central services such as a laboratory and diagnostic lab equipment, accounting, billing and ordering. Each physician’s premises is independently owned, and the corporation rents space from the owner/ practitioner. 

Central services are self-funding and cover the corporation’s management, operating and administrative costs. Rogue Valley Physicians distributes all profits to providers at the end of the year. The only assets owned by the corporation are the shared lab and imaging equipment, which are fully depreciated. As a result, it is an easy buy-in to the corporation of $500. Each physician has an equal number of shares and equal input relating to operations. 

“All matters of human resources exempt from federal or state regulation devolve to the practice,” Husum explains. “Financial targets are set by the practice owner not the corporation, so salaries, costs and levels of profitability vary widely among physician employees. Whether a doctor wants to see 10 patients a month or 100, the doctor is free to decide that and manage his or her individual profit and loss statement so the practice is profitable enough to survive and thrive. All physicians participate in the net profit of the ancillary income under Stark compliance rules, and at the end of each year, they receive the net profit of the individual profit and loss statements.” 

Independence

Physicians are responsible for delivering medical care while cost management and profitability are left to administrators. The trend is toward the hospital group model, which builds profitability based on higher reimbursement costs with no reduction of labor costs. Very often that means shorter doctor/patient face time and more patients per doctor, which raises costs for testing, procedures and medical records. 

“Due to shorter patient times, doctors rely on more testing and procedures to make their diagnoses,” Husum explains. “Also, the costs of hospital-based labs and imaging services tend to be higher than office-based labs and imaging centers because the reimbursement rate covers the high cost of hospital overhead.  Every one of us is committed to keeping costs reasonable by ensuring that our central services are self-funding and accounting practices are impeccable. We track each provider as a separate profit center. All cash receipts they generate from their individual practice flows directly to the provider.”

Groups are charged for their direct expenses (drugs and medicine); predetermined clinic expenses (rent, utilities, shared staff); and their portion of corporate overhead. Each provider must maintain a reserve to cover monthly expenses. At the end of each year, all accumulated profits are paid out to each provider.

The group empowers physicians to stretch patient visits to suit the needs of patients, yet there is equal emphasis on providing quality care and prospering as entrepreneurs. The chief financial officer reviews all providers’ accumulated year-to-date profits, outstanding accounts receivable and reserve requirement on a monthly basis. Any provider who is not covering reserve requirements does not receive a paycheck until reserve requirements are met. 

Physicians 

The 19 doctors and 10 nonphysician providers are involved in every aspect of the practice, he says. “Each physician has chosen to be a small business owner and is responsible for establishing a working model of profitability that employees understand and can help to tweak. Each enjoys managing costs and deciding on income goals and how many hours and patients provide that level of incomes. This is a personal decision.” 

The secret sauce, Husum says, is the ability to tap the passion and commitment of every person in the group. 

“These sources of profitability might not appear to flow directly to the bottom line yet virtually always do,” he adds.

“Every one of us is committed to the high standard of care we set out to deliver when we went to medical school,” Husum says, “and the wonderful thing is we practice medicine in just that way. Since each provider determines the number of patients seen in a day and how much time is slotted for each patient visit, we all continue to grow without sacrificing our values. In this way, we encourage our employees to do the same — to move through the practice in career paths while contributing ideas and energy. 

It’s the natural way. People are happy, so it’s not surprising that people stay with us on average 10 years — and my right-hand assistant has been with me for 35 years.”