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What Veterinarians Can Learn From Physician Practice Models

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  • Seagulls in “Finding Nemo”
  • Transcript

    • 1. What Veterinarians Can Learn From Physician Practice Models
    • 2. Contact Information
      • Mark J. M c Gaunn, CPA/PFS, CFP ® President MJM Financial Advisors, LLC 114 Turnpike Road, Suite 107 Westborough, MA 01581-2861 phone: (978) 405-3133 e-fax: (978) 776-2609 e-mail: [email_address]
      • web: www.mjmfa.com
    • 3. Human Medicine
      • Physicians position themselves in their market with radical and not-so radical ideas to:
        • Respond to the needs of a specific market niche
        • Reward the risk-takers
        • Achieve commanding control of market share
        • Be a technological or service delivery innovator
        • Ease transition stability
        • Implement asset protection mechanisms
        • Save retirement $, areas many physicians have prudently utilized.
    • 4. Concierge Medicine
      • First U.S. practice called MD 2 started in 1996 by former NBA Seattle Supersonics team physician Howard Maron, MD and partner Scott Hall, MD as the “Ritz Carlton” of family practice medicine.
      • Each doctor’s patient roster is 100-600 patients versus 2,500 annually.
    • 5. Annual Retainer Cost
      • Fixed annual fee of $1,000 to $20,000 (depending on services provided, patient age and health status)
        • OneMD (Louisville, KY) costs $4,000 annually, or $6,000 per couple. Family members included for additional fee. Paid in monthly installments with a four-month prepayment due at signing.
        • MD 2 ( Seattle, Bellevue and Portland) charges $13,200 annually for an individual member, $20,000 for a couple, and $2,000 for each child living at home. Average cost is $10,000 annually.
      • Harris Interactive Health poll suggests that as consumer income increases over $75,000, they feel that they should have to pay for better quality care.
      • But is “care” really medical or personal services?
    • 6. Services Provided
      • House calls and specialists accompaniment
      • Weight loss/ nutrition/ wellness advice/rehabilitation programs
      • Telephone and e-mail consultations
      • In-house laboratory testing
      • Comprehensive annual physical examinations
      • 24 hour Physician Availability
      • Priority/same day/ guaranteed next day/ extended/ weekend appointments
      • Enhanced referral coordination
      • Prescription facilitation
      • Insurance claims facilitation
      • Travel medical services
      • Private reception area
    • 7. Is concierge medicine right for you?
      • Panacea to “never-ending wave of fur and fluff”?
      • Could use a two-tiered care system (concierge and pay-as-you-go)
      • Convince staff their work defines practice, not fees
      • Balance tightrope of providing extra service for the small percentage who pay the enrollment fee.
      • Same great standard of care can still be given to everyone, despite different service levels
      • Will demographics support it? (Beverly Hills, Palm Beach, Stamford or the Hamptons)
    • 8. Compensation
      • Is production-based pay the right compensation tool for every practice?
      • “ We eat what we kill!” (1980’s law and CPA firms)
      • Are we ignoring the intangibles?
      • Should veterinarians be paid for product sales? (consumers are getting more educated and savvy)
      • Why are we so concerned about paying the average (or even the top of scale)? What about 25% over market for great performers?
      • Let’s all be homogeneous!!
    • 9. Pay this way?
      • I think pay should be a combination of base salary and incentives (paid quarterly in cash, time off, or both)
        • Base pay should rise with additional responsibilities assumed, clinical experience, credentials, CPI and contributions to practice success
        • Incentives should be tied to team success (40%) and individual performance (60%) revolving around critical benchmarks such as:
            • Client satisfaction
            • Staff satisfaction (360 o Reviews)
            • Revenues per client (average transaction charge)
            • Profit per client
            • Team’s gross profit margin
            • Other factors
    • 10. P4P (Pay For Performance)
      • The Centers for Medicare and Medicaid Services believes that P4P (incentive) systems should always enhance the:
        • Adoption and utilization of health information technology
        • Implementation of systems to improve the quality of both a patient’s care and safety
        • Access to appropriate and timely care, and
        • Patient acceptability and satisfaction with their care
      • And while not a fan of policy statements, I believe it wholeheartedly.
    • 11. Physician/Dental Survey
      • In previous CPA firm, out of six-hundred physician and dental entity clients in New England, only one was found to be using production-based compensation methods. All others were paid a combination of salary and performance incentives.
      • But, NCVEI reports that 47% of it’s veterinary survey respondents were paid based on a percentage of production… (that’s because we all love a formula!!!)
    • 12. Compensation Fixes
      • Non-monetary and monetary tools
      • Elevate all employees in client’s eyes to “professionals”-is associate cemented to veterinarians?
      • Use compensation as a communications tool
      • Teach employees about business management-educate to involve them, not to intimidate them. “Open-Book Management” does not have to “give away the store”
      • Recognize and promote everyone’s success
      • Does everybody remember Jordan’s Furniture taking 3 full Boeing 727’s of employees to Bermuda for the day?
    • 13. You pay veterinarians a salary??? Consider termination of contract Consider termination of contract Consider salary cut and/or time reduction Consider salary cut and/or time reduction <=85% Consider termination of contract Consider salary cut and/or time reduction Consider salary cut and/or time reduction Rev up contingency plan 85-89% Consider salary cut and/or time reduction Consider salary cut and/or time reduction Implement contingency plan Rev up contingency plan 90-94% Consider salary cut and/or clinic time reduction Implement contingency plan No action No action 95-99% Pay incentive and consider pay increase Consider pay increase No action No action >=100% Q4 Q3 Q2 QI Business Plan % Goals
    • 14. Technology/Electronic Medical Records
      • Medical errors, according to the Institute of Medicine, cause an estimated 44,000-98,000 deaths a year in the United States.
      • According to Kaiser Permanente CEO Robert Pearl, MD, it is likely that an avoidable medical error happens at least once every day in Silicon Valley.
      • The Institute of Medicine and Institute for Healthcare Improvement have called for all hospitals and doctors to report all medical errors as well as “ near misses ”, events that potentially could have caused harm or death.
    • 15. Technology
      • American healthcare (hospitals, physicians offices, and ancillary care providers) is among the most antiquated in American industry
      • U.S. health care spends only 5% of revenues on technology (in contrast to vet practices)
      • Only 17% of nation’s hospitals use computerized order-entry systems
      • Hard for administrators to quantify and justify the impact of faster access to complete and legible medical records.
      • New regulations that support adoption of e-prescribing and electronic health records were announced on October 5, 2005 by HHS Secretary Mike Leavitt.
    • 16. Examples
      • Poor
      • Cedars Sinai in LA discontinued order-entry in 2003
      • Physician data entry into UPenn system routinely caused 22 types of medication errors
      • Fabulous
      • Poudre Valley Hospital in Fort Collins, CO put front-line physicians and nurses on technology committee
      • Inland Northwest Health Services in Spokane, WA began sharing 2.4 million patient database with 30 other health care agencies in WA and Idaho
      • Montefiore Medical Center (NYC) runs its drug order entry systems over 3 hospitals with a 75% reduction in med errors by digitizing med choices
    • 17. U.S. News & World Report
      • The top 47 “wired” hospitals in the U.S. are also tops in medical care based on:
        • expertise
        • ability to save lives
        • reputation among specialists, and
        • a commitment to nursing excellence.
      • The survey conducted by Hospitals & Health Networks did not prove that technology actually causes better patient outcomes, but it shows that there is a strong connection. There was a 7.2% lower mortality rate on average at the “wired” hospitals.
    • 18. “ Wired” goes way beyond EMR
      • 30-44% of patient services on-line (review test results, prescription renewal, appointment scheduling)
      • 41-59% use of wired tools by doctors (clinical guidelines/protocols, lab/radiology/pharmacy orders)
      • 34-77% use electronic surveillance as a backup alert system (in CCU, step-down and surgery/medicine areas)
      • St. Luke’s Medical Center in Milwaukee uses off-site remote safety monitoring with intense-focus cameras, vital sign monitors, and EMR access (meds given w/times, notes, lab results, X-rays, CT, MRI, ultrasounds)
    • 19. Joint Ventures
      • According to a KPMG survey:
        • 64% of U.S. executives will increase the use of strategic alliances over the next 24 months
        • 52% plan to be involved in joint ventures within two years.
      • Longer-term joint ventures, or shorter-term and less rigid strategic alliances, can be an effective and powerful tool to leverage stronger or complementary capabilities with other organizations.
    • 20. Joint Ventures
      • In all industries, the expanding pressure for growth, competition, and the popularity of outsourcing mandate a need to collaborate.
      • Essential that businesses determine if they possess skills and discipline to choose which kind of alliance makes sense for them.
      • “ Co-opetition ” between current competing firms will form strategic, corresponding relationships that leverage both competition and cooperation.
      • Some owners and executives may resist becoming involved with the “competition” due to mostly unwarranted fears to their business. Ego may play a central part.
    • 21. Joint Ventures
      • In the physician world, structuring the joint venture requires compliance with anti-kickback statutes, Stark laws, Medicare rules and regulations and laws governing tax-exempt entities (as hospitals are generally not taxed as 501(c)(3) charities).
      •  
      • Veterinary practices have much less stringent regulatory compliance imposed on them.
    • 22. “ Co-opetition”
      • Veterinary practice owners, both in specialty and general practices, from Alaska to Massachusetts, have raised concerns to me that there is not enough:
          • formal cooperation between practices with similar demographics to utilize economies of scale, and
          • formalized referral networks between general practices and specialists are lacking.
    • 23. An inside peek!
      • Joint ventures and strategic alliances allow prospective buyers of practices another process by which the parties can:
        • see the synergy of combining both practices
        • observing the management, and
        • more importantly, rate the entrepreneurship skills of other joint venture participants.
    • 24. Caveats
      • Harvard Business Review reports 48% of nearly 1,600 alliances formed by 200 companies ended in failure in less than two years.
      • It is important to consider applying leading indicators, which can help create visibility on the alliance’s underlying performance drivers.
    • 25. Some hard feelings?
      • Some dental specialists have noted that they have observed familiar patterns with general practitioners:
      • Vets may not be taking enough CPE to be great dental practitioners and may be winging procedures that are outside of their skills. With more CPE may be comfortable referring out.
      • It’s impossible to be a jack of all trades. But be a master of (1) a good dental exam and (2) simple extractions.
      • Newer graduates are much more accepting of specialists.
      • Never use the phrase “It’s just teeth”.
      • If you are scared that the specialist will steal your patient, get that out in the open and the thought doesn't simmer.
    • 26. Relationship Rx
      • Develop a genuine rapport with specialist
      • Clients should be prepared-consult could be 45 min
      • Fees charged by a specialist typically will be $$$$
      • Specialists know they cannot bite the hand that fees them
      • Specialists actually love to talk with DVM community
      • Make the continuation of client care a “seamless one” by e-mailing x-rays, copies of medical records, and frank impressions
      • Express your confidence in the specialist
      • State that the specialist is just an “extension” of your practice
    • 27. Succession Planning
      • Great divide among veterinary practice owners on who should succeed their reign as owner(s) of their practice.
      • Some practitioners wish to transfer their practice to:
        • another DVM or group of DVMs.
        • a possible combination consisting of non-DVM staff, CPA’s, other DVMs, or even family members.
        • or a national or regional “consolidator” alternative.
    • 28. Succession Planning
      • Physicians as a whole rarely transfer professional practice ownership to individuals other than physicians or physician groups.
      • Typical purchasers of physician practices are health care insurance companies, hospital groups, physician groups and individual physicians.
    • 29. The Great U.S. Healthcare Threat
      • According to AMA, 38% of all physicians are aged 50 or older, while 30% are aged 55 or older.
      • Merritt, Hawkins & Associates survey shows 51% of physicians aged 50 to 65 plan to make changes to their practice in the next 1 to 3 years, as follows:
        • -Close practice to new pts./reduce pt. load 17% -Seek non-clinical job in medicine 10% -Retire 8% -Work per-diem 6% -Find a non-medical job 3% -Other 7% -No plans to change their practice 49%
    • 30. Succession Planning
      • Will veterinary medicine experience the same early transitions?
      • According to Veterinary Economics, 62% of states allow non-veterinarian ownership of veterinary practices, with most non-ownership states allowing exceptions in the case of DVM estate and corporate ownership.
      • Non-DVMs who have been integrally committed to the growth and continued success of a practice should be allowed ownership.
    • 31. Transition
      • Start ownership transition process 15 years before event, not typical “rule of thumb” 5 year method.
      • During 15 year period, practice owners should identify those key staff members that contribute meaningfully to the growth of the practice as potential partners.
      • Owners should reward other key members not in this group with rewards more in line with their risk tolerance and expectations.
      • While financial accountability can be a prime determinant of potential, qualities such as respect, integrity, teamwork, and contribution to the practice’s strategic vision are equally important.
    • 32. Donative Transfers
      • Donative transfers (to family/key employees) of the veterinary practice may be facilitated by the creation of a class of non-voting common stock, thus separating voting control from equity ownership. Positive attributes of the transfers may be:
        • The practice owner may be more agreeable because control is not relinquished
        • Valuation discounts may be applied for the lack of voting power
        • S Corporation status will not be terminated because of voting and non-voting share classes.
        • The practice owner’s voting shares can be exchanged upon exit for the non-voting shares.
    • 33. Other mechanisms
      • Other mechanisms to accomplish family and key employee transfers:
        • Annual exclusion and upstream gifting
        • S Corporation stock as compensation for services
        • LLC and partnership entity profits interest for services
        • Installment sales
        • Private Annuities
    • 34. Immune to Lawsuits No More
      • Since 1997, courts in Kentucky and California have awarded damages to pet owners for loss of companionship, emotional distress and other factors that go beyond traditional FMV.
      • An Illinois Appellate Court ruled that pet owners may be able to claim compensation for sentimental value of their pets, rather than just fair or market value.
      • The Animal Legal Defense Fund (ALDF) web site actually instructs pet owners and lawyers on how to pursue veterinary malpractice claims.
    • 35. Simplest Asset Protection Available
      • Harvard Medical School's major Boston teaching hospitals are adopting detailed procedures for physicians to openly acknowledge medical errors and other bad results to their patients, and provide for training in apologizing.
      • The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) requires hospital caregivers to tell patients about the most serious of these situations, but doesn't go beyond that.
    • 36. The Best Defense is…
      • Practice good record keeping
      • Veterinarians and technicians must chart any and all treatment or incidents that occur.
      • If clients refuse treatment options, clients should sign refusals of care. If a client does not want to sign, a witness should corroborate non-compliance by signature.
    • 37. Mortal Combat vs. Lawsuit Creep
      • Emergence of veterinary malpractice lawsuits is driven not just by Americans' deep emotional bonds with their pets but also by advances in veterinary medicine that have raised expectations that pets will live longer.
      • Someday, veterinary judgments may be awarded on par with human court cases.
      • Beyond malpractice insurance, asset protection (not tax evasion) strategies may provide some relief to entities experiencing financial threats.
    • 38. What to do?
      • Do not own a significant amount of assets in your own name, especially real estate. But spousal transfer method is what old MD’s and DMD’s used to use.
      • Use multiple entities to own your assets. It isolates and reduces the risk of loss.
      • Keep assets and the entities that hold your assets in different or multiple jurisdictions.
      • Common myth-”asset protection” means moving assets to a foreign country. Multiple jurisdictions can mean just entities domiciled in different states.
      • U.S. tax laws change constantly . Practice owners, CPA & attorney need to constantly monitor and modify legal arrangements as necessary.
      • Defend your practice from employees.
    • 39. Too Much Protection?
      • Set up a Colorado LLC to own practice land and a Nevada LLC to own the business assets. The ownership of the LLC and the land trust are transferred to a Nevada APT trust. So now you have the LLC and the land trust, owned by the Nevada trust, which is owned by the Colorado living trust (s).
      • Place each property in it’s own separate Virginia land trust. Then form a Wyoming LLC which will now own the beneficial interests of the Virginia land trusts. This LLC is inserted between the land trusts and the Nevada AP trust. The owner of the LLC is the Nevada asset protection trust. That’s all for this step.
      • Next, you will form a C corporation in South Dakota. The owner is either a Nevada asset protection trust or the living trust of one of the spouses. Treasury regulations require that the other spouse is not a director, officer, shareholder, or employee. The corporation could provide services to the Colorado LLC, which owns the business, as an independent contractor. This corporation could also manage the rental property for the Wyoming LLC and receive compensation for doing so.
    • 40. Retirement Plan Ideas
      • Physicians and dentists have traditionally had poor showings in offering sophisticated retirement plans to employees due to the impact on their own levels of mandatory contribution to employee accounts.
      • SEP and SIMPLE (Savings Incentive Match Plan for Employees of Small Employers Plans) IRA Plans have seen limited utilization.
      • But 401(k) plans now have much more reasonable fees, on-line control, and greater flexibility
    • 41. “ New Comparability” 401(k) Plan
      • IRS regulations permit companies to over-weight benefits to practice owners and other highly compensated employees.
      • Uses the process of cross-testing to satisfy the discrimination rules. Cross-testing converts contributions made today into equivalent benefit accrual rates and allow owners increased flexibility in their contributions.
      • Ideal for practice owners who:
        • Are older and earn more than most of their employees
        • Want largest possible share of plan contributions allocated to own accounts, and
        • Desire contribution flexibility of profit sharing plan.
    • 42. 401(k) Plan w/ Permitted Disparity