Preparing this budget requires a lot of assumptions, and I’m not even sure that we’re using the right approach. But if the group is to have something that’s realistic, and if we’re going to survive within the IDS [integrated delivery system], we’ve got to push ahead.

Maria Delgado, M.D., the senior physician member of Bandon Medical Associates (BMA), a small physician group practice located in Oregon, was commenting on the frustration she felt in trying to prepare the group’s budget for the upcoming fiscal year. She realized that, although BMA’s budget process had come a long way in just a few months, much remained to be done.

BACKGROUND

Bandon Medical Associates (BMA) had been established about 20 years ago by Dr. Delgado and a colleague she had met during her residency. Over the years, the group had grown, and currently comprised six physicians and two medical assistants, who functioned as “extenders” for the physicians. The extenders assisted the physicians by completing a variety of tasks such as taking patients’ blood pressure, drawing blood samples, and so forth. They did not bill for their time.

Two years ago, BMA had joined Coos Bay Health System, a large IDS that included several primary care and multi-specialty group practices, a free-standing laboratory, a free-standing radiology unit, two acute care hospitals, a nursing home, a home health agency, and a hospice. Coos Bay coordinated care, negotiated contracts with third party payers, and provided some central services, such as information systems support.

FINANCIAL MATTERS

Recently, Coos Bay’s chief financial officer, had told Dr. Delgado that BMA along with the other physician practices in the IDS were going to be treated as “profit centers.” He had emphasized that, even though Coos Bay was a nonprofit organization, each provider entity nevertheless would be required to generate sufficient revenue from its outpatient activities to cover its own expenses plus the costs of the Coos Bay central services that would be allocated to it. Each entity also would need to generate an operating surplus to provide the cash required for any capital purchases (such as office and testing equipment) that it wished to make to support its outpatient activities.

The CFO also pointed out that, in accordance with the contracts signed with the various provider entities at the time they had been purchased by Coos Bay, all inpatient revenue—from both hospital and physician billings— would be retained by the hospital, and a portion distributed to physicians in accordance with the compensation formulas negotiated with them as part of Coos Bay’s bundled-pricing and sub-capitation arrangements with its payers. . . .

Assignment

1. Using the information contained in the case and Exhibit 1, prepare a budget for BMA for the four visit types shown. Use the approach suggested by Dr. Delgado at the end of the case, and organize your figures so that she will find them understandable and useful.*
2. Assuming Dr. Delgado is unhappy with the “bottom line” of this budget, what options are available to change it? Which options seem the most feasible to implement?
3. What problems do you think Dr. Delgado will encounter in attempting to implement this budget? What should be done about those problems?
4. Try to set up a spreadsheet to calculate the budget. Make it as formula-driven as possible. This will allow you to easily test assumptions in answering Question 2.