We had been incredibly fortunate to start off without debt; it is unlikely we could have managed if we'd had loans to pay off. Our financial status changed in 1990, however, when we outgrew our rented office space. Unable to afford a commercial mortgage, we were lucky to negotiate a family loan.
We bought and renovated a former restaurant building. Our expenses soared and our income plunged. In addition to keeping the books, I now cleaned the office at night, and Tim took the trash to the dump. Tim also started seeing more patients every week. We trained our patients to make their copays at the door.We upgraded our computers and instituted electronic billing to insurance companies. We started accepting credit cards.We hired a collection agency to pursue bad debts.
Collecting bad debts has to be one of the worst jobs in the world, and fairly futile in health care. Most of those who didn't pay couldn't, and there is little one can do about the few who simply won't. A good 95% of our patients paid their bills. The 5% who didn't were almost all treated in the emergency room—people who had either no insurance, no address, or no intention of paying even if they could. This is an example of the kind of cost-shifting routinely practiced in health care; in this case, the cost of caring for the uninsured was shifted to the physicians who treated them. Unfortunately, in the fee-for-servicemodel, trying to collect fromthis often fragile and usually transient population was the only way for Tim to be paid for his nights and weekends on call. So the work that cost him—and his family—themost in terms of his own health and happiness paid him the least.
Our children would ask, "Is Dad on call?" on the nights when Tim wasn't home by bedtime. If we hadn't seen him in a few days, we'd visit the hospital and join him there for a meal, or stop by the office and raid the pediatric drawer for stickers. Tim wanted to be with his children and would
rush home to give them their baths whenever he could. Then, after stories, songs, and goodnights, he'd return to the office to finish his charts. Three years after we moved into the new building, Tim was working harder, he had less family time, and our income had still not recovered. Yes, we had built equity, but equity didn't buy our kids milk at the store.
My father, a successful businessman, had counseled us that there were only three ways to increase profit: cut costs, increase productivity, or raise prices. We'd done the first two and, in the highly regulated health-care industry, there were strict limits on what we could do about the third.
Medicare and Medicaid accounted for half of Tim's practice—or payor mix, in the lingo of the jargon-laden industry. Medicare and Medicaid are government-funded insurance, and in our fee-for-service system the government sets the price it will pay and then takes a 20%
discount from that price. On my most exhausted and cynical days, I proposed that after we figured our federal tax liability, we should deduct 20% from what we owed. Just the idea cheered me up.
There was a way to improve our Medicare