Calculating the importance of financial intelligence

Something wasn’t adding up for David Norris. An anesthesiologist, Norris was being groomed for a leadership position of his independent 85-physician practice in Wichita, Kansas.

He remembers being handed financial reports, balance sheets, and productivity reports. He realized the practice’s leaders and board were making a lot of financial decisions based on those numbers, but no one was really digging into what those numbers represented. “They really only focused on the bottom-line or big-ticket items like total income and total expenses,” Norris says. “That didn’t sit right with me.”

Norris knew a bit about finances, but he was still intimidated by an income statement that was three pages long. Norris decided to get his MBA and fill in his knowledge gaps.

“I know some physicians, more than enough, too many probably, who live paycheck to paycheck because they never learn how to manage money,” Norris says. “In residency or med school, you’re so used to living from paycheck to paycheck. If you’re not wise, you don’t really change that when that paycheck grows.”

After Norris graduated and completed his tenure as president, he began to focus on the biggest areas physicians were struggling with: finances and accounting. He started working with local residency programs, developed educational and training materials, and wrote a book. He continues spreading his message to physicians, including his recent session at the Medical Group Management Association’s annual conference in Boston.

Physicians Practice caught up with Norris, who is also an editorial board member, about the importance of having financial know-how.

Do you think talking about finances is more important than it was five or 10 years ago?

It’s probably more important now because margins are thinning out as costs rise to run a practice. It was taboo when I was a med student and resident. I was looked at, I think, as being a greedy person and that I went into medicine or healthcare for the wrong reasons. That’s not true. I just had a different perspective. I recognized that you have to maintain a profit if you want to stay in business. I think more and more medical schools are warming up to the fact that maybe they aren’t doing their residents a very good service by not trying to teach them about finances. It’s not as fast as I would like, but it’s slowly shifting.

Why are you espousing the importance of financial intelligence for physicians?

I really want to help physicians who want to maintain their private practices or run their own businesses. They can do that. I think it’s still possible, but you have to have the financial tools and the knowledge so that you can actually manage to do that. I think financial intelligence will help you run your practice better.

If you don’t know how to manage the financial reports, if you don’t know how to make the financial decisions, you are going to lose out. You have to plan for the future with that capital investment. Otherwise, you eventually are probably going have to shut your doors. And then you won’t help anybody. You won’t help your patients. They’ll have to find someplace else to go. I think it behooves you as a physician owner that you really sit down, spend some time, and try to get some understanding on how to be profitable. Then I think you can actually have a long, thriving practice.

It also protects you from fraud. If you understand what your costs are, what your costs should be, the line items on your income statement and balance sheet, why they’re there, and how they trend, you’re going to be better armed and able to discover and identify fraud if it occurs.

It will help you personally, too. I mean, look at Bernie Madoff. He took billions of dollars because a lot of people were just too happy with the bottom line. They didn’t really dig into the numbers. If you don’t learn some fundamental basics of finance, you are going to have a hard time investing.

Why should employed physicians still learn about finances?

I think physicians should be in a stronger leadership role in healthcare delivery. We need to get back in that driver’s seat. We need to say this is the care we want, this is the level of care, this is what we want our patients to have. If you as a physician were employed but you understand those financials, you can then begin to affect change that way.

You can effect change if you can find a more efficient, effective process, and you can demonstrate that it will save this amount of money, or that by using this piece of technology, we’re better able to reduce errors or make it safer. That will not only improve the care you deliver, but it also improves the overall quality of care the organization delivers and helps raise its reputation. And it will hopefully provide more capital so you can get better equipment.

If you can learn to speak their language, their lingo, you’re more likely to have effective communication with hospital administrators rather than just saying, ‘This is what we want.’ And you’re probably more apt to get what you really need for your patients.

How can financial intelligence affect clinical care?

I think being profitable is a must if you want to continue to develop and deliver what I call exemplary patient care. You need to be profitable. I don’t care if you’re a nonprofit, for-profit, whatever. You have to have enough money coming in, enough profit, so you can cover your expenses but also have capital to invest back into the company, back into the clinic, for future asset acquisitions and investments-whether it’s new technology or hiring, retaining, or recruiting the best people possible.

Finances can be a really intimidating topic. What’s a good first step for those who want to learn financial intelligence regardless of where they are in their career?

The first step is realizing, ‘I don’t have the knowledge.’ You have to expand your knowledge base. The second step is trying to locate resources that are going to help you master that material as quickly as possible. You can take courses online, read other books, join organizations that have online courses. You can check out a local medical society or maybe a practice organization like AMGA or MGMA. It doesn’t really matter to me where you get that information as long as you go out and get it. I don’t know that you need to get an MBA. You can still get the knowledge without going back to school full time and investing that time, money, and energy.

What advice do you have for physicians who are trying to gain financial intelligence?

I think physicians are trained to never be wrong, always be right, and always be the smartest person in the room. I think when it comes to your business, I think you have to bring that benchmark down a little bit and realize you’re all human.

Don’t be afraid of making a mistake. It’s OK to make the wrong decision. You have to get over that. You just have to say, ‘Well, we’re going to make the best decision we can. We’re prepared to admit that we didn’t make the best decision, so we’re going to make a different one.’ That’s what we do in healthcare, right? We try one drug, and if it doesn’t work, we switch to another therapy.

How else can financial intelligence help physicians in private practices?

I think you’ll be better able to participate in contract negotiations, whether that’s fee for service or managed care. When they start bundling those payments, you want to have a very clear understanding of what your costs are, so you have a much better idea of where you need to be in order to participate. And with that pendulum switching more toward value-based care and away from fee for service, I think it’s going to be more imperative that you understand your cost structure. Having that financial intelligence is going to help you get that information and that power when you go to negotiate, sit down at the table, and participate in plans.