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Basic questions about determining ROI on medical practice, how to expand, etc.

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  • Basic questions about determining ROI on medical practice, how to expand, etc.

    Let’s say you have a not for profit established primary care group which has average success/metrics. Say we have 10 FTE.

    Now I propose to add a behavioral health service with the following attributes:

    10 social workers
    1 psychiatrist

    This service substantially improves patient outcomes and increase patient and PCP satisfaction.
    Net of expenses (including salary/benefits and overhead including pro rata share of existing square footage ), this service will deliver to the group EBITDA $400,000 in year 1 and up to $750,000 in year 5.

    How do I think about how and how much to invest in this service? What factors do I need to consider? For example, 11 caregivers need a place to work from. How much is it worth investing in additional office space to implement this?

  • #2
    First thing I would do is a proof of concept/pilot with 1 or 2 head count to test your theory.

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    • #3
      have already done pilot

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      • #4
        Bump, any small practice owners want to chime in?

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        • #5
          No clue regarding what an appropriate ratio of social workers to psychiatrists is, but 10:1 sounds like a lot. What is the demand? Projected demand or markets to expand to? I would be very specific with how that revenue is going to be generated in any business plan, and how you are going to generate those profits AFTER expenses. Not an area I have expertise in - your specialty.

          Does this plan need space? Think about all benefits, including health insurance and employer contributions to 401k. What exactly needs the up front capital investment? Marginal costs of hiring, HR, business practice insurance, rent, equipment, compliance, credentialing and licensing fees, etc. Think about anything that would need to be spent to get this up and running. Advertising too.

          How do you know your EBITDA if you don’t know how much space is needed and what that might cost?

          The question of how much should I invest is the wrong one - that is determined by the above number crunching and careful projections of new and marginal spending. The question is SHOULD you spend the money. That is determined by the cash flows in the future and today’s up front investment. And THAT return should be compared to the cost of capital. Better? Do it. Not better? Don’t do it.

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          • #6
            I have worked in primary care mental health integration at the University and at the VA currently. I'm confused about that md: therapist ratio. I think you have too many therapists. We have a large primary care clinic with at least 10 pcps and we have 2.5 fte psychiatrists and 2.5 fte psychologists. We are not busy. I often wonder why they are even paying me. I honestly don't know how you would make that at all profitable. We'd need to cut it down to 1 psychiatrist and 1.5 psychologists for it to make actual sense in our clinic. And we are available for consult anytime the primary care clinic is open.

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            • #7
              It's one care manager, not therapist, per FTE pcp. For a PCP panel of 1000-2000 that is not much. They aren't doing therapy per se. These are CMS G codes for collaborative care. I am certified (and experienced) in the model.

              ENT Doc, thanks. I have EBITDA after all expenses, however not including the capital investment required for a new lease/build. Our pilot was based on all overhead expenses including the overhead. But now need to figure out how to house eleven new bodies. Some work can be done virtually but we will need some patient-facing office space.

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              • #8
                To be honest I think you need an accountant to model some expectations for you, with different levels of success. I can't quite put my finger on what it is but it feels a little cart before the horse like some major inputs are being missed somewhere and the modelling will help tease out what it is. I guess because an annual EBITDA has been projected before dealing with something as basic as premises?

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                • #9
                  Originally posted by FIREshrink View Post
                  It's one care manager, not therapist, per FTE pcp. For a PCP panel of 1000-2000 that is not much. They aren't doing therapy per se. These are CMS G codes for collaborative care. I am certified (and experienced) in the model.

                  ENT Doc, thanks. I have EBITDA after all expenses, however not including the capital investment required for a new lease/build. Our pilot was based on all overhead expenses including the overhead. But now need to figure out how to house eleven new bodies. Some work can be done virtually but we will need some patient-facing office space.
                  Don’t use EBITDA. Look at after tax cash flows.

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                  • #10
                    It's a non profit, so no tax

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                    • #11
                      I would add the therapists gradually and exand my space gradually.

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                      • #12
                        Originally posted by FIREshrink View Post
                        It's a non profit, so no tax
                        Yes but there’s unemployment tax, FICA, etc, no? Either way just look at cash flows.

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