Episode 47: Understanding Your Scope – Why You Don’t Care About $500
Hello and welcome back to another episode of Medical Money Matters, where we educate physicians and clinic leaders on the business and financial topics that can transform your practice. Today, we’re diving into a topic that often gets swept under the rug but holds immense significance: Understanding Your Scope and why, believe it or not, you shouldn’t sweat it about that $500.
The Notion of Scope
So when I say “scope,” I’m talking about the role you play within your medical practice. Are you a physician? A manager? A medical director? Each position should have a range of responsibilities, authority levels, and spending levels. Knowing your scope is crucial for optimizing everyone’s performance and financial well-being. Think about it like this: each role in a medical practice exists for a reason and understanding those roles allows us to be more effective, efficient, and yes, even joyful.
So why shouldn’t you care about $500? It’s not because $500 is insignificant, but because your role and your scope often determine the level of financial matters that should realistically concern you. When you’re in a leadership or governance role, worrying about day-to-day expenses like office supplies or minor budget variances can distract you from strategic planning or patient care, which could have far greater financial implications. Now, let’s unpack this with the idea of variance analysis.
As we discussed way back in episode three when we talked about budgets, variance analysis is the quantitative investigation of the difference between actual and planned financial performance. It allows us to understand the financial health and performance of a practice by examining line-by-line budgetary variances. For example, let’s say your clinic budgeted $10,000 for medical equipment but ended up spending $10,500. That $500 variance might seem like a red flag, but is it?
Well, that depends on the scope. A front-line manager might need to investigate this thoroughly to ensure it’s not a recurring issue that can add up over time. But for a physician or clinic owner, this $500 is generally a drop in the bucket compared to other financial considerations like revenue cycle management or expansion opportunities.
So, although you might be fired up if you hear about that $500 that you’re over in your medical equipment budget, it’s wise to ask: is diving deep into researching that $500 the best use of your time and expertise? Or should we delegate that to someone whose purview it really falls under?
And a special note for physician owners and partners – your staff all take their cues from you. If you’re overly concerned about a small amount like $500 if your practice is a $5 million dollar business, then your staff will spend lots of time worrying about small amounts too. Yes, you DO want them to be vigilant and to perform to a budget, and you want your responses, and theirs, to be reasonable about budget variances.
Sometimes when we contemplate finances, we’re most familiar with our household budget and the size and range of those amounts. So, it can be alarming to see a report for your payroll expense for the entire practice – the numbers are bigger than we’re used to for any expense! It may be that your medical group’s payroll cost is several times what your monthly mortgage payment is, for instance. This can be disorienting and a bit disconcerting if you’re not familiar with the numbers for the practice. It’s great to spend some time reviewing the budgets and looking at the line items so that you can develop a sense of what a normal range would be. Just like looking at a patient’s lab results. When you read those, you know what’s normal and when you should be alarmed.
As we said in the episode on budgets, you can work with your finance person to determine what dollar amount AND what percentage variance are significant for your group. Then any variance that exceeds BOTH the dollar amount and the percent variance gets investigated, and a note can be added to the profit & loss budget to actual report so all of the owners can see that you’ve already done your investigation.
That leads us to another significant topic: spending authority amounts. Many practices establish predefined spending authority levels to streamline decision-making. For example, a clinic manager might have the authority to approve expenditures up to $2,000 without requiring higher-level approval. This isn’t just about convenience; it’s about efficiency and scope. Your time, as a physician or medical director, is immensely valuable. The more time you spend on activities below your scope, the less time you have for the roles that only you can perform.
Now let’s talk about how groups can use the concept of scope to make sure that physicians stay in leadership and governance roles and don’t get tangled in day-to-day management. It all comes down to alignment. Practices should align roles and responsibilities in a way that everyone is operating at the top of their license and skills. For physicians, this means focusing on clinical excellence, governance, and high-level decision-making, including financial decisions at high amounts.
This is where concepts like variance analysis and spending authority come into play. By setting clear financial protocols, we free our physicians and executive leaders from the nitty-gritty financial decisions, letting them focus on bigger strategic issues. This is what I mean when I say work should be both financially viable and joyful.
Understanding your scope in a medical practice is akin to knowing your position on a team. When each member understands their role and sticks to it, the team performs better. It’s not about ignoring the $500; it’s about allocating it to the right person in the right role, thereby ensuring that everyone is working at their highest and best use of their time and licensure.
And this doesn’t mean we neglect accountability or financial vigilance. It’s about working smarter, not harder, and creating a balanced ecosystem within the practice.
Thank you for joining us on this episode of Medical Money Matters. Remember, understanding your scope could be the key to unlocking a more successful, efficient, and joyful practice. And that wraps up today’s episode. Stay tuned for more insightful discussions designed to help you master the finances and operations of your practice. And be sure to like or subscribe to get future episodes delivered automatically.
Please join me for our next episode, where I’ll talk with EMR Optimization Expert, Jensina Hawkins about how to take that bane of your existence, aka your EMR, and turn it into a powerful tool.