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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
Franklin Health Associates (B)
Young, David W.
Functional Area(s):
   Management Control Systems
   Healthcare Management
Difficulty Level: Intermediate
Pages: 4
Teaching Note: Available. 
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First Page and the Assignment Questions:
When I came here in November, I looked at the physicians' generation of revenue and the corresponding expenses, and I knew something was wrong. The generation figures in all categories were less than budgeted, but the expenses were not proportionally less, so we were heading for a big deficit.

The speaker was Jack Barber, manager of Franklin Group Practice (FGP). FGP was a division of Franklin Health Associates, a large healthcare organization located in Farmington, Maine (see Franklin Health Associates (A) for a description). Mr. Barber had been working at FGP for eight months, and had already instituted some changes in the group practice. He continued.

At that time I arrived, the physicians didn't care whether or not they met budgeted amounts. They had no incentives to do so, as they were paid based on anticipated revenue for the budget year. They got concerned when they realized the group practice would fao; if we didn't reverse the deficits. Then I had their support.

To approach the problem, Mr. Barber decided to analyze why actual revenue was lower than budgeted. He focused on each individual provider. Although the year's budgeted values for physician generation were derived somewhat subjectively from discussions with individual physicians and examination of past trends, there were some standards that he thought he could use to find the revenue that FGP could expect from each physician.

He first identified each physician's specialty area and used the fee guidelines to determine the typical fee per visit for each provider (Exhibit 1). Next, he talked to the physicians to determine how many hours per week they were scheduled to be in the office (Exhibit 1). Although all of FGP’s providers were full time, some of them spent a greater percentage of their working time at FGP. For example, Dr. Sewall, a dentist, was available for office visits 40 hours per week, whereas Dr. Dixon, a general surgeon, spent a good deal of time at the hospital.

Using some general guidelines, Mr. Barber worked with each provider to determine how many patients she or he could see in an hour's time based on the length of an average office visit (Exhibit 1). Then he multiplied the expected number of hours worked per week by the expected number of patients in a week. To give the physician some leeway for telephone calls and paperwork, he used a 4.5 day workweek. He multiplied this amount by the expected number of provider days in the month, which he determined by subtracting all legitimate sick and vacation days for the particular month (Exhibit 1). This gave him the expected number of patients per month. Finally, he multiplied this number by 0.80. He commented on this last computation.

I provided physicians with this leeway to get a more realistic number of patients they might see in a month. The physicians engage in many non income generating activities and they thought some allowance should be used to account for the time they spend in the reexamination of patients, delivery of medication and shots, and public relations activities for which there is a minimal charge or perhaps no charge at all.

Finally, he multiplied this adjusted figure by the average fee per visit to get the revenue . . .


  1. Prepare a variance analysis for Dr. Bitterauf.
  2. How would you report this information to him/her?
  3. Design a set of reports for FHA that more adequately address the needs of management and the physicians.