Sunset Medical: Outsourcing Medical Professional Services Essay Sample

Dr. Sally Jones. a practising Orthopedic Surgeon. owns Sunset Medical. a professional corporation located in Colorado. Sunset is a little pattern serving patients from the local community and tourers who are in the part to patronize one of the area’s ski inclines and boosting trails. Sunset is good respected by both Sally’s equals and patients ; Dr. Jones has been approached several times to travel her pattern to a big urban infirmary where her pattern could increase its $ 1 million grosss several times over. However. Dr. Jones prefers the quite life style of rural Colorado to the more frantic gait of urban life.

Sunset Medical experienced a great trade of convulsion over the past few old ages. In 2008. piece at a medical convention. Medical Management Inc. ( MMI ) approached Dr. Jones with a proposal to supply managerial and charge services. MMI’s pitch centered on utilizing interactive nucleus competences. working MMI’s selling and managerial expertness and Dr. Jones’ professional repute to increase grosss. lessening disbursals. and better hard currency flows. After drawn-out dialogues. Dr. Jones signed a contract with MMI and after a three-month test period. efficaciously turned over Sunset’s daily operations. However. at the terminal of the first full financial twelvemonth. Dr. Jones finds herself oppugning whether to go on Sunset’s contract due to unanticipated fiscal reverses or to end the contract and in-sourced all antecedently outsourced activities. Sunset Medical Pre-2009

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Prior to undertaking with MMI for managerial and charge services. Dr. Jones fostered a household atmosphere within the pattern ; many of the employees had been with the pattern since its origin in 2000. This informal atmosphere facilitated a great trade of flexibleness in employee functions. leting Sunset Medical to work expeditiously and efficaciously with minimum staff. In add-on to Dr. Jones. Sunset Medical employed a support staff that included an office director. charge secretary. nurse. and radiology technician. The office director oversaw the practice’s operations including scheduling patients. pull offing medical records. sing conformity with assorted province and federal ordinances. buying supplies. and pull offing the firm’s fundss. The charge secretary was responsible for taking coded medical records and fixing patient charge statements. and so keeping contact with both the patient and their insurance supplier to see aggregation.

The nurse and radiology technician performed activities in direct support of the physician. with the radiology technician besides tasked with care of the practice’s x-ray machine and other equipment. In add-on to her staff. Dr. Jones besides retained Jackson and Associates. a local CPA house. to supply fiscal statements and revenue enhancement paperss for the pattern. Since Sunset is a comparatively little. in private owned corporation. Jackson and Associates prepared a annual Income Statement and Balance Sheet utilizing a hard currency footing for accounting. To see conservative estimations of income for revenue enhancement intents. grosss listed in the Income Statement were reduced by 100 % of Accounts Receivable and the Allowance of Bad Debts was calculated at 100 % of Accounts Receivable go forthing net Histories Receivable as $ 0 in the Balance Sheet. Exhibits 1 and 2 shows the Income Statements and Balance Sheets provided by Jackson and Associates for the old ages ended 2006. 2007. and 2008. Similar to most professional corporations. Sunset’s income statement shows really small Net Income in order to avoid dual revenue enhancement.

Medical Management Inc.
In 2008. Dr. Jones was sing the purchase of a new X-ray machine due to technological progresss in imaging. growing of her pattern. and utile life of her current machine. While at a medical convention in New Orleans to look into the purchase. Medical Management Inc. ( MMI ) . approached Dr. Jones with a proposal to supply managerial and charge services to Sunset. MMI had grown quickly over the predating 5 old ages because of its ability to assist physicians increase gross through improved direction and selling of their patterns while cut downing costs by centralising charge services. MMI’s pitch appealed to Dr. Jones for two grounds. First. Dr. Jones had long recognized the importance of edifice Sunset’s trade name. but had neglected this facet of concern development because it was outside her country of expertness. Second. cut downing the cost associated with administrative paperwork and charge could significantly better net income.

A professional development seminar at the conference confirmed what Dr. Jones had already suspected. administrative paperwork and charge costs are a important operating disbursal. Harmonizing to industry informations presented during the session. the mean cost associated with these activities is between 4 and 9 per centum of grosss. non including lost gross from charging mistakes. To Dr. Jones. the chance to consolidate the costs associated with managerial and support maps with other suppliers while tapping resources Sunset did non presently have entree to look to be a great manner to turn Sunset Medical. Due to the possible positive impact on Sunset Medical from outsourcing administrative and charge services. Dr. Jones entered into dialogues with MMI. On April 3. 2009. Dr. Jones signed a contract with MMI efficaciously turning over daily operations of Sunset Medical to MMI. Exhibits 3 and 4 contain extracts from the contract between Sunset Medical and MMI include the range of the battle. party duty. and compensation of MMI.

Under the initial contract. MMI agreed to a three month provisional period where they would function as the director of the pattern and help the Business Office Manager in the daily operations. Specifically. MMI was responsible for marketing. public dealingss. staffing. and the disposal of the company’s corporate conformity program every bit good as for supplying unaudited fiscal statements. To counterbalance MMI. Sunset agreed to pay a monthly direction fee equal to four per centum of monthly net gross. determined on the accrual footing. Net gross was determined based on gross billed gross less contractual allowances and a sensible allowance for uncollectable histories. Additionally. Sunset agreed to pay a charge and aggregation fee equal to five per centum of company’s monthly cyberspace receivables. At the terminal of the three month provisional period. either party could choose out of the contract. the footings of the contract could be extended. or Sunset could turn over full direction control to MMI. Medical Management Inc. – Three-Month Performance Review

MMI assumed disposal of Sunset in April of 2009 and began doing incremental alterations to the pattern. Under MMI’s direction. a series of marketing enterprises were undertaken that well increased Sunset’s trade name acknowledgment. To better the practice’s imaging capablenesss. Sunset borrowed $ 100. 000. 00 and used the note and hard currency on manus to buy a new X-Ray machine at a cost $ 171. 145. 29. Additionally. to cut down the costs associated with an independent accounting house. Jackson and Associates were taken off consideration and MMI utilized internal comptrollers for accommodating Sunset’s books. At the terminal of the first three months of MMI’s direction and in conformity with the contract. MMI provided Dr. Jones with an Income Statement. Balance Sheet. and Statement of Cash flows for the six months ended June 30. 2009. Using internal comptrollers to fix the fiscal statements. MMI cited internal policies in altering the describing footing of Accounts Receivable in the fiscal statements. taking non to cut down grosss by Accounts Receivable and ciphering the Allowance for Bad Debts as 0 % of Accounts Receivable.

Mentioning the increased grosss and hard currency flows. MMI asked Dr. Jones for more control of the company. including power to enroll. hire. terminate and oversee all employees. including the Business Office Manager. Dr. Jones granted the extra power and MMI instantly terminated the contracts of both the office director and the charge secretary. A new Business Office Manager was later identified and hired by MMI. At the beginning of 2010. MMI released the 2009 fiscal statements of Sunset Medical to Dr. Jones. The fiscal statements indicated that under the MMI direction. Sunset increased grosss from $ 1. 167. 041. 88 in 2008 to $ 1. 601. 050. 52 in 2009. However. despite gaining more than $ 400. 000 in extra gross. Sunset’s hard currency had fallen dramatically during the twelvemonth. In fact. Dr. Jones had borrowed $ 200. 000 during 2009 including $ 100. 000 used in the purchase of the X-Ray machine. Exhibits 5. 6. and 7 show both the mid-year and twelvemonth ended December 31. 2009 Income Statement. Balance Sheet. and Statement of Cash Flows as released by MMI. Sunset Medical: 2010

Upon having Sunset’s fiscal statements from MMI in January of 2010. Dr. Jones began analysing Sunset’s concern patterns to find why the company was required to borrow a important sum of money to keep a positive hard currency flow. While the X-Ray machine had cost in surplus of $ 175. 000. Dr. Jones was at a loss to explicate the demand to borrow $ 200. 000. particularly in visible radiation of an extra $ 400. 000 in gross. As Dr. Jones poured over the anterior old ages fiscal statements prepared by MMI and antecedently by Jackson and Associates. she began to oppugn whether the fiscal statements provided by Jackson and Associates for 2006. 2007. and 2008 were comparable to the fiscal statements prepared by MMI in 2009.

This caused her to oppugn whether existent grosss had increased by over $ 400. 000 in 2009 and whether MMI was working in the best involvement of Sunset Medical. P. C. To fulfill her wonder. Dr. Jones commissioned Jackson and Associates to execute an audit of Sunset’s books. In public presentation of their responsibilities. Jackson and Associates compiled reconciled the fiscal statements for Dr. Jones to reexamine every bit displayed as Exhibit 8. 9. and 10. Dr. Jones would now like you to reexamine the practice’s state of affairs to find the fortunes that created the unanticipated fiscal reverse and supply feedback on whether she should end MMI’s contract or go on on the practice’s current way. Requirements and Discussion

Based on the fiscal public presentation reported by MMI and Jackson and Associates. compose a brief study detailing of import facets of the current state of affairs. placing the underlying cause of the unexpected fiscal reverse. and do a recommendation to Dr. Jones about continuing/terminating MMI’s contract.

[ 2 ] . While this instance uses existent informations from an existent Orthopedic pattern. all names have been changed and any resemblance to existent individuals or companies is strictly coinciding.