Business Term Glossary: Application to Radiology

Business Term Glossary: Application to Radiology
Johns Hopkins Radiology Residency Classes 11/7/2018

Capital Equipment Investment
11/7/2018

Return on Investment Lauren Pringle

Return on investment (a.k.a. “ROI”)
Measures performance of an investment (such as a piece of equipment, or could even be training of a staff member) Can help you compare “efficiency” (meaning return relative to cost) of different investment options ROI = (gain from investment – cost of investment)/cost of investment

ROI example: 3T MRI machine only doing noncon knee MRIs, 10 min 3D protocol with 10 min turnaround time: COST Details Amt Initial purchase cost (estimate based on googling) $500,000* Maintenance Total guess/year $20,000 MRI techs (2) Assume $45/hr each for current WM schedule (6650 hours/year) $598,500 Tech aide (1) Assume $20/hr for 6650 hrs $133,000 Resident to babysit (1) $75/hr for 6650 hours $498,750 Rent/utilities $25,000 2 knee coils/1 body coil Guess based on googling $10,000 Total cost for 1 year $1,785,250

ROI example: 3T MRI machine only doing noncon knee MRIs, 10 min 3D protocol with 10 min turnaround time: RETURN and ROI 6650 hours scanning knees at 3 knees per hour = 19,950 knees Tech fee only (based on Googling): $206 per exam So total return for a year: $4,109,700 Cost from prior slide: $1,785,250 ROI: ( )/ = 1.30 or 130% (and the second year would be higher because you don’t have to purchase it again)

Return on Equity Jeremy Hackworth 11/7/2018 Jeremy Hackworth

Return on Equity The amount of net income returned as a percentage of shareholders equity. Measures a corporation’s profitability by demonstrating the amount of profit generated with the money shareholders have invested. Expressed as a percentage Sometimes referred to as return on net worth

Return on Equity Formula
Return on Equity = Net income / Shareholder’s Equity Net income is for the full fiscal year before dividends paid to common stock but after dividends have been paid to preferred stock. Can be modified to “Return on Common Equity” Return on common equity = net income – preferred dividends/ common equity 11/7/2018

Utility of Return on Equity
Return on Equity can be useful to compare the profitability of one company compared to other firms within the same industry. It demonstrates who is most effective at turning money invested into gains and growth for the company and investors Higher return on equity = greater efficiency of operations with money invested Return on equity is a commonly used metric by investors when looking for opportunities

Sample Return on Equity
UPS fiscal 2017 (obtained from NASDAQ) Return on Equity = Net income/ Shareholder Equity 4.91B /1B x 100% = 491% 11/7/2018

Return on Equity as a Comparison Tool
FedEx Fiscal 2017 (obtained from NASDAQ) Return on Equity = 2.997B/ B x 100% = ~ 19% Remember UPS ROE = 491%. Numbers demonstrate UPS has much greater return on every dollar invested. 11/7/2018

Years to Payback Matthew Kruse

Business Metrics Terms: Years to Payback
Years to Payback, aka Payback Period or Payback Method, is the amount of time to recover the funds spent on an investment. i.e. How long until I make my money back? or How long until we “break even”? Often used as a “reality check” before starting investment.

The simplest and most common method of expressing Return on Investment (ROI) Time to Payback (Years)= Amount Invested / Annual Net Cashflow Example: Invest $2,400 in a turmeric farm, which provides $600 average annual cashflow to the investor. Time to payback = 4 years.

Limitations: Doesn’t account for time value of money, i.e. $10 cash today is worth more than $10 in the future (due to earning potential) No information on profitability (what happens after you break even?) May be too simplistic for variable cash flow or multi-stage investments References: Gallo A. A Refresher on Payback Method. Harvard Business Review. Bragg S. Payback Method / Payback Period Formula. AccountingTools.

Uptime Calculation Behrooz Vaziri

Uptime Measure of time an equipment, machine , or system is fully operational or ready to perform its intended function. Opposite of downtime. Cant be used to calculate overall equipment effectiveness (OEE)

Uptime Calculation Uptime = Operating time / Scheduled time
Availability = Operating time / Calendar time Outpatient center A schedules patient from 7am to 5 pm. On average they CT machine is running only 9 hours due to breaks, downtime, and maintenance. Uptime = 9/10 = 90%

Improving Uptime: Increased volume Increased efficiency Increased compensation How to improve uptime: Decrease downtime Better scheduling system, pre-appointment reminders Keep machines serviced to avoid lengthy repair and downtimes Improve work flow

Depreciation Rate Krystyna Jones

Depreciation Rate “Depreciation is the decrease in the cost of an asset over time.” Several methods for calculating depreciation “Percent rate at which an asset is depreciated in any one of the methods for computing depreciation.” Sources:

Depreciation Rate- calculation
There are several ways to calculate depreciation rates, though straight line is the most common “Straight-line keeps depreciation constant over the asset's life” Straight line depreciation formula: Annual depreciation expense = (cost of fixed asset - residual value)/useful life of asset Sources:

Depreciation Rate- example
“A vehicle that depreciates over 5 years is purchased at a cost of $17,000, and will have a salvage value of $2000. Then this vehicle will depreciate at $3,000 per year, i.e. (17-2)/5 = 3.” Source:

RBRVS 11/7/2018

Relative Value Units Ned Holman

Relative Value Units Essentially this is the system that Medicare has designed to calculate reimbursement rates to medical providers. RVU has three components: 1) Physician work RVUs 2) Practice expense RVUs 3) Malpractice insurance RVUs

How are these values determined?
Physician work RVUs = Time it takes to perform service, technical skill required, amount of mental effort/judgment required, stress/risk of performing service Practice expense RVUs = Rent, equipment, supplies, non physician staff costs Malpractice RVUs = self explanatory, smallest component of reimbursement

Example… MRI brain w/ con of Medicare patient performed at White Marsh…
Your $ = (physician work RVU + PE RVU + MP RVU ) * RVU conversion factor *GPCI = geographic practice cost index is assumed to be 1.0 Your $ = ( 2.29 physician work RVU practice expense RVU malpractice RVU ) * $ / RVU conversion factor Your $ = $82 physician work + $30 practice expense + $ 5 malpractice Your $ = $117 professional fee 2018 Porsche 911 Turbo = $161,800 = 1,382 brain MRI professional fees!!!!

Adjusted RVUs Erin Gomez

Adjusted RVUs - Definition
RVUs after the application of an “adjustment factor” based on modality, used to achieve equal medians in workloads for radiologists regardless of their primary activity

Adjusted RVUs - Formula
RVU adj = (adjustment factor) x Work RVUs

Adjusted RVUs - Application
Adjusted RVUs can be used to “normalize” the workload performed by different radiologists by adjusting for their primary activity (modality read). For example, a radiologist primarily reading MRI or CT as part of her practice is likely working just as hard and as much as a radiologist primarily reading plain radiographs, although this is not reflected in the RVUs. Applying an adjustment factor to a radiologist’s work RVUs allows for estimation and understanding of a workload that crosses modality or section barriers and may help better determine staffing needs in subspecialty sections.

Adjusted RVUs – Adjustment Factors
Correction factors by modality. Source: Lu Y, Arenson RL. The academic radiologist's clinical productivity: an update. Acad Radiol Sep;12(9): Workflow before (top) and after (below) correction factors applied.

References Arenson RL, Lu Y, Elliott SC, Jovais C, Avrin DE. Measuring the academic radiologist's clinical productivity: applying RVU adjustment factors. Acad Radiol Jun;8(6): Arenson RL, Lu Y, Elliott SC, Jovais C, Avrin DE. Measuring the Academic Radiologist's Clinical Productivity: Survey Results for Subspecialty Sections. Acad Radiol (6) ISSN Lu Y, Arenson RL. The academic radiologist's clinical productivity: an update. Acad Radiol Sep;12(9):

Business Profit 11/7/2018

Gross Collection Rate Nebiyu Adenaw

Gross Collection Rate GCR = total payments received/total charges
If a provider charges $100 for a service and receives $50 from a payer (insurance), GCR would be 50% GCR is low for most practices because providers typically charge higher fees than allowable reimbursements

Gross Collection Rate Practices with more aggressive fee schedules will have lower GCR Higher volume of Medicaid and Medicare patients results in lower GCR due to lower reimbursement rates Surgical practices generally have lower GCR than primary care practices

Gross Collection Rate GCR doesn’t affect payments a practice receives
Practices with low or high GCR may receive the same payment for a service from a given payer Net collection rate provides more useful information

Net Collection Rate Karen Clark, MD

Net Collection Rate Definition: “the amount of money collected on the agreed-upon fees charged” (Investopedia.com) Measure of reimbursement collection effectiveness Usually lower than net charges and gross charges Goal net collection rate: between 90 to 100 percent (after write-offs)

Net Collection Rate = Total Payments Received/Agreed-Upon Fees Charged

Net Collection Rate Example
Annual invoice for a practice based on agreed-upon charges: $1,000,000 Payments actually received by insurers and patients for the same time period: $900,000 Net collection rate = 900,000/1,000,000 = 90%

Net Collection Rate Factors affecting net collection rate:
uncollectible debt: insurance companies & patients that don’t pay full fee failure of billing staff to file claims by deadlines denial of claims by insurers Ways to improve net collection rate: timely filing of claims analyze net collection rate by payer and stop accepting those patients or require payment prior to service if their net collection rate is too low

References “Net Collections.” Investopedia. Retreived from Viveiros, Kristie Sell. (25 January 2016). Gross vs Net Collections: WhatYour CHC Needs to Know. Retrieved from

Net Lagged Collection Rate
Hanna Recht

Net Lagged Collection Rate
Measure of effectiveness in collecting the money one is allowed to collect based on contractual obligations (effectiveness in collecting reimbursement) over a specific prior time period Factoring in the lag time between when a bill is actually sent and when the money is collected (depending on how long the bills take to be paid) I.e. the charges may be in one month, but the payment might not come until the next month

Equation (Total payments received - refunds)/(total charges minus write offs) per time period - taking into consideration the lag time in payments received

Example A hospital charges a total of 10 million to patients during the month of January. The total payment received (for the charges accrued in January) by February 15th - equaled 7 million. The write offs were in the amount of 1 million. The refunds were in the amount of 500,000. The net lagged collection rate for the month of January would be: (7,000, ,000)/(10,000,000 – 1,000,000) x 100 = 72.2%

Days in Accounts Receivable
Emily Ambinder

Number of days that a customer invoice is outstanding before it is collected Usually determined on a monthly, quarterly, or annual basis = Accounts receivable / Total credit sales * Number of days Determine the effectiveness of a company’s credit and collection efforts in allowing credit to reputable

Cash is important for a business so it is better to collect account receivables quickly High value = company takes longer to collect money Low value = company collects money faster

High number of days in accounts receivable suggests that the customer base has credit issues or that that company is deficient in its collection processes Too low of a value might mean that the company is too strict

References Investopedia: https://www.investopedia.com/terms/d/dso.asp
AccountingTools:

Charge Lag Days Jessica Wen

Charge Lag Days Refers to delays in billing which can lead to delayed reimbursement Composed of charge entry lag and claim lag Charge entry lag Number of days from date of service and date when charges are entered Claim lag Number of days from date of service and date of claim submission/billing Overall lag decreases efficiency of revenue management and causes uncertainty in the revenue cycle and revenue prediction

Charge Lag Days – Key determinants
Claim lag Should ideally be the same as entry lag as long are claims are sent the same day they are entered and not held Entry lag delay Incomplete, delayed documentation Efficient and accurate coding of services Patient coverage and benefits

Charge Lag Days - increasing efficiency
Claim lags Claims should be submitted daily Charge lags EHR software with built in billing services to be done as patients are seen Automation of billing and coding procedures Integration into workflow Mobile billing capability Completion of relevant documentation on a daily basis Data on individual compliance and points of delay Identify ways to change behavior and decrease barriers to compliance

Clean Claim Rate Vikram Rajpurohit 4/18/2018

Definitions Clean Claim Insurance claim that is accurate, complete, requires no manual intervention and is able to be processed the first time it is submitted Rate = # 𝐶𝑙𝑒𝑎𝑛 𝐶𝑙𝑎𝑖𝑚𝑠 (𝐶𝑙𝑎𝑖𝑚𝑠 𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑒𝑑 𝑜𝑛 𝐹𝑖𝑟𝑠𝑡 𝑃𝑎𝑠𝑠) 𝑇𝑜𝑡𝑎𝑙 # 𝑜𝑓 𝐶𝑙𝑎𝑖𝑚𝑠 𝑆𝑢𝑏𝑚𝑖𝑡𝑡𝑒𝑑 Claim denials force entities to utilize resources managing denials with the potential of losing revenue (3-5%) entirely. Average Clean Claim Rate for US Hospitals %

CCR Use in Practice CCR is a metric for the quality of data collected as well as amount of labor/resources used in error resolution Improving CCR  reduction in cost and time required to generate payments Lower cost-to-bill and Accounts Receivable days

Most Common Reasons for Claim Denials
Ineligible/non-covered service Lack of prior authorization Claim already included as part of bundled managed care program Lack of demonstrated medical necessity, or insufficient documentation Incomplete/inaccurate demographic information Service covered by another payer Patient’s coverage cancelled Service provided prior to coverage Constant Payer and Regulatory rule changes Pam Wymack, “Denial Management – Key Tools and Strategies for Prevention and Recovery,” HCPro (September 2005).

Practices to Improve CCR
Pre Billing Claim Scrubbers Review and Education Accommodate rapid rule and policy changes Reporting and analytics Review denials and underpayments for causes and trends Systems integration

Percentage of Receivables
Ryan Stephens

Percentage of Receivables Over 120 Days
Accounts receivable = total fees that are owed by patients and insurance Important benchmark measuring delinquent payments Percentage of total receivables older than 120 days Payments that are at risk for defaulting Key performance indicator for a practice’s or company’s ability to collect timely payments Average generally 12-25%

Calculation: % 𝐴 𝑅 >120 𝑑𝑎𝑦𝑠= 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑎𝑚𝑜𝑢𝑛𝑡𝑠 𝑜𝑙𝑑𝑒𝑟 𝑡ℎ𝑎𝑛 120 𝑑𝑎𝑦𝑠 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 ×100 *Age of the receivables should be from the date of service, not date of the claim submitted

Important metric to be performed in conjunction with Days in Accounts Receivable % A/R > 120 days identifies outliers If elevated over the standard (>25%), practice’s revenue collection processes are inefficient Audit of the collection processes and types of insurance carriers may be warranted Variation in claim submission for carriers Automated and standardized collection process may improve efficiency and increase timely payments

Call Back Rate Claire Brookmeyer

Call Back Rate Screening Mammography
Rate of screening mammograms which require follow-up imaging/biopsy 𝑅𝑒𝑐𝑎𝑙𝑙 𝑟𝑎𝑡𝑒= # 𝑜𝑓 𝑟𝑒𝑐𝑎𝑙𝑙𝑒𝑑 𝑝𝑎𝑡𝑖𝑒𝑛𝑡𝑠 # 𝑡𝑜𝑡𝑎𝑙 𝑠𝑐𝑟𝑒𝑒𝑛𝑖𝑛𝑔 𝑚𝑎𝑚𝑚𝑜𝑔𝑟𝑎𝑚𝑠 Examples of factors affecting recall rate Patient characteristics: age, breast density, family history Interpreting radiologist: years of experience, academic vs community Systemic: mammography volume, computer-aided detection Rothschild, Jason, Ana P. Lourenco, and Martha B. Mainiero. "Screening mammography recall rate: does practice site matter?." Radiology 269.2 (2013):

Implications for call back rate Call back rate too high  false positives, increased cost, increased patient anxiety Call back rate too low  false negatives, missed interval breast cancers Quality measure: Target recall rate <10% recommended by ACR and AHRQ Some evidence: 10% for initial mammograms, 6.7% for additional mammograms* Recent evidence: 12-14% (10% target may be too low)❖ Rothschild, Jason, Ana P. Lourenco, and Martha B. Mainiero. "Screening mammography recall rate: does practice site matter?." Radiology 269.2 (2013): *Linver, M. N. "Evidence-based Target Recall Rates for Screening Mammography." Breast Diseases: A Year Book Quarterly 19.2 (2008): ❖ Grabler, Paula, et al. "Recall and cancer detection rates for screening mammography: finding the sweet spot." American Journal of Roentgenology 208.1 (2017):

Example: How UVA reached target recall rates. Plan: Existing recall rate 16%, target <12% Do: Anonymized recall rates for individuals and group distributed at departmental meetings Act: Double reading all BIRADS 0 Study: Identify causes of high recall rate (e.g. fear of missing cancer, years of experience…) Rochman, Carrie Margaret, et al. "Reducing Recall Rates for Screening Mammography: How We Achieved our Goal."

Bad Debt Paul Yi

Bad Debt Source: Investopedia
“debt that is not collectible and therefore worthless to the creditor.” “Bad debt is usually a product of the debtor going into bankruptcy but may also occur when the creditor's cost of pursuing the debt collection activities is more than the amount of the debt. Once a debt is considered bad, the business may be able to write it off as an expense on its income tax return” Source: Investopedia

How to calculate % of Bad Debt
Method 2: “Allowance Method” % Bad Debt = Actual Uncollectable Amount of Debt/Amount of $ Receivable Example: Source: The Motley Fool

How to calculate % of Bad Debt
Method 1: “Allowance Method” The company “creates an "allowance for doubtful accounts," also known as a "bad debt reserve," "bad debt provision," or some other variation.” “This method anticipates that some of the debt will be uncollectable and attempts to account for this right away.” Downside: Companies cannot say for sure whether a debt is uncollectible for some time after sales have taken place  inaccurate portrayal of accounts receivable on the balance sheet Source: The Motley Fool

How is Bad Debt used? Example 1: “If a lender's bad debt represented 2% of its total loans last year, and the economy has significantly improved since then, it may only decide to set aside a bad debt reserve of 1.5% of its total loans this year.” Example 2: The IRS allows businesses to write off bad debts (but they may only write off debts they have previously reported as income.)”

Day Sales Outstanding Jamie Schroeder

Days Sales Outstanding (DSO)
Defined as: average number of days to collect payment after a credit sale Notes: - excludes cash sales - only important to businesses that have high proportion of credit sales versus cash sales. (4/14/2018)

Formula for use: DSO = Total Accounts Receivable Total Credit Sales x Number of Days Metric can be calculated for any specific period of time, as it is a ratio of outstanding money owed (accounts receivable) per money billed (total credit sales) x days Typically calculated monthly, quarterly, or annually. (4/14/2018)

How it is used: At the end of July, an outpatient center has a total accounts receivable balance of $450,000. During July they made $310,000. What is their DSO for July? DSO = $450,000 $310,000 x 31 Days -> so DSO of 45 i.e. there are 45 days worth of dollars earned that are outstanding (4/14/2018)

Working Capital Ratio Javad Azadi 4/15/2018

Working Capital Ratio 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑎𝑡𝑖𝑜= 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 WCR reflects a business’s ability to pay off liabilities from its assets on hand Current Assets include: Current Liabilities include: Cash And Cash Equivalents Accounts Payable Short Term Investments Short/Current Long Term Debt Net Receivables Other Current Liabilities Inventory Other Current Assets

Working Capital Ratio Too high WCR implies not enough reinvestment or too much inventory Too low WCR implies higher credit risk and is generally an undesirable position (exception: High merchandise turnover leads to lower WCR, but does not indicate the business is in bad shape e.g. Walmart, Target) WCR less than 1 referred as Negative Working Capital Ways businesses can affect the WCR ↑ WCR Increase Current Assets Decrease Current Liabilities ↓ WCR Decrease Current Assets Increase Current Liabilities

Working Capital Ratio Current Assets and Current Liabilities are listed on a business’s balance sheet WCR Examples as of 1/2018 (numbers in millions of dollars): Walmart (NYSE: WMT) 59,664/78,521 = 0.76 Amazon (Nasdaq: AMZN) 60,197/57,883 = 1.04 Tesla (Nasdaq: TSLA) 6,571/7,675 = 0.86 Apple (Nasdaq: AAPL (9/17)) 128,645/100,814 = 1.28 GE (NYSE: GE) 140,110/61,893 = 2.26

References https://www.investopedia.com/terms/w/workingcapital.asp

Profit Margin Blake Jones

Profit Margin “Profit margin is a profitability ratios calculated as net income divided by revenue, or net profits divided by sales. Net income or net profit may be determined by subtracting all of a company’s expenses, including operating costs, material costs (including raw materials) and tax costs, from its total revenue. Profit margins are expressed as a percentage and, in effect, measure how much out of every dollar of sales a company actually keeps in earnings.” Credit: Profit Margin

Profit Margin Formula Profit Margin = Net Income / Net Sales (revenue)
Credit: Profit Margin

Profit Margin Example “For the fiscal year ended October 2016, Starbucks Corp (SBUX) recorded revenue of $21.32 billion. Gross profit and operating profit clock in at healthy figures of $12.8 billion and $4.17 billion respectively. The net profit for the year is $2.82 billion. The profit margins for Starbucks would therefore be calculated as: Gross profit margin = ($12.8 billion ÷ $21.32 billion) x 100 = 60.07%. Operating profit margin = ($4.17 billion ÷ $21.32 billion) x 100 = 19.57%. Net profit margin = ($2.82 billion ÷ $21.32 billion) x 100 = 13.22%.” Credit: What is the formula for calculating profit margins? | Investopedia

Net Profit Margin Anna Jean Moreland

Net Profit Margin Definition:
Percentage of revenue remaining after deducting all costs related to sales

Net Profit Margin Formula:
Net Profit Margin = (Net Profits/Net Sales) x 100

Net Profit Margin Example: Canton Car Wash had a net profit of $20,000 over the course of the most recent month of sales. During that same period, net sales were $160,000. Net Profit Margin over the last month is therefore (20,000/160,000) x 100 = 12.5%

Operating Margin By Trevor Axelrod, MD

Operating Margin Measure of profitability indicating the amount of each dollar of revenue that is left over after both costs of goods sold and operating expenses are considered Also known as the operating profit margin or operating margin ratio Shows how strong and profitable a company’s operations are Key indicator to see how businesses are supporting their operations Therefore, important to lenders and creditors

Operating Margin Formula
Operating Margin = Operating Income/Revenue Revenue = Net Sales Operating income is also known as operating earnings Higher the operating margin ratio the more favorable

Operating Margin Example
Trevor’s watch shop sells high value watches to rich people. Trevor lists the following on his financial statement: Cost of goods sold: $500,000 Net sales: $1,000,000 Rent: $15,000 Wages: $100,000 Other operating expenses: $25,000 Operating Income = Net Sales – Operating Expenses = $1,000,000-$640,000 = $360,000 Operating Margin = Operating Income/Net Sales = $360,000/$1,000,000 = 0.36 Operating Margin = 0.36 Operating Margin = 36 cents of each dollar of revenue is left over

Actual-Budget Variance
Mark Cleary

Actual-Budget Variance
Difference between the budgeted or baseline amount of expense or revenue and the actual amount. Favorable Variance: Actual revenue higher than budgeted Actual expense less than budgeted

Factors Leading to Budget Variances
Controllable factors Usually expenses, particularly discretionary ones Uncontrollable factors Usually originate in the marketplace, with consumer behavior not meeting expectations Products not consumed at the price point or quantity anticipated Change in the cost of materials, supplies, resources, etc. Unexpected changes in politics/policies or regulations

Actual–Budget Variance Example
Company budgets $100,000 in selling and administrative expenses Actual expenses = $105,000 Unfavorable budget variance = $5,000 In some cases budget variances can be eliminated by combining line items: Negative electricity budget variance of $2,000 Positive telephone expense budget of $3,000 Utility budget favorable variance $1,000

Current Year-Past Year Variance
Mitchell Fehlberg

Current Year-Past Year Variance
Calculation of change from one year to the next Usually used to calculate overall increase or decrease in business income or sales from one year to the next Also known as year over year variance Expressed as a percent

Current Year-Past Year Variance Formula
100*(This year’s income- Last year’s income)/Last year’s income

Current Year- Past Year Variance Example
Usually used to express overall growth or decline for the business For example: Last year’s overall income: 100,000 This year’s overall income: 117,000 Variance: 100*(117, ,000)/100,000 = 17% increase in overall income

Cost of Customer Acquisition
Mikhael Polotsky, MD

Definition The cost of convincing a potential customer to buy a product or service. Helps determine much value you're making from your customers in relation to how much it cost to acquire them.

Formula Divide the total costs associated with acquisition by total new customers, within a specific time period.

Example A company spends $100,000 on advertising within a month and acquires 10,000 new customers. CAC = $100,000/10,000 = $10 Must be taken in context of how much money the company will make from the customer.

Fair Market Practice Valuation
Andrew Demmert

Fair Market Value is defined by law
“Fair market value means the value in arm’s length transactions, consistent with the general market value. “General market value’’ means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.” (Federal Register, Vol. 69, No. 59, March 26, 2004, page 16128)

Fair Market Value Practice Valuation
Easiest Method is to put on Market and see who bids Second is to assess reasonable comparative sales (another house with similar square footage in the same locale) More complicated methos takes into account multiple factors (next slide)

Factors: Macroeconomic Risk CMS fee schedule
Maldistribution of doctors in area Practice Specific Risk Payer profile Expenses vs MGMA benchmarks Active patient population Referent Network Physician productivity Normalized Adjusted Net Cash Flow Certainty of Future Earnings Reliability and continuity of future earning capacity Amount and quality of current earning capacity Transfer Risk Possible loss of goodwill during transfer of ownership

Practice Valuation Hunter Dunlap

Capitalization Rate for Practice Valuation
Definition: Reflects the return an investor wants to achieve based on the risk associated with owning the practice. “What’s the likelihood that I will recoup my investment and how long will it take?”

Investment = Time to recoup Rate
Formula Investment = Time to recoup Rate 100 (total investment) = 4 years. 25% Rate depends on many factors…..

Risks include historic revenue trends, profit growth, demand for services, competition, staff quality, client demographics, etc. The lower the risk, the lower the cap rate, the higher the value of the practice.

Example Invest 1,000,000 into a practice. The cap rate is 10%, so you will earn 100,000 per year return. It will take 10 years to recoup the initial investment.

Discounted Cash Flow Method of Valuation
Taylor English

Discounted cash flows (DCF) method of Practice Valuation
DCF is a method of determining the fair value of a project, company, or asset using the concepts of the time value of money. Analysts often use DCF to determine a company's current value according to its estimated future cash flows and discounted by using cost of capital to give their present values. DCF analysis summates future free cash flow projections, both incoming and outgoing, and creates a net present value (NPV), which is then used to evaluate the potential for investment. DCF analysis computes the NPV using cash flows and a discount rate as the inputs, and gives a present value as the output.

Discounted cash flows (DCF) method of Practice Valuation
Discount rate is essentially valuing future cash flows as ‘how much money would have to be invested now at a given rate of return, to yield the cash flow in the future.’ It reflects the time value of money (e.g. investors would rather have cash immediately than having to wait and must therefore be compensated by paying for the delay), and the risk premium (the extra return investors demand because they want to be compensated for the risk that the cash flow might not materialize). This analysis can be used to estimate the attractiveness of an investment opportunity. It is applicable to any scenario where you are considering paying money now in expectation of receiving more money in the future. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.

The formula for calculating DCF is derived from the future value formula for calculating the time value of money and compounding returns, and is usually given something like this: DCF = DPV = CF1 / (1+r) + CF2 / (1+r)2 + … [TCF / (r - g)] / (1+r)n-1 Where: DCF = the sum of all future discounted cash flows that the investment is expected to produce DPV = discounted present value of the future cash flow CFn = cash flow in year n r = interest rate or discount rate – which reflects the cost of tying up capital and may also allow for the risk that the payment may not be received in full (basically the target rate of return that you want on the investment) TCF = the terminal year cash flow g = growth rate assumption in perpetuity beyond terminal year n = time, in years, before the future cash flow occurs

How much should you pay for that stake?
Example: Suppose you were offered a private deal to buy a 20% stake in a local business that has been around for decades with a growth rate of about 3% per year. It currently produces $500,000 per year in free cash flows, so this investment into a 20% stake will likely give you $100,000 per year in cash, and will likely grow at a 3% rate per year. How much should you pay for that stake? This year, the business will give you $100,000. Next year, it’ll give you $103,000. The year after that, it’ll give you $106,090. And so on, assuming accurate growth estimates. The stake in the business is worth an amount of money equal to the sum of all future cash flows it’ll produce for you, with each of those cash flows being discounted to their present value. Since this is a private business deal with low liquidity, let’s say that your target compounded rate of return is 15% per year. If that’s a rate of return you know you can achieve on other investments, you would only want to buy this business stake if you can get it for a low enough price that it’ll give you at least that rate of return. Therefore, 15% becomes the compounded discount rate that you apply to all future cash flows. So, let’s do the equation: “DCF” in that equation is the variable we are solving for. That’s the sum of all future discounted cash flows, and is the maximum amount you should pay for the business today if you want to get a 15% annualized return or higher for a long time. The numerators represent the expected annual cash flows, which in this case start at $100,000 for the first year and then grow by 3% per year forever after. The denominators convert those annual cash flows into their present value, since we divided them by a compounded 15% annually. Here’s a table for the first five years, showing that even as the actual expected cash flows will keep growing, the discounted versions of those cash flows will shrink over time, because the discount rate is higher than the growth rate:

Here’s the chart of the first 25 years:
The dark blue lines represent the actual cash flows that you’ll get each year for the next 25 years, assuming the business grows as expected at 3% per year. As you go onto infinity, the sum of all the cash flows will also be infinite. The light blue lines represent the discounted versions of those cash flows. For example, on year 5 you’re expected to receive $112,551 in actual cash flows, but that would only be worth $55,958 to you today. (Because if you had $55,958 today, and you could grow it by 15% per year for 5 years in a row, you’d you’ll have turned it into $112,551 after those five years.) Because the discount rate (15%) that we’re applying is much higher than the growth rate of the cash flows (3%), the discounted versions of those future cash flows will shrink and shrink each year, and asymptotically approach zero. Therefore, although the sum of all future cash flows (dark blue lines) is potentially infinite, the sum of all discounted cash flows (light blue lines) is just $837,286, even if the business lasts forever. That’s the key answer to the original question; $837,286 is the maximum you should pay for the stake in the business, assuming you want to achieve 15% annual returns, and assuming your estimates for growth are accurate. And the sum of just the first 25 years of discounted cash flows for this example is $784,286. In other words, even if the company went out of business a few decades from now, you’d still get most of the rate of return that you expected.

Caveats: Using DCF to analyze assets that change in value with time or other factors can often lead to over- or undervaluation of the asset, for example real estate during a boom market. This mechanical valuation tool is subject to the principal “garbage in, garbage out”. Small changes in the inputs can result in large changes in the value of the assets. DCF valuation should only be used as a method of intrinsic valuation for companies with predictable, though not necessarily stable, cash flows. For a newer company or one without much cash flow record, the DCF method may be applied repeatedly to assess a number of possible future outcomes, such as best and worst case scenarios.

Net Present Value Babita Panigrahi

Net Present Value: Definition
The difference between the present value of cash inflow and outflow over a period of time. A positive net present value (NPV) indicates a profitable project over a given period of time.

Net Present Value: Formula
NPV = 𝑡=1 𝑇 𝐶𝑡 1+𝑟 𝑡 −𝐶𝑜 T = total time periods t = current time period Ct = cash inflow in time period t r = discount rate, accounting for the time value of money Co = total initial costs

Net Present Value: Example
Dr. Medeekalskool decides to invest in a pharmaceutical company that costs $100,000, with an expected profit of $25,000 at year 1, $50,000 at year 2, and $60,000 at year 3. What is the NPV over 3 years with a discount rate of 10% per year? NPV = $25,000 (1+.10) 1 + $50,000 (1+.10) 2 + $60,000 (1+.10) 3 - $100,000 = $22,727 + $41,322 + $45,079 - $100,000 = $9,128 The positive NPV indicates the investment would be profitable after 3 years.

Opportunity Cost Benny Sujlana

Opportunity Cost Also known as the alternative cost.
A benefit, profit or value that must be given up to acquire or achieve something else. As every resource can be put to alternative uses, every choice or decision has an associated opportunity cost. It is usually the “value” of the next best alternative or option; i.e. the “cost” incurred by not enjoying the benefit, whether in monetary value, pleasure or satisfaction, that would have occurred if the second best option was chosen.

Opportunity Cost - Formula
No agreed on formula to calculate opportunity cost as the “value” of the second best alternative is not necessarily measured in money. However, one way to look at opportunity cost can be described by the formula below. Opportunity Cost = What you are sacrificing/what you are gaining

Opportunity Cost Example
Going to private practice vs academics vs employed position at an non-academic hospital/organization Multiple factors involved Salary Time off/Vacation Academic/Research Time Research opportunities And so on Need to look at the opportunity cost of each consideration and figure out which factors are most important to you. Will simplify by looking at just the salary. Let’s say the two best options for you are academics and employed position at Kaiser Permanente. You pick Academics due to interest in research, opportunity to teach, etc.

Opportunity Cost Example contd.
Kaiser Salary – Let’s say $350,000 without any substantial growth. Academics Salary – Let’s say $300,000 without any substantial growth. Opportunity cost of picking Academics = what you are sacrificing/what you are gaining $350,000 per year/$300,000 per year = $1.17 That is for every $1 you make in Academics, you could make $1.17 at Kaiser. Obviously a very simplistic model as multiple factors need to be considered.

Report Turnaround Time
Nevil Ghodasara

Amount of time between the completion of a radiologic study and the radiologist returning a finalized report to the referring provider. It is an important performance and quality metric although it does not account for report accuracy. Nitrosi A, Borasi G, Nicoli F, et al. A Filmless Radiology Department in a Full Digital Regional Hospital: Quantitative Evaluation of the Increased Quality and Efficiency. Journal of Digital Imaging. 2007;20(2): doi: /s y. TAT: Turnaround Time; TT: Transfer time, negligible with PACS

Why It Matters Vital for ED physician satisfaction and is important for ED workflow Optimize patient care Associated with hospital outpatient satisfaction Effect on hospital length of stay Billing cycle cannot begin until a report has been finalized, affecting cash flow.

Radiology Quality Institute recommendations for final report turnaround time. Emergency Department Inpatient Outpatient Stroke Protocol <20 min STAT <30 min Expedited <4 hours Routine <24 hours <18 hours

PDSA Louis Bonacorsi

PDSA: Plan Do Study ACT Quality improvement tool useful for implementing healthcare change using rapid small-step cycles 4 Phases Plan – hypothesis formation Do – implement the new process with data collection Study – interpret the results Act – decide what to do next based on study results

PDSA PDSA will best facilitate successful change efforts when:
Type of change is small to moderate where incremental adjustment would enhance organizational performance and improve congruency between strategy, structure, people and processes

Plan Identify a problem Assemble a team
Define the problem and formulate a problem statement Select best alternative for solving the problem Communicate the plan

PDSA Implement the action plan
Do Study Implement the action plan Change is planned and tested on a small scale and at multiple levels such as patient, provider, and hospital levels Implement the change plan incrementally, one cycle at a time Analyze the data Determine if the change is an improvement, exacerbated the old problem or created a new problem Decide if the change should be retained, refined, or abandoned

Act Adopt Adapt Abandon

EBT, EBITDA Jeff Jensen

EBT Earnings before tax (synonymous with operating income)
EBT = net profit + tax Primary use: compare profitability among businesses and industries by mitigating impact of tax (e.g. different state tax rates among US companies).

EBITDA Earnings before interest, tax, depreciation, amortization
EBITDA = net profit + interest + tax + depreciation + amortization Primary use: compare profitability among businesses and industries by mitigating impact of financing and accounting decisions.

Earnings Per Share Charles Bailey

Earnings per Share Earnings per share (eps) is the portion of a company's profit allocated to each outstanding share of common stock Importance: Measure of profitability considered to be the single most important variable in determining a share's price major component used to calculate the price-to-earnings (P/E) valuation ratio used in valuing a company because it breaks down profits on a per share basis Investopedia, [accessed ]

Calculating Basic earnings per share
Using balance sheet and income statement find the total number of shares outstanding dividends on preferred stock the net income or profit value use a weighted average number of shares outstanding Any stock dividends or splits that occur must be reflected in the calculation of the weighted average number of shares outstanding EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares Investopedia, [accessed ]

Weighted Shares Outstanding
Example calculations Company Earnings (net income) Preferred Dividends Weighted Shares Outstanding Basic EPS Facebook $8 billion $4.5 billion 1.5/4.5 = $1.77 Apple $15 billion 1 billion $3.5 billion 15-1/3.5 = $4.00 Tesla $1.35 billion $5.5 billion 1.35/5.5 = $0.24 Spotify $0.75 billion $4.0 billion 0.75/4.0 = $0.18 Investopedia, [accessed ]

Diluted Earnings per share
Accounts for complex capital structure of a company Stock options, Warrants, Restricted stock units These investments, if exercised, could increase the total number of shares outstanding Diluted EPS includes convertible securities Worst case scenario if other securities are converted to common stock EXAMPLE: Facebook has 500 million in convertible securities Add this to weighted shares outstanding (4.5 billion million = 5 billion) Diluted eps = 8/5 = $1.60 Investopedia, [accessed ]

PE Ratio Matt Alvin

Price/Earnings (P/E) Ratio
Goal: Evaluate the value of a company Price = current share price Earnings = earnings per share Basic idea: how much you should invest to receive $1 of a company’s earnings Example: Company A is trading at a P/E of 20, meaning you (investor) are willing to pay $20 to earn $1

How to calculate the P/E Ratio? For P: Look up the current share price (P) for Company A (e.g., newspaper, online) and let’s say it shows $80 per share For E: a bit more difficult to determine Usually derived from the last 4 quarters earnings (example: Company A made $20 billion for the most recent fiscal year), known as the “trailing” P/E Could also be derived from estimated future earnings, or “forward” P/E Also need total number of shares outstanding (example: Company A has 4 billion shares outstanding) Then, calculate E = $20 billion/4 billion = $5 In this example, P/E = $80/$5 = 16

Okay so what does this all mean? High P/E means investors expect high earnings growth in the future Low P/E could mean the company is undervalued (i.e., earning a lot for minimal investment) or the company is doing really well compared to past trends What if a company has no earnings (only losses)? P/E = N/A is the convention rather than a negative P/E Average market P/E ratio is times the earnings

Compare to similar companies only within the same sector (different growth patterns in different sectors make comparisons outside of the same sector very difficult to interpret); example: Company A ($30/share), Company B ($20/share), Sector P/E 15, Company A P/E = 15, Company B P/E = 30 Which is cheaper? A – earning more for less Which is the better investment? Not possible to determine on P/E alone since yes A is cheaper, but B’s higher P/E (than sector P/E) indicates some expectation of higher future earnings Conclusion: P/E alone is not good enough to determine the best investment

Impact Factor John Freiling 11/7/2018

Impact Factor (Journal)
Impact Factor (IF) is defined as: “a measure of the frequency with which the “average article” in a journal has been cited in a particular year or period.” (clarivate.com) 4/18/2018

IF: How is it calculated?
For a given year, the impact factor of a journal is the number of citations received in that year by articles published in that journal during the previous two years, divided by the total number of articles published in that journal during the previous two years. 𝐼𝐹 𝑦 = 𝐶𝑖𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝑦−1 + 𝐶𝑖𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝑦−2 ( 𝑃𝑢𝑏𝑙𝑖𝑐𝑎𝑡𝑖𝑜𝑛𝑠 𝑦−1 + 𝑃𝑢𝑏𝑙𝑖𝑐𝑎𝑡𝑖𝑜𝑛𝑠 𝑦−2 ) For example: 𝐼𝐹 2018 = 𝐶𝑖𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝐶𝑖𝑡𝑎𝑡𝑖𝑜𝑛𝑠 ( 𝑃𝑢𝑏𝑙𝑖𝑐𝑎𝑡𝑖𝑜𝑛𝑠 𝑃𝑢𝑏𝑙𝑖𝑐𝑎𝑡𝑖𝑜𝑛𝑠 2016 ) 4/18/2018

IF: How is it used? Used to measure the “importance” or rank of a journal by calculating the number of times its articles are cited Often used by authors to decide where to publish and to discover other journals in their specialty Often used by publishers for marketing or to identify opportunities to expand, merge or discontinue enterprises Helpful when used to evaluate a journal’s relative importance compared to other journals in the same field Not meaningful when comparing across fields (IF varies significantly among different disciplines, etc.) 4/18/2018

IF: How is it used? Has gradually evolved to describe not just journal impact, but also author impact... For example, can be used as performance measure for research productivity of radiologists in your academic practice by counting the number of papers published in high impact journals Controversial uses… “has moved in recent years from an obscure bibliometric indicator to become the chief quantitative measure of the quality of a journal, its research papers, the researchers who wrote those papers, and even the institution they work in.” (Impact Factors: Use and Abuse. Amin, M. Perspectives in Publishing, 2009.) 11/7/2018

Top 10 Radiology, Nuclear Medicine, and Medical Imaging Journals
11/7/2018

H Index Eric Huh 11/7/2018

H-index Proceedings of the National Academy of Sciences of the United States of America November 15, 2005

H-index: definition The highest number of publications (h) of a scientist that received h or more citations each while the other publications have not more than h citations each. A metric that measures both the productivity and citation impact of the publications of a researcher.

Professor X has 10 publications, A, B, C … J
H-index: example Professor X has 10 publications, A, B, C … J Publication # of citations A 22 B 19 C 15 D 12 E 10 F 8 G 4 H 2 I J Publication # of citations A 22 B 19 C 15 D 12 E 10 F 8 G 4 H 2 I J > 1 > 2 > 3 h index = 6 > 4 > 5 > 6 < 7

Stopped here on 6.18 11/7/2018

I10 Index for Publication
Andrew Ong

What is it? Created by Google Scholar and used in Google's My Citations feature. i10-Index = the number of publications with at least 10 citations. This very simple measure is only used by Google Scholar, and is another way to help gauge the productivity of a scholar.

Advantages and Disadvantages
Advantages of i10-Index Very simple and straightforward to calculate My Citations in Google Scholar is free and easy to use Disadvantages of i10-Index Used only in Google Scholar

H index - I-10 index Fishman 124, 857 Yousem 58, 185 11/7/2018

SJR & SNIP Huasong Tang

Definition SCImago Journal Rank (SJR): measure of scientific influence of scholarly journals based on # of weighted citations Journal prestige Average # of weighted citations during selected year per document published in that journal during the previous 3 years. For comparision, the Impact Factor derives its value from citations in a single year, resulting in large fluctuations from year to year. In addition, IF weighs each citation equally not taking into account of source prestige. Free! Source Normalized Impact per Paper (SNIP): weighs citations based on total number of citations in a subject field. This corrects for differences in citation practices between scientific fields, thereby allowing for more accurate between-field comparisons of citation impact Huasong Tang

SJR Formula

Definition SCImago Journal Rank (SJR): measure of scientific influence of scholarly journals based on # of weighted citations Journal prestige Average # of weighted citations during selected year per document published in that journal during the previous 3 years. For comparision, the Impact Factor derives its value from citations in a single year, resulting in large fluctuations from year to year. In addition, IF weighs each citation equally not taking into account of source prestige. Free! Source Normalized Impact per Paper (SNIP): weighs citations based on total number of citations in a subject field. This corrects for differences in citation practices between scientific fields, thereby allowing for more accurate between-field comparisons of citation impact Huasong Tang

Source Normalized Impact per Paper (SNIP) Formula

SJR and SNIP rankings

M index for publications
Peter Kamel

Definition The m-index or m-quotient is a method of quantifying the rate of citation accumulation of an author. It is the h-index per year since the author’s first publication It represents not only how many highly citation publications an author has produced, but also how fast they are being produced

Number of years since first published paper
Formula h-index m-index = Number of years since first published paper

Example Dr. A has an h-index of 10.0, meaning he has 10 publications with at least 10 citations. He has been publishing for 10 years, so his m-index is 1.0 Dr. B also has an h-index of 10.0, but has been publishing for 5 years. Her m-index is 2.0. Although Dr. A and Dr. B have the same h-index, Dr. B has been producing faster publications, giving Dr. B the higher m-index

C Index Danielle Livingston

C-Index: Definition The C-index is a measure of an author’s productivity based on assessing the total number and quality of an author’s citations, independent of number of publications. The purpose of the C-index is to measure an author’s impact on other people in the field who are not close collaborators.

C-Index: Formula

C-Index:Example

Thank You to Residency Classes 2018-21! Fantastic Job!!!
Dave Yousem 11/7/2018

Business Term Glossary: Application to Radiology

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