Business Planning for Medical Practices

June 7, 2006

The demand of the marketplace is causing ongoing changes in the medical industry. These changes may cause old beliefs about how medicine should be practiced to become obsolete. Physicians must therefore pay attention to the business aspects of a medical practice. One way to accomplish this is through business planning. Although planning should occur continuously throughout the year, it must occur at least once a year in the form of a formal business planning session. The purpose of this exercise is to review the internal operations of the past year and prepare for the upcoming year. The session should be attended by the physician-owner(s), the practice’s office manager or administrator, legal counsel, and the practice’s outside accountant. Other advisors can be included in the meeting if need be. Business planning allows the practice to maximize revenues, minimize costs, and expand net income as much as possible. Without sound business planning, the future holds no guarantees. The following are just a few of the main issues that should be addressed during the business planning session.

Finances Diagnostic business planning begins with the evaluation of the overall finances of the medical practice. Particular emphasis should be placed on charges, collections, adjustments, and other write offis. Is the practice growing or are the doctors working harder to maintain the same income level?

Financial Percentages and Ratios Review the practice’s gross collection percentage, net collection percentage, and accounts receivable ratio or days in A/R. Assess whether all these statistics are reasonable for the practice’s particular medical specialty.

Fee Schedule Review the practice’s fee schedule. For each current procedural terminology (CPT) code, decide fee increases for the upcoming year.

Evaluation and Management Coding Practices Analyze the coding patterns for evaluation and management services. Practices can lose significant amounts of revenue if services are not coded correctly.

Payor Mix Reexamine the practice’s payor mix. Compare its current distribution to the previous year’s distribution and identify shifts in specific payor classes.

Managed-care renegotiation Review all managed-care plans to assess their reimbursement rates and profitability. If the plan’s rates or profitability are not acceptable,  assess the potential for renegotiation.

Overhead Compare each overhead category to the same overhead category from the prior year. Identify and question significant changes. In addition, decide how the practice’s overall overhead can be reduced in the upcoming year.

Cost Accounting Every practice needs to know what it costs to render a particular service. These calculations should be prepared at least annually.

Accounts Receivable Conduct an in-depth analysis of a current aging of the accounts receivable.

Front Desk Collections Critique of the front-desk collections. Calculate the percentage of patients who actually made some form of payment at the time of service.

Billing and Collection Review all billing and collection policies to assess whether or not they have been successfully implemented throughout the year.

Inventory Prepare an inventory of all medical supplies in the office. Review the list and decide whether or not the practice is enforcing proper inventory control procedures.

Time Management One major cause of inefficiency in many practices is excessive telephone calls from patients each day. Therefore, it is a good idea to review the internal management of these calls.

Human Resources Business planning for a medical practice should include a look at a variety of human resources issues, such as payroll costs and employee performance.

Personnel and compliance manuals Review and revise the manuals if necessary. Ensure that they comply with all federal and state laws.

Marketing Review current marketing activities and their successes or failures. Create a new marketing plan for the upcoming year.

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