Increase Profitability by Reviewing Medical Practice Reports

March 12, 2011

There is a saying that I truly believe in and that is “You can’t manage what you don’t measure.” I find many physician offices are losing money simply because attention is not being paid to the numbers. So how did you do last year? Like any other business in this country of ours, there is really only one financial benchmark that should matter – “Did I make more money this year than I did last year!” It’s that simple. If you didn’t, then obviously there was a problem or were problems that you need to investigate. If you did make more money, is it sustainable in to the future? As we all know, the profit squeeze is on for most physician practices; this is why it is so important to measure your numbers, analyze them, investigate, and strategize.

So to conduct this analysis you must retrieve financials reports from your accounting system and medical billing system. To aid you in this endeavor, I have provided you with a list of reports that I think you need to be looking at and what you should do with each.

Comparative income statement:  Compare income and expenses between years and investigate why revenues were flat or declined. Look for spikes in expenses and explanations as to why. How did operating expenses compare to industry benchmarks? Note: Overhead is an easy target; don’t cut just to be cutting otherwise you’ll end up hurting your practice.

Current aging of vendor accounts payable:  Can’t pay your bills on time? A definite sign of trouble.

Total annual payments to individual vendors:  Look for excessive payments to a certain vendor or vendors. Find vendors whose costs have not been subject to the bidding process recently. Compare vendor costs to similar vendors in the marketplace.

Comparative charges, collections, and adjustments:  Look at this for the practice as a whole and by individual provider. Calculate collection ratios and compare to industry benchmarks. Investigate any declines for charges and collections. For adjustments, were there any changes in payer reimbursement? Is billing staff writing off denied charges that could have been appealed and paid?

Comparative listing of gross charges by specific payer:  Is your practice shifting to payers with lower reimbursement?

Current aging of accounts receivable:  Calculate Days in A/R and compare to benchmarks. Review by individual payer class to see if you are having problems collecting from a particular payer. Review A/R over 90 days old and compare to benchmarks; meet with collection staff to find out why these balances are not getting collected.

Current summary of accounts receivable – credit balances only:  Why aren’t these balances getting refunded? You may have a compliance problem on your hands.

Comparative Daily Patient Visits by Individual Provider:  Investigate declines. Strategize on how to increase daily volume.

Listing of all practice employees and their job duties:  Practice inefficiencies often result in too many employees. Take a strong look at how your office operates every day and remove these inefficiencies but never cut staff as a way to simply prop up your bottom line.

CPT frequency report:  Also review for the practice as a whole and by individual provider. Look for missed coding opportunities, undercoding, and possible compliance issues.

Top 8 managed care payers and current reimbursement rate received from each:  Are the current rates acceptable? Which rates pay below Medicare levels? Are there certain services that are underpaid? Look for negotiation opportunities. Now might be the time to drop certain payers.

Work RVUs by provider:  Not all medical billing systems can produce this report but if yours can, compare to industry benchmarks. Investigate why productivity level did not meet the benchmark.

Referring doctor report:  Obviously investigate drops is referral patterns. More importantly, look at the bottom of the report and ask yourself why aren’t you getting more referrals from these physicians.

Reed Tinsley, CPA is a Houston-based CPA, Certified Valuation Analyst, and Certified Healthcare Business Consultant. He works closely with physicians, medical groups, and other healthcare entities with managed care contracting issues, operational and financial management, strategic planning, and growth strategies. His entire practice is concentrated in the health care industry. Please visit www.rtacpa.com

Previous post:

Next post: