Possible Early Warning Signs of Medical Practice Financial Problems

July 26, 2007

To download this article, click here: Possible Early Warning Signs of Practice Financial Problems

For those that know me, you know how much I preach about the importance of implementing an ongoing monitoring program for any physician medical practice. This monitoring can be conducted by practice administration, physician management, or independent advisors. As I mentioned earlier, I suggest a combination of both – i.e. a team approach to management.

A good monitoring program should detect financial “problems” early so that they can be corrected “now instead of later.” The following is a list of warning signs you should be on the look out for as part of any monitoring program.

Sudden change in accounts receivable tendencies

You should watch accounts receivable extremely closely. Benchmark what is “normal” for the practice so you can better recognize any irregularities. Each month, prepare or print summary accounts receivable reports showing comparisons over several months. In particular, look for either a significant drop in receivables (signaling a possible drop in production) or a steady increase in receivables over 90 days old. Also remember that comparing today’s figures with last year’s numbers shows which direction you’re heading.

Abrupt changes in charges, adjustments and receipts for an individual provider

If you notice a big jump or drop in these monthly totals – especially for two months in a row – you must investigate and find out why. It might just be a simple “bump in the road,” (i.e. physician time off) but it could indicate serious underlying problems. For example, a continued increase in contractual adjustments could be the result of a change in payer reimbursement or even worse, an indication of potential employee embezzlement.

Late charges or other penalties

If the practice is getting assessed late charges or penalties, it could signal a cash flow problem. Is the practice paying bills on time? What does an aging of the accounts payable look like? Look at bank statements, too. Overdrafts or returned checks indicate critical problems. The bottom line is this: If a medical practice cannot pay its vendor bills within thirty (30) days, then there is a problem somewhere!

Sharply rising overhead costs

Despite a practice’s best cost-cutting efforts, overhead should continue to rise as the consumer price index slowly rises. Therefore, you should monitor practice expenses closely by categories like personnel, facility, office supplies and medical supplies. Compare costs from month to month and from year to year. On the other hand remember that overhead percentages are based on revenues – if revenues are declining, the overhead percentages might be inflated.

Inconsistent reporting

Finally, make sure information needed to run the practice is being made available on a timely basis each and every month. This includes data and statistics on billing, collections, accounts receivable, payer reimbursement, and the practice financial statements. All of this financial information must be reviewed and discussed in a monthly meeting forum. If financial information is late or is being withheld, this could be an early warning sign of trouble.

To download this article, click here: Possible Early Warning Signs of Practice Financial Problems

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