The ABCs of Building a Financially Healthy Medical Practice

April 5, 2019

As changes continue to occur in the healthcare industry, physicians are taking a hard look at the numbers of a medical practice and gauging whether the year at hand will be economically successful. To analyze the productivity of the practice, physicians depend on accurate and timely information. However, with the focus of every practice on delivering quality health care, the financial side often becomes neglected or ignored. This is where you, as their CPA, come in.

Frequent signs that your medical practice client may not be paying enough attention to its financial side include: a lack of documented billing procedures; lack of internal controls involving accounting and cash; lack of timeliness; no accountability for staff; missing or outdated records; and the lack of targeted benchmarks.

In order to run a practice profitably, a physician should review weekly financial and cash flow updates to calculate overhead and determine how much to collect and how many patients are needed to cover those costs. These updates also allow physicians to determine the level of patient visits, frequency of procedures, trends in expenses and changes in activities.

It’s also important that you as the physician’s professional accountant frequently review the activity in a practice’s accounting records, especially if the practice is growing, adding doctors, expanding or is new. This review will allow a practice to properly report financial conditions and timely tax planning. The last thing a physician wants to find after months of recording the books are surprises in regards to gains, losses or tax liability.

When looking at and analyzing the income statement, make sure the income and expense numbers are compared with the same time period for the prior year. The financial goal of any medical practice is “are we doing better this year than last year financially.” And if not, then why not. This is where you can be proactive and provide real value to your physician clients. Look for ways to enhance revenue and contain costs. If there is a spike in an expense category, investigate immediately.

Implementing and documenting medical billing procedures is critical in today’s environment. Accurate medical billing (especially CPT coding) is extremely important to the success of any practice. Help your physician clients create processes that ensure data is captured properly and timely. Staff should be aware of what is expected of them and how to get it done effectively.

The best way to establish these procedures is to have productive but reasonable practice goals in place with each staff member. Goals could include daily charges input, daily payments input, acceptable lag time days, number of claims that have received follow-up, number of patient calls to make, zero lag time on correcting claims transmitted, compliance with credit balances and compliance with coding and documentation.

Several areas that should be closely monitored in the billing process include regular follow-up on claims and appropriate attention to denials, zero EOBs and transmission rejections.

Next, make sure your physician clients have created a continuous communication cycle. Because of the pace of a physician’s office, formal communication between doctors, management and staff often is fragmented, neglected or postponed. Animosity can develop between management and staff because of inaccurate assumptions.

Management must take ownership of this responsibility and strive to communicate with staff. Key issues such as turnover of personnel, additional hiring of personnel to support practice functions and new processes needing implementation should be communicated timely. Staff meetings with specific agenda items and formal memos documenting new policies and decisions seem to work well for physician offices.

Finally, with your help, every medical practice should and must, establish benchmarks. Benchmark all practice statistics, such as the following:

  • Gross Collection Percentage
  • Net Collection Percentage
  • Days in A/R
  • A/R Ratio
  • A/R in excess of 90 days old
  • Clinical/Procedure/Ancillary Encounters
  • Provider Work RVUs
  • Charges by Payor
  • Collections by Payor
  • Payor Collections by Physician
  • Referring Physician by Physician
  • E/M Coding Comparisons
  • Average Wait Time in Reception Area
  • Front desk collection success
    • Copayments
    • Patients with A/R balances
  • How quickly visits/procedures are billed
  • How long does it take to get paid by payors
  • Percent of scheduled patients vs. available visit/surgery/procedure appointment times
  • Percent of insurance eligibility verifications vs. total scheduled patients
  • Recall visits vs. recalls available
  • Average number of missing charges vs. services rendered (actual & CPT mistakes)
  • Percent of denied/rejected claims vs. total claims filed
  • Percent of denied/rejected claims appealed successfully vs. total denial/rejections
  • Average days between receipt of payment and payment posted
  • Average number of unpaid claims resolved by day per collector

As with the income statement, see how the medical practice is doing this year compared to last year. If the year is flat or declining, investigate immediately and develop an associated action plan of attack.

Through planned and integrated accounting, medical billing, communication and benchmarking, a physician’s office can run smoothly and continue to care for patients while being up-to-date on the economics of the practice.

Reed Tinsley, CPA is a Houston-based CPA, Certified Valuation Analyst, and healthcare 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

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