Watch Trends and Forecast Financials to Improve Fiscal Outlook of Your Medical Practice

December 27, 2007

You can’t afford to pay a vendor until you receive reimbursement for several outstanding claims. You look at national benchmarks and see that your practice lies below average. Your overhead costs soar above a number you didn’t hit once the past eight months. These scenarios generally indicate financial trouble for a practice. But if you pay attention to your trends and forecast numbers for upcoming months, you can avoid stumbling without warning into financial difficulty.

Watch the Numbers

Remember that numbers don’t lie – analyze yours to see an accurate picture of your practice. In other words, “You can’t manage what you don’t measure.”  Your numbers are the end result of your efforts and show you exactly where your practice stands.

Look at the following three reports monthly to determine areas to focus your attention on, keep financials in check, and boost declining numbers:

Financial Management Report This report provides a snapshot of your practice’s production, gross collections, net collections, and contractual adjustment numbers. Study the numbers for each physician and for the whole practice. Compare the data to the same month in previous years. If the numbers show that your practice performed better last year than this year, warning bells should go off. That’s a lot of hard work for what? – You should strive to get better every year.

Clinical Activities Report This report reveals trends in the clinical procedures performed at your practice and shows you areas that earn you the most revenue. Look at this for each physician and for the whole practice. Include CPT encounters for office visits for both new and established patients, hospital services, labs, x-rays, and consults.

If you don’t know the trending of your utilization, then you probably aren’t very hands on with your practice and you’re most likely losing money. That is not to say you must know exactly how many more new patients you see every month, but you should have some idea whether the number increases, decreases, or remains stagnant.

Accounts Receivable Report (A/R)  Look at the average number of days in A/R and the aging of A/R (i.e., whether claims are getting older) overall, by insurance class, and by payer. On average, the percentage of claims older than 90 days should not exceed 15%–20% of total claims in A/R. Also, be sure to run A/R without credit balances to see exactly where your receivables stand.

Interpret the Data

While it’s important to create these three reports separately, it’s as important to analyze the data together. The numbers are all integrated and their relationships can help derive solutions to your problems.

For instance, physician productivity and clinical activities are directly linked so looking at one when the other is down could provide some answers. Did a new competitor move into the area and take some of a physician’s patients? Is the physician seeing fewer patients as retirement draws near? These could both affect productivity.

Create daily, monthly, and annual financial goals for your practice – watching these numbers should provide an approximate financial forecast so if your forecast suggests your numbers may not meet or exceed those goals, implement new policies and procedures or more strictly enforce the old ones.

Regardless of the method you might use, look at the data continuously. I don’t care what format you use and I don’t care how you do it – Just do it every month. Make it the first item on the agenda at your monthly management meeting.

If you don’t, you could face serious financial trouble. Practices today just cannot sit on their hands and do nothing. They’re going to have to be proactive because anyone that is complacent will ultimately lose down the road. In case you haven’t noticed, these are turbulent times you practice in.

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