Medical Practice Management
May 10

Increase Profitability by Reviewing Medical Practice Reports – Part I

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.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →