Medical Practice Management
Apr 22

Preparing a pro forma before adding a new ancillary or service line

The basic economic definition of a "pro forma" describes a presentation of data that reflects an “as if” basis.  Many in the medical field have had equipment sales reps come into the office with a “wonderful new piece of technology” that will help patients and, of course, bring in plenty of revenue to cover it’s expense.  This holds true sometimes, and at other times the practice takes a financial hit.  Completing a pro forma of your own (and not relying on one supplied by the rep) can help take some of the guess work out of a purchase or when you are considering adding a new service line to your physician practice.

Here are some things to consider when completing your pro forma:

• Are the services reimbursable by insurance?

• If reimbursable by insurance, which ones and at what amount?  Are there any planned reductions in reimbursement in the coming year or two?

• Does the information supplied from the company reflect what you are truly able to bill based upon your local carrier rules and regulations or is a “best case scenario” presentation?

• Where will you put your new equipment and will that room be useable for other functions (i.e. rent expense)?

• Is there employee salary and benefit expense associated with the equipment?

• Are there start up expenses (such as a special power source, licensure, lighting, etc.)?

• Are there on-going medical supply expenses or a yearly maintenance contract after the first year?

• Be sure to include your sales tax, depreciation, and interest expense (if taking out a loan) in the cost of the machine.

• How many patients will need or can benefit by this new service?  Be realistic. Consider how many can afford this service?

• How many patients will need to be treated monthly to have a “break even” point?

• What is your return on investment?

Using a pro forma to help determine the potential impact of equipment purchases helps take part of the “guesswork” out of the process.  To provide the potential purchasers with the most information consider completing a very conservative (worst case) pro forma and a realistic (best case) pro forma.  This allows for comparison and helps to determine if the purchase is in the practice’s best interest. A pro forma can be useful for more than determining whether or not to move forward with an equipment purchase; you can use them to determine if adding a new procedure to the office is a benefit, if adding a new provider will have a positive impact, or to determine if a new satellite office is warranted. 

Basic formulas within the Excel spread sheet allow for manipulating numbers (i.e. number of patients, collections, etc.).  Once you have set up your calculations in a spreadsheet you can use it repeatedly.

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 →