Monitoring Physician Practice Financial Health

What are the best financial ratios and reports to monitor the financial health of a practice?

There are almost as many opinions on the key performance indicators for medical practices as there are indicators. And there are key performance indicators that need to be monitored on a monthly basis, while others are part of the year-end report and review.

Monitor the following indicators on a monthly basis:

• Trends in gross charges – Have charges declined, increased or remained the same? Is there anything out of the ordinary? Are all charges posted?
• Accounts receivable (A/R) – How many days of gross fee-for-service charges are outstanding? What percentage of total A/R is more than 90 and 120 days old? Compare your organization to similar practices in the MGMA Cost Survey Report, then compare your benchmark to those of better-performing practices in MGMA’s Performance and Practices of Successful Medical Groups Report.
• Date of service – Is the cycle time from date of service (DOS) to claim submission reasonable based on established standards in your practice? For example, make a point to post all outpatient visits or charges within 24 hours of DOS and all charges for inpatient visits within 72 hours of DOS. Review variances from these standards.
• Operating costs – Look at costs as a percentage of medical revenue, which can provide insight to efficient operations. Compare your costs with MGMA’s survey reports.

Medical groups identified by MGMA as better performers in profitability and cost management typically generate the following reports monthly and annually to evaluate financial performance:

Financial reports:

• A/R aging;
• Cost reports by department, provider and locations;
• Income statement:
• Balance sheet; and
• Statement of cash flow.

Practice management reports:

• Collections system summary analysis;
• Untracked encounter forms;
• Unbilled revenue;
• Billing summary;
• Procedures analysis; and
• Managed-care plan profitability (capitation analysis).

Keeping on top of financial indicators is critical to practice success. However, don’t forget to include nonfinancial indicators in regular analyses of practice performance.

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.