In the best of all worlds, physicians and practice managers solve practice problems before they get big enough to have an impact on overall financial performance. However, experience tells us otherwise. Most physicians work hard seeing patients all day and have little time to dedicate to business matters. For this reason, they tend to look at the practice globally and aren’t quick to identify signs of trouble. As a result, physicians are sometimes blind-sided when there is a sudden deterioration in practice finances.
Here are some financial danger signs for medical practices that indicate a practice is headed for trouble, and a two-hour strategy that will help you stay on top of practice performance.
1. Shifting financial trends
Each month, prepare and update graphs show you the productivity and income trends tracked on your practice management system:
- Productivity (charges)
- Adjustments
- Receipts
- Accounts receivable
- Credit balances
When there is a sudden jump or decline that is not predictable, there may be trouble on the horizon. For example, a sudden increase in adjustments may be an indication that accounts are not being followed-up or perhaps someone is being indiscreet in what they write off. If accounts are shifting into the 90+ day aging, there may be a problem with lag time in submitting billings or perhaps one of the high volume third party (insurance) payers has become delinquent. If credit balances are growing it could be posting errors or perhaps the financial department is not timely with returning overpayment on patient accounts.
If receipts are declining it could be for a variety of reasons, such as poor performing third party payers, a delay in posting payments, too little attention to updating patient accounts, failure to collect at time of service or poor accounts receivable management.
2. Rising operating expense
Each month, physicians should take a critical look at the income and expense report and compare it to same time last year. If overhead is rising, it’s a sure sign of a loss of control. It is likely to be a combination of poor systems, lower productivity and inefficiency or shrinking reimbursement and rising costs. It won’t go away by itself, so dig deeper and get to the root of it.
Start by looking at your top ten expenses as a percentage of revenue to spot the major shifts. Where costs are rising, drill deeper to find out where the money went and if, in fact, the expenses are legitimate or out of control.
Staff salaries are the highest practice expense. Adding staff when revenue is not increasing will cause this expense to peak, but overtime pay is the most likely culprit for increased staffing costs. If the manager is allowing overtime to increase, he or she needs to justify the reason. It may be understandable if you are short staffed due to an unexpected illness, are going through a computer conversion, in the process of relocating your facility or some other unusual circumstance. However, if everything in the practice is running its normal course, overtime hours should be stable and very limited. Sudden increases in overtime can mean something is wrong with systems, procedures or staffing. It could mean your scheduling processes are out of control and you are always behind schedule – never getting out of the office on time. At any rate, uncontrolled overtime will cost a practice plenty.
When you are signing off on accounts payables, review the invoices to see if they are legitimate and authorized expenses and whether they are being paid on time. Late charges sometimes occur when someone just isn’t keeping up with paying the bills, expenses are out of control or poor financial decisions, such as purchasing expensive equipment that is not giving you the expected return on investment. The equipment ends up being a costly liability instead of a money-making asset.
3. Inconsistent reporting
It is important to review each prior month’s practice performance and examine any indicators that affect your current or future position in the market. If suddenly the manager isn’t giving you good solid information about the practice’s performance each month, don’t let it slide by. She or he may not see this as a priority or may be attempting to avoid delivering unpleasant news about the practice.
What type of reports should physicians be looking at?
Physicians should require their managers to distribute month-end reports to all physicians in the practice. These reports should provide a measurement of how well the practice is doing. Standard reports include monthly and year-to-date production activity: charges, receipts and adjustments by provider, as well as information on accounts receivable performance and aging reports. This type of information can be captured from the computerized billing system. The manager can then prepare a report in graphic format with summary analysis.
Other data include income and expense reports and human resource records that detail cost for staffing– including new hires, training, bonus expense and overtime costs. Often physicians will ask their manager to prepare additional reports they feel will be useful in strategic planning and understanding “the state of the practice”. For example, if you are on staff at multiple hospitals, you may want to track admissions by hospital. If a new physician of your specialty is encroaching on your territory, you may want to look at the procedure revenue reports, to see if you are experiencing a drop in specific procedures and need to take action to correct this. Or perhaps you plan to market a certain aspect of growth to diversify the payer mix, such as workers compensation. If so, it will be important to measure the productivity of that particular payer class to determine if the marketing dollars are bringing the desired result.
The two hour strategy
In less than two hours a month, physicians and their managers should meet to review month-end management reports, analyze practice performance and make data-driven decisions that are prudent for the overall stability and growth of the practice. If you aren’t doing this now, it’s time to get started. The sooner trouble is spotted, the quicker it can be resolved.
Judy Capko is a healthcare management and marketing consultant, speaker and author or the best-selling book: Secrets of the Best-Run Practices. She is based in Thousand Oaks, CA, and can be contacted at www.capko.com. In December, Judy wrote on Strategic Planning for Medical Practices – A Means to an End. You can hear Judy and Joe Capko speak now on Guarding Your Revenue: How to Prevent and Uncover Embezzlement in an archived webinar.
