As a medical professional you are constantly giving your patients advice on how to stay healthy. Where that is how to stay in shape, how to avoid chronic diseases, or how to recover from an unexpected health crisis. You must do the same and work to keep your medical practice in good shape so it can run smoothly. You want to be prepared to handle any unexpected issues that might arise. This means you need start forming some good habits within your practice.
Here are 10 habits you can implement into your practice to make sure it stays financially healthy for the long-term.
1. Separate Your Personal and Business Expenses:
Does your medical practice have more than one partner? If so, then you know the contention that running personal expenses through the practice can cause. You will not only risk running afoul of the IRS, but you will also risk stressing the relationship between you and your partner. This relationship needs to be strong especially if you want it to go the long haul. If you or your partner is soliciting your management staff in order to pay for personal expenses then this will put everyone in a really awkward position. This can also create alliances that do not support the practice’s overall goals. Now whether you have a partner or not, you must agree that any and all personal expenses will be considered bonuses or just eliminate paying personal expenses through the practice altogether. By keeping the records clean you will generate trust within your partner relationships and confidence in your financial reporting over the long-term.
2. Review Your Monthly Financial Statements:
When they are properly prepared, your financial statements can offer you a real-time overview of your practice’s financial health. You will probably become familiar with your income statement, where you concentrate on the patient revenue and practice expenses. You will also want to take time each month to go over your balance sheet. Unlike your income statement, which reflects performance over time, your balance sheet will provide you with your current cash position, what fixed assets you own, your current debt balances, and your equity investment at any specific point in time. Your CPA will be able to provide you with comparative statements that will allow you to compare your current performance with previous years. They will also be able to provide you with guidance on how to record transactions properly. Having a monthly financial statement review will help you spot trends that need to be addressed and help to measure your financial goals.
3. Adopt an Appropriate Income Distribution Method:
How you pay yourself and your partners is about how much revenue is generated in your practice as well as it is about keeping up with your peers. If you and your partner have agreed to split the income equally, then you want to take a look at the historic revenue per physician in your specialty. If this number stays fairly equal across the board, then you might be able to distribute income on an equal share. However, if schedules, procedures and respective revenues are drastically or even considerably different, then you will want to develop some type of income distribution method that takes that will take all this information into account. You should make an allowance for costs that are fixed, like rent and utilities. These things can be shared equally or at least on a square footage basis. Other variable costs, like staffing and medical supplies being the largest, can be allocated by work performed, i.e. charges, RVUs, or cash revenues.You want to associate the revenues with the costs it took to generate them. Rewards for focusing on clinical outcomes identified by your practice can also be considered. You will want to set up an annual time to discuss the income distribution with your partners and financial advisor. It is important that you make sure that the income distribution accurately reflects how you want the effort rewarded in your practice.
4. Benchmark Staff and Physician Salaries:
If you’ve been practicing for any amount of time, then you should be able to graph the increasing starting salaries for physicians coming out of residency. But do you know how much the nurses, lab techs and receptionists are being paid just starting out? Are you aware of how much your nurse(s) are being paid? If you own a large practice then you may not be aware. Now if you have a smaller practice you may be dreading the meeting with your nurse where you discuss a pending raise. It doesn’t matter if you’re looking to hire or retain a physician, nurse or receptionist, benchmarking all salary information will give you insight into where you stand. Your accountant, if experienced in working with various medical practices, can be a great source when looking into anonymous salary information. Having a competitive compensation package at your practice can crucial when attracting good talent which will help secure the longevity of your practice.
5. Assemble the Right Professional Team:
If you are starting a new practice or have been in practice for years, choosing the correct the professional team of advisors can be the difference between a healthy practice and a practice with chronic problems. Work with your attorney, banker, and CPA so they can listen to you and help you structure your practice in order to meet your goals. Now depending on the size of these goals, you might need to get advisors that specialize in medical practices in order to get you off on the right foot or to help you manage any complex issues. Having specialized advisors that have experience in your industry can help you keep up with any industry changes. They also probably practice in a firm that large enough to call on for more specialized services if and when you need it.
6. Maintain Internal Production Reports:
This might seem obvious, but knowing how much revenue you generate monthly is very important. However, knowing how this revenue is generated is critical. Having good internal production reports will be able to tell you how many patients you’re seeing, the kinds of procedures you’re providing them, and what kind of insurance plans that they’re using. You also want to use your internal production reports to keep track of what is important to your practice. If you have recently hired a new physician and want to track how quickly his practice is growing, then pay attention to new visits and how quickly his procedures grow. Having a good word of mouth will mean that he’ll ramp up across all levels of service quicker than normal. If you’re practice is trying to implement a smoking cessation program, track counseling sessions and pulmonary function tests. When you are negotiating your health care contracts, it is important to know how many members you are actually seeing and what services you are seeing them for. You want to focus on these services when you are negotiating for a reimbursement. Your internal production reports should highlight your top insurance payers, top procedures, and top physician performers.
7. Examine Your Contract Fee Schedules:
Now negotiating your insurance reimbursement contracts will require some mining of your own data. You’ll need to negotiate with the insurance company on how much they’ll adjust your reimbursements. You need to be aware of what is valuable to you and what is not. Negotiating your reimbursements is all about your market share and cost savings. If your market share is large enough, you might be able to get some movement on fees for services that are critical to your practice. Now if your insurance membership is high enough, you might be able to save on the insurance carrier money and might be able to enter into some type of agreement that is based on your shared savings. These types of agreements usually involve interacting with the care coordinators that are appointed by the insurance company. These can be minimally invasive to your practice and the coordinators can actually do a lot of the work necessary that is needed to complete care plans and to coordinate any follow ups. As you examine your insurance fee schedule, you will want to make sure you take a look at your practice’s fee schedule – this is the gross amount you bill for your services. Aside from workman’s compensation, your billing personnel should have a standing order where they notify you any time they receive 100% payment for what was billed. You might be leaving money on the table if you are billing less for services than your insurance carriers are paying. You want to be financially smart. You want to make sure you are examining how much you’re getting paid and what you’re actually charging for your services.
8. Develop a Good Buy/Sell Agreement:
How will the value of the practice be determined when new partners want to buy in? What happens when a partner retires? What happens in the untimely event that one of the partners die? Will you allow physicians to continue owning stock if they significantly cutback their schedule? How will partners be released from debt guarantees? These are some of the questions that should be addressed in your Buy/ Sell agreement. In answering these questions, you may find you need life insurance that will buffer the practice against the loss of revenue you’ll experience with an unexpected loss of a partner. Disability insurance can help purchase partner’s stock if they cannot continue to work for medical reasons. Addressing these questions in a Buy/Sell agreement takes the confusion and guesswork out of decision making in some of the most stressful times a practice can face. Work with your attorney to determine what is legally appropriate and with your CPA to determine what tax consequences you may face when buying and selling the practice stock
9. Offer clear, competitive employment agreements
Your practice longevity and to some degree, your retirement, rely on your ability to attract and keep quality physicians. Unless you can sell your solo practice at a premium, which rarely happens, you’ll be relying on your partners to buy you out and keep the practice running profitably until that buy out is completed. You’ll want an agreement that is competitive and one that clearly outlines how and when a physician will be paid. If bonuses are to be received, describe exactly how bonuses are calculated and when to expect them. Every contract should contain a non-compete agreement unless you are under an agreement to provide medical care in underserved areas. If there is a penalty clause for underperformance or for not reaching practice outcomes, be clear about the reason for the clause and how the practice can support the candidate on achieving those goals. In my experience, physician candidates are more leery about what is not addressed in the agreement than what is clearly spelled out.
10. Review monthly Accounts Receivable statistics
Sometimes medical practices can overlook their accounts receivable reports because those numbers often don’t appear on the financial statements and/or practices are relying on separate reports from a third-party billing service. Accounts receivable reports will tell you how much in services you billed and how much revenue you received in return. You can also keep a handle on your charge-offs for bad debt and professional courtesy. Examine your days in A/R, the average time it takes you to collect from the date of service. This figure will let you know if you’re experiencing longer collection times than usual. Your collection percentage will tell you the average amount you expect to collect for every dollar billed. For example, you may bill a $100 service but consistently collect .75 cents on the dollar, or $75.00. Use this % to predict short-term future cash flow or to get a truer value of the billings you have outstanding. Review the aging in your accounts receivable by insurance payer to determine if claims are being held up for reasons you can mitigate. A monthly review will alert your billing department or service that you are not only concerned about the money that came in the door but you are also mindful of the money that should have come in the door.
Like staying physically healthy, keeping your medical practice in top financial health is a group of habits consistently applied over time. Apply the right habits, work with qualified professionals and if a crisis does happen, you can be prepared and back on your way to recovery in no time.