Is your practice managing the collection of higher deductibles and copays appropriately? Skin-in-the-game insurance has become the norm for most employers. The average deductible for all employer-paid insurance in 2014 was $1,217, according to a report by the Kaiser Family Foundation. A third of all employees of smaller employers, those with 199 or fewer employees, paid deductibles of at least $2,000. In addition, co-pays are also increasing. This means, of course, that physician practices must work hard to collect more of their revenues at the time of service directly from the patient and that practices must manage that process carefully. Many patients now pay with credit cards, but many practices are also experiencing increased patient payments in the form of checks and cash, resulting in the need for practice managers to tighten up cash controls.

Now’s the time to review your practice’s written cash (checks and currency) handling policies.

• Follow the 4 Ws of cash accountability. Big picture, you’ll want to restrict access to cash to as few people as possible — and ensure that funds are traceable to specific cash handlers. Ask yourself these questions:

– Who has access to cash?
– Why do they have access to cash?
– Where is the cash?
– What has occurred from the transaction's beginning to end?

• Segregate duties. Cash handling duties should always be segregated. That simply means that the person recording receipts should not be the same person responsible for collecting or for depositing the cash and checks from patients. For an additional layer of segregation, make sure that a third person reconciles the daily receipts recorded in the billing system to the deposits of cash and checks recorded in the general ledger. Be sure to use processes that provide an audit trail so you can see everyone who handled the cash along the way.

• Checks received from patients should be stamped with a restrictive endorsement immediately upon receipt from the patient. The use of electronic check scanners provided by your bank for deposit of checks saves time, avoids errors, improves cash flow and improves internal controls. Paper checks must be shredded in a timely manner after reconciliation of the bank account has been completed at the end of each month. 

• Watch the cash drawer. Payment patterns will dictate how much change you need for the cash drawer each morning (in general, $200 in small bills is a good starting point). Assign cash drawers to specific staffers during the day, and have at least one other employee count the cash at least once a day. Of course, don’t mingle cash payments with petty cash. And never borrow from the cash drawer (even $10 for lunch!) or others will, too.

• Reconcile promptly. Consider splitting morning and afternoon front desk collections and reconciliations at lunch breaks or when the afternoon shift begins.

• Close out correctly. At the end of the day, account for all patients, charges and receipts. Check that all patients scheduled for the day have had charges and payments posted to them. Code appointments as "cancelled" or "no-show" for patients who did not show up for their appointment and close them out. Finally, reconcile the receipt total with the day’s bank deposit.

• Deposit cash daily. The less cash you have on hand, the less exposure you have to theft or loss. Count cash in a non-public area not easily visible to others, and use a “buddy system” when funds are carried from one location to another. Finally, compare deposit receipts from the bank with your general ledger deposit records.

Establishing good cash handling procedures and internal controls is a vital defense against theft and fraud. Contact our office today for an in-depth review.

Generally the two largest costs for most professional practices are staffing costs and space costs. Staffing at the proper levels to ensure practice efficiency and to meet all contingencies represents a difficult challenge for practice managers in an environment of increasing costs.

Where to start in evaluating your staffing levels and costs?

A good first step is to gather benchmarking data from reputable sources, such as the Medical Group Management Association, the American Medical Association (AMA), the American Dental Association and the American Medical Group Association (AMGA), as well as your local medical and dental societies. For the broadest perspective, consult multiple sources. As you do, look for data that address the following:

• The number of support staff per full-time-equivalent (FTE) provider

• The percentage of gross revenue spent on support staff salaries

As you review the benchmarking data, keep in mind that practices that have historically been identified as better performing practices consistently have higher staff ratios than their peers. For example, MGMA surveys have shown that better performing groups focus on the delivery of care and invest in additional staff so that providers work up to the level of their licenses and as a result spend more quality time with patients. “Right staffing” generally results in a stronger bottom line since practices with appropriate staffing levels provide a better patient experience and allow for more efficient patient flow in the office.

If your numbers don’t line up with those of similar practices, it might be time to dig a little deeper. As you do, remember that a “slash-and-burn” approach isn’t always the best answer (and can actually be counterproductive). Rather than reflexively eliminating personnel, seek out ways to utilize existing staff to make providers more productive.

Look for inefficiencies. Are clinical staff performing duties that non-clinical staff could perform at less cost? For example, are nurses and medical assistants performing clerical duties?

Cross-train. Train billers and medical records people to run the front desk or phone patients with appointment reminders. This can pay off when you don’t have to hire a temp to cover for a staff member who is out sick or on vacation. You might also consider developing a list of secondary duties for staffers to tackle when they’re not busy with their primary job function in non-peak hours of the day.

Control overtime. Generally, substantial overtime costs indicate poor planning and scheduling. If extra hours are necessary, make sure that overtime is approved in advance and closely monitored. In many cases, it may be cheaper to hire another full time employee and pay salary plus 15 to 20 percent benefits, than to pay overtime at 150 percent.

Try some alternatives. Run the numbers on outsourcing your billing, payroll processing or bookkeeping functions. And don’t be afraid to explore job sharing (e.g., two practice nurses each working 20 hours a week), which can reduce the cost of benefits. Just note that too many part-timers can result in inefficiencies and redundant training costs.

Avoid “salary creep.” Instead of automatically giving raises year after year, establish a salary range for each position (high, low and median) that is competitive with your area of practice and location. If a high-value employee hits the top of the salary range, consider an incentive-based bonus instead of a salary increase.

Bid out the benefits. Fringe benefits, such as health insurance, represent a substantial portion of staff costs. Be sure to solicit competitive bids for your benefits every year or two. Also consider alternative benefit options, such as 401(k) and cafeteria plans, which are perceived as high-value benefits yet actually come with little cost to the practice. 

Don’t get stingy. Finally, don’t be penny wise and pound foolish when it comes to compensating high-quality employees. Remember, great employees can get jobs anywhere. Ultimately, recruitment fees, training costs and the loss of productivity associated with turnover is much more costly than properly compensating high-quality staff.

Are you wondering if your practice’s staffing costs are appropriate for your practice?  Our experienced professionals can provide an objective, third-party perspective.

With expenses rising faster than revenues, making more money often starts with gaining an understanding of your cost structure in order to achieve cost reduction. For many practices, that entails first taking a critical look at overhead, as well as the specific expenses involved in providing patient care. Here’s how:

Start with Good Information

Understanding your practice costs requires relevant, reliable data — preferably a well-though-out report that groups expenditures logically at a reasonable level of detail. Unfortunately, this is typically where the problems start. Sure, your practice income and expense statement has expenses listed by category (generally defined by the practice’s general ledger categories). But problems occur when the statement doesn’t provide enough detail for informed decisions.

For example, a line item titled “supplies” or “salaries and wages” simply does not tell you enough. Detailed sub-categories — such as “drug supply,” “medical and surgical supply,” “office supplies,” “mid-level salaries and wages,” “nursing salaries and wages” and “office salaries and wages” — enable you to make better decisions about how to manage those costs. Detailed categories also allow you to compare practice expenses and overhead against national benchmarks, such as data from the Medical Group Management Association's Annual Cost Survey or your local medical or dental association.

Depending on the practice, even more detailed categories may be appropriate. For example, primary care practices are incurring more costs these days for injections — thanks in large part to changes in Medicare reimbursement and to increasing costs of new medications. Here, it might make sense to break out those injection costs into more specific categories, such flu vaccine, pneumonia vaccine, etc. Proper expense data can help with better drug purchasing and inventory control.

Conduct a Unit Cost Analysis

After grouping expenses logically and at the appropriate level of detail, you’ll want to get a handle on the actual cost of providing particular services. The most effective way is through a unit cost analysis.

1. Define the unit of service. First, identify the type of service (such as adult physicals, well-baby check-ups, and injections). Then define the unit based on what makes the most sense for your practice. For example, if you and your staff are already accustomed to thinking in terms of 15-minute increments, use that as your basic unit of service. You can further break down units of service to provide more detailed cost data about particular types of patients (e.g., a diabetic patient who requires more time with the physician or mid-level provider and also patient education time with a nurse).

2. Determine how many units of service were provided. Now that you’ve defined what a unit of service is (e.g., 15-minute intervals), use your practice management software to determine the number of units of that service that were provided during a given time period.

3. Calculate the direct costs. Of course, the most substantial direct cost to know is the provider time (physician or mid-level) allocated to a unit of service. You can capture this data using anything from a simple provider time diary to tracking patients from check-in to checkout (cycle times). You can use the same methods to determine time for other clinical staff. Plug in salary or hourly wage data, and you should be able to determine your cost for those 15 minutes. You’ll also need to determine the cost of drugs and medical supplies, lab tests, specialized equipment and other resources associated with the given service.

4. Add in the indirect costs. Make a list of indirect costs, such as administrative staff salaries and benefits, facility costs, office equipment and supplies, insurance and other general and administrative expenses. Next, decide how much of these costs should be allocated to the service in question. For example, if 15 percent of a practice's visits are for diabetes management, then it’s probably safe to attribute 15 percent of the practice’s indirect costs to diabetic care.

5. Tally it up. Add the costs from steps 3 and 4, and you should get a total cost per unit of service. Armed with solid unit-cost data, you can then make sound financial decisions to keep your practice successful.

Our experienced accounting professionals can provide anything from a full-scale unit cost analysis to simply helping you determine what the data from your own analysis means to your practice.

A variety of factors over the last decade have changed how physicians view their careers in medicine. Now physicians may look at their practice as a vehicle for achieving financial independence rather than primarily as a life-long calling. Financial independence for most physicians means having the resources to allow you to choose the age to retire and to have a comfortable life style in retirement. 

Start With a Plan

Financial Planning Best Practices

• First, use discipline at the practice level. Annually review practice expenses and compare them, particularly your largest expenses for staffing and office space, to those of your peers. Determine what expenses could be reduced and prepare an annual budget to measure how the practice is doing in relation to the budget in holding down expenses.

• Max out your individual 401(k). In a tax-deferred retirement plan, such as a traditional 401(k), every dollar that you put into your plan grows tax-free until you withdraw that money during retirement and you achieve current year tax savings as well. 

• Set aside money for Uncle Sam. Tax planning is an important component of financial planning. The goal is to have enough money available at year-end to pay your tax liability in full every year. Since interest rates in savings accounts are low right now, it would be better to withhold the maximum federal and state income taxes from your paycheck rather than face the possibility of having to pay interest and penalties if you can’t pay off the tax bill. Your accountant can help you plan for the amount of tax that you will need to withhold each year.

• Anticipate the unexpected. Most of us expect to work full time until we are ready to retire. But what if something happens—such as a disability—that makes that impossible? Adequate insurance coverage (disability, life and liability) is essential to provide the income that you and your family will need to make it to retirement if the unexpected happens.

Manage and Improve Cash Flow in Your Professional Practice

• Changes and uncertainty in reimbursement
• Increased difficulties in accounts receivable collection as financial responsibility shifts to patients through high-deductible health plans
• Consolidation of payers creating stronger rate negotiators
• Increased complexities in coding and reimbursement rules

Recommendations to maintain healthy cash flow:

1. Train your staff. Train your staff to be confident and proficient in the accounts receivable collection process. Explain to them how the billing and collection process affects the bottom line of the practice and the practice’s ability to give pay raises and bonuses. Give them the tools they need, including up to date computer equipment, to do their job well.
2. Verify eligibility early and often. Collect insurance information and verify and update patient information at each patient visit. If the patient’s insurance and other information is not correct in your records, at best, payment will be delayed and at worst, payment will be denied. Because of the grace period included in the Affordable Care Act, it’s important to check eligibility at the time the patient’s appointment is made and again one to three days before the appointment.  
3. Collect co-pays, deductibles and prior balances due at the time of service. Due to rising costs, employers have increased deductibles and co-pays for employee medical and dental insurance plans. As a result, a critical step in maintaining/improving cash flow is to collect co-pays, deductibles and prior balances at the time of service. Let your patients know at the time they make an appointment that deductibles, co-pays and prior balances must be paid at the time of service. Verify insurance coverage prior to the appointment to allow the practice to accurately communicate the practice’s expectations to the patient for payment prior to the appointment.
4. Monitor rejected claims from the clearinghouse. This allows the practice to correct claims before it reaches the third party payer, allowing for quicker payment of the claim.
5. Reduce claim denial rates by managing denials. Monitor denials to determine trends so that methods of reducing denials can be developed by the practice.
6. Strengthen internal controls. Check our earlier post “6 Internal Controls Your Medical Practice Needs Right Now” to prevent cash leakage and fraud.
7. Speed up the deposit of cash to your bank. Utilize remote deposit services which enable a practice to deposit checks into a bank account from its office by scanning a digital image of a check into a computer and the transmitting the image to the bank.
8. Benchmark your practice’s accounts receivable billing and collection process. Compare your aging schedule, net collection percentage and days sales in accounts receivable with those or your peers by using surveys from MGMA, the AMA or other organizations.
9. Review practice expenses. Benchmark your largest expenses for staff and office space with those of your peers. Look for other expenses that would be easy to reduce. Remember that a dollar saved in expense will result in a dollar increase in the bottom line and cash flow. Conversely, a dollar of additional revenue will not result in a dollar increase in the bottom line and cash flow because of variable costs associated with the production of the income.
10. Plan for cash flow disruptions. Every practice experiences a disruption in cash flow from time to time. A doctor goes on maternity leave or takes a leave of absence, for example. Or perhaps you know from experience that next year’s conversion to ICD-10 will entail additional administrative time and payment delays. Cash flow modeling can indicate when and to what degree you can expect a cash flow crunch. This advance warning enables you to take proactive steps to smooth out rough patches in cash flow, such as taking out a short-term line of credit.

There are many factors that contribute to the growth and improvement in the financial performance of a medical or dental practice.  One very important factor requires management to pay close attention to where money could be leaking out of the practice, whether those leaks are due to errors or fraud. 

What does the term “internal controls” really mean?  

• Protect assets from accidental loss or from fraud
• Ensure the reliability of financial information
• Ensure compliance with federal, state and local laws affecting the operations of the practice
• Promote efficient and effective operations

1. Segregate financial/accounting duties, rotate responsibilities and require employee vacations so that no one person can control a transaction from beginning to end.  

Proper separation of duties is enough to deter many would-be fraudsters, since getting around it requires collusion between two perpetrators.  In addition, careful monitoring of financial processes and internal controls creates a perception of detection and will help to close gaps in your financial systems and processes. We recommend separation of duties for the following functions in a professional practice:

• Opening mail

• Preparing payment posting batch

• Posting payments to billing system 

• Deposit to bank

• Approval of write-offs and adjustments to accounts receivable

• Bank reconciliation

For small practices, owner participation may be required for one or more of the above duties to provide necessary separation of duties.

Stop cash from walking out the door

Efficiently and effectively managing physician or dental office operations requires you to have accurate and timely information about the results of those operations. Here are three QuickBooks reports that can provide the information you need to make good decisions to control expenses and optimize operations.

Balance Sheet with Comparison to the Previous Year or Previous Period

Monthly and Year-to-Date Profit and Loss with Previous Year Comparisons

Statement of Cash Flows

How do you know that your medical or dental practice is on track to achieve your practice’s financial goals—and your provider’ compensation and retirement goals? Do you have a tool that helps you gauge on a regular basis how you are performing, both in relation to the practice’s historical performance and also in relation to peers?

An electronic dashboard captures key pieces of data that enable you to identify and correct negative trends before they lead to real problems, and to also identify positive trends in the practice. Whether it is built in Excel or a more customized software tool, the dashboard should ideally be displayed on a single screen or page. Using this visual tool, busy physicians and other practice staff can quickly see where the practice stands.

What Data  Should Be in Your Dashboard?

Your dashboard should include a mix of revenue and expense items. Following are three key performance indicators related to billing and collections that we recommend, and that you should be able to generate directly from your billing software.

1.  Gross charges and net collections.

While gross charges measure total monthly and year-to-date productivity, the percentages of those charges that are collectible vary depending on the types of services, payer contracts, payer mix of the practice and other factors. By looking at trends in this data, practice administrators and physician owners should more easily and promptly spot trends in the production and billing and collection processes that need further review.

For example, the graphs for gross charges and collections should generally correlate; as gross charges increase, collections should increase at a proportional rate. Keep in mind that collections usually lag behind charges by 45 to 60 days. If charges and collections don’t correlate, then the practice would need to evaluate the reason for the non-correlation. The practice, for example, should evaluate its payer mix and payer contracts.

There could be numerous other trends in the data that might be cause for concern.  A decline in charges, for instance, might indicate a decline in provider productivity, which would need to be further analyzed. Likewise, a decline in the percentage of collectible charges might indicate that collection performance is lagging.

2.  New patients.

The health and vitality of any medical or dental practice depends on a steady stream of new patients. Each practice needs to evaluate which new patient metrics are most meaningful. In addition to the number of new patients, another important factor of practice health is the type of new patients. For example, since obstetrics patients are generally more profitable than gynecology patients, an OB-GYN will want to see the proportion of OB patients rising. Generally, careful records related to new patient referral sources and contractual changes are good sources of information on trend changes in this key practice indicator.

3.  Accounts receivable aging.

Monitor the breakdown of the accounts receivable balance between the aging categories (current, 31-60 days, 61-90 days and over 90 days). Approximately 50 to 60 days in accounts receivable is a typical goal for many practices. Collecting promptly is imperative because a dollar collected today is more valuable than a dollar collected in the future, and it is more difficult to collect a balance due the longer the accounts age. Because the collection ratio of accounts receivable that are older than 120 days is low, most medical practices shoot for no more than 15 to 18 percent of AR in this category.

Get Some Perspective

A point-in-time metric provides a limited understanding of your practice’s performance. A dashboard that measures trends from year to year, as well as in relation to peers, provides a much richer view of your practice’s health. Benchmarking data is available from MGMA and AMA, as well as subspecialty groups like the American Society of Clinical Oncology.

Dashboards also can drive behavior change. Consider creating a dashboard for each physician, as well as highly paid mid-levels, to show exactly how each provider is influencing the bottom line. When you uncover problems—such as low billing performance in relation to the number of patient visits—dig deeper to get to the bottom of it. Perhaps that doctor has been coding the procedures incorrectly and needs a refresher on proper coding.

Accurate and timely information about key financial performance indicators can allow your practice to catch negative trends early so you can re-route instead of being stranded on the side of the road. Contact us to find out how we can help you create a dashboard to monitor the metrics that fuel your practice’s growth.