Learn How To Create A Budget For Your Medical Practice

In medicine, the mention of the word profit is often viewed or interpreted as a dirty word. It is as if the word does not belong in the lexicon when health care is addressed.
 Broke doctor
I argue (in the context of the private medical practice setting) that profitability is a medical practice’s responsibility for one simple reason. If the medical practice (also known as a business) doesn’t deliver profits, health care providers are unable to provide for those in need.

Why Profits?

Profits pay for infrastructure, technology, education and human resources, all of which translate to superior pediatric care when employed correctly.
Another way I like to put it is by saying,

 

…a broke doctor does do anybody any good.

 

Calling vs Profits

Indeed, our medical businesses differ from other companies in that we care for children. And the notion of withholding medical services or restricting access to a sick child merely by the patient’s parents inability to pay for health care services is simply not in a pediatrician’s DNA.
However, it is important to accept the reality that without a way for a doctor or the practice’s income to outpace expenses, health care providers are unable to provide services of any kind. At least not for the long term.

Is there a solution?

How do we reconcile these two competing issues? On one hand, it is necessary for a medical practice to deliver profits if it wants to remain sustainable. On the other, we have an intrinsic motivation to put the patient’s needs first.
I am glad you asked.
These two dichotomies can co-exist – and even flourish – alongside each other. There is indeed numerous tools and principles rooted in business that can help medical practices manage what otherwise appears to be opposing forces.

A Resource You Don’t Want to Miss

Today, I want to tell you about a resource I’ve been working on to help your office obtain financial success, while simultaneously providing unsurpassed pediatric care to your patients.

To help you succeed in your financial success, I’ve written a comprehensive eBook on budgeting that walks you through the process of creating a budget for your medical practice. The materials also cover basic principles necessary to put the exercise into perspective.

Budgeting is a major component of financial success. Moreover, financial success is essential to the continuity of care.

To read more about this offering, click on the image below.

Medical Practice Budgeting
Click on the image

I do hope that you buy the book, but more important, that you find the eBook helpful, useful and valuable.

11 Straightforward And Practical Tips To Improve Your Practice’s Bottom Line

It is our responsibility as captains of our ships, however, to equip our practices and our staff members with the necessary tools and information if we want to have any chance of overcoming these real threats.

You do not have to be a marine captain to know that there are countless potential dangers navigating waters.

With a little imagination you know there are many risks. Some hidden, like currents, while others are painfully apparent (i.e. howling winds, waves and torrential storms).

 

Compass Direction GuideWe know there isn’t anything the captain can do to eliminate weather conditions or enforce her will on ocean currents.

However, we can all agree the captain has control over the vessel. We can also agree that the captain has the responsibility to equip the ship and its crew member to its maximum potential if they have any intention of overcoming environmental threats.

Running a “profitable” practice is indeed becoming more of a challenge. For many, it is uncharted territory. And while there are many extrinsic reasons – like decreasing insurance payments, high deductible plans, and the increased cost of providing care – that are contributing towards the “remaining profitable” challenge, the truth is, there is little – if anything – we can do to eliminate those threats.

It is our responsibility as captains of our ships, however, to equip our practices and our staff members with the necessary tools and information if we want to have any chance of overcoming these real threats.

Below are 11 STRAIGHTFORWARD and practical tips you can implement immediately to help you navigate these rough waters.

  1. Review fee schedules regularly to ensure your fees reflect market conditions in your region.
  2. Adjust fee schedules for certain procedures to improve providers’ competitiveness.
  3. Review all E&M charges by a certified coder before submitting claims.
  4. Hire coding consultants for annual chart reviews to ensure accurate coding.
  5. Monitor and report payments of your top insurance-payers.
  6. Run reports to understand payments by different networks or other contract types.
  7. Renegotiating (or consider dropping) contracts with payers who have low payments.
  8. Monitor how long it takes for charges to be entered and claims to be submitted to make sure claims are being filed timely.
  9. Consider provider training or implement random audits to ensure billing slips are completed clearly and accurately.
  10. Review your practice’s policies for routing super-bills to ensure claim submissions are sent as soon as possible.
  11. Implement processes so your billing staff works missing super-bills, claims, denials, consistently.

Imagine for a moment navigating open waters without navigation tools. Now, imagine what would happen if conditions were less than excellent?

If your boat ran off course or worse, capsized, would you blame the environmental conditions? Or would you take responsibility because you didn’t have the proper equipment and tools to navigate in challenging conditions?

Can Your Medical Practice Afford To Drop An Insurance Carrier?

I worked with a practice that was in a similar situation. The partners wanted to drop an insurance plan, but they had questions they wanted to answer before pulling the trigger, so to speak.

For example, one of the questions was how many patients would they potentially lose and how significant would be the financial impact if they dropped the insurance plan?

Screen Shot 2016-01-05 at 11.09.13 AMI received a letter from the University of Chicago Medical Center explaining that effective Jan 2016; they will no longer accept BCBS.

The announcement took me by surprise. Not because the hospital was dropping an insurance plan- but because they were dropping a major plan, BCBS.

BCBS has a significant market share in Chicago; which translates to a lot of patients having BCBS as their insurance carrier.

I can only imagine why the hospital decided to drop BCBS, but I think I can say with a fair amount of certainty that the decision must have been difficult for stakeholders of the hospital. Undoubtedly dropping such a large plan would affect a lot of patients, but also, shake up the hospital’s income.

CAN A PRACTICE AFFORD TO DROP A PLAN?

I worked with a practice that was in a similar situation. The partners wanted to drop an insurance plan, but they had questions they wanted to answer before pulling the trigger, so to speak.

For example, one of the questions was how many patients would they potentially lose and how significant would be the financial impact if they dropped the insurance plan?

INSURANCE DISTRIBUTION

To help them answer their questions, I worked with the practice manager to create a simple spreadsheet that I call an insurance distribution sheet. Below is a version of the spreadsheet already completed.

Screen Shot 2016-01-03 at 6.28.38 PM

To build the spreadsheet, we needed 3-data sets from the practice’s practice management system. Those three data sets were:

  1. Number of Patient Seen by Insurance Plan
  2. Gross Charges by Insurance Plan
  3. Net Receivables by Insurance Plan

The practice management system we were working with did not provide these data sets in one clean report. We had to run individual reports and enter the values into the spreadsheet.

Once the data was aggregated, we added a simple formula to translate the results into percentages. And the results is what the example above shows.


For those that are unfamiliar with Excel, click HERE to see a brief overview of how to calculate the percent of the total.


WHAT DO THE COLUMNS MEAN?

The first column is the insurance company patients had at the time of service. Percent of patients represents the ratio between all the patients seen, versus the patients seen with the corresponding insurance company. For example, let’s say the practice saw 1000 patients and of those, 300 had BCBS.

300 / 1000 = .3*

(*) BCBS represented 30% of the patients seen

Like percent of patients, percent of charges is the ratio of the practices gross charges divided by the gross charges corresponding to each insurance company. Example. Let’s say the practice billed $1,000,000. Of that million, BCBS represented $250,000.

250,000 / 1,000,000 = .25*

(*) Percent of charges for BCBS is 25%

The percent of receivables column follows the same math as percent of patient as well as percent of charges. And the cents/$ column calculates how many cents on the dollar the practice is collecting from the payor.

INTERPRETING THE GRAPH

Let’s look at BCBS and read across from left to right.

We see BCBS has 40% in the percent of patient column. Meaning, of all the patients seen, 40% had BCBS as their primary insurance. The next column is percent of charges. We see the BCBS represented 45%. This indicates that 45% of gross charges for the practice was billed to BCBS.

Percent of receivables is the next column over. It indicates that the revenue from BCBS accounted for 50% of the practice’s total income. And the revenue averaged 73 cents on the dollar. Another way to read it is, for every $1 billed to BCBS, the practice received 73 cents.

In contrast, let’s look at UHC. Only 8% of all the patients the practice saw for the period were UHC patients. UHC represented 9% of the practice’s revenue, and they averaged 60 cents on the dollar.

WHAT CAN WE GLEAN?

With an analysis like this, the practice can begin to find concrete answers to their pressing questions. For example, if UHC was the plan they were planning to drop, the sheet is able to show them what the impact would be from both a patient standpoint and financial standpoint.

UHC represents 10% of their patient panel. Which would have to leave the practice if they drop the plan, taking with them 9% of the practice’s revenue.

If the plan in question is BCBS, the numbers tell a different story. Fifty percent of the practice’s revenue would walk away with 40% of their patient panel.

Another observation is that Medicaid accounted for 37% of patients seen; but the State’s insurance plan accounted for 24% of the practice’s revenue. Something worth pondering.

HOW MUCH IS THE SHORTFALL?

For the sake of argument, let’s say UHC is the plan the practice was considering dropping. Doing so they would lose 9% of their revenue. This is not insignificant. If practice revenue is 1-million dollars, 9% represents $90,000. If practice revenue is 5-million, 9% is near $500,000. It’s less money no matter how you look at it.

PREPARING FOR THE SHORTFALL

When the doctors I was working with realized how much they’d lose, they got cold feet.

Here is what I explained to them…. the practice doesn’t have to see the same amount of patients to recuperate the 9% revenue shortfall. In fact, the practice can see fewer patients and still make up the revenue shortfall. How so?

Because of the cents on the dollar.

BCBS pays .73cents for every dollar billed. That’s 13cents more than UHC. By filling the schedule with better paying plans, like BCBS, Aetna or HFN, the practice will recuperate the 9% revenue loss faster because they are making more per patient than they would treating a UHC customer.

NOT ALWAYS SO CLEAR

Admittedly this graph does not give you a comprehensive picture. There are potentially other variables that a practice may consider. However, in the case of the practice that I worked with, this analysis was all they needed to answer their questions and move forward.

One last thing before you move one… don’t focus on the numbers you see on the graph and use them to compare with your practice numbers. Focus instead on the method, the process and the math with your numbers. Deal?


EDITORIAL UPDATE
The practice reached out to the payer to negotiate better rates. Armed with the data, they felt empowered (not at the mercy of the payor) and firmly request payment increases. The payer agreed. And they signed a contract that was competitive.

 

What Do Patient Lab Reports Have To Do With A Medical Practice’s Financial Statements?

An important aspect of managing a business is learning how to read financial statements.

It’s no secret, however, that most doctors don’t have formal business training. So reading financial statements to some is like reading in a language you don’t speak.

Screen Shot 2016-01-05 at 10.05.35 AMBut that is not an excuse for physicians that own or have a stake in their medical practices not to learn fundamental business principals such as reading financial statements.

Learning how to read just a few financial reports will give you a good idea of the financial health of your practice.

THEY’RE LAB RESULTS

If the financial report talk sounds complicated, think of them as a patient’s lab reports. Imagine your practice is a sensitive patient with an illness.

Just like labs results tell you want’s going on with a patient’s health, financials reports let you know what is going on with the medical practice’s financial condition.

And when you know what’s going on, you can instantly spot potential problems before they get out of control.

FINANCIAL STATEMENTS

Below are four financial reports. Familiarize yourself with them as well as get in the habit of checking/reading them each month.

Keep in mind that I’m not saying these are the only reports you should review. I am suggesting, however, that these are among the most significant and valuable reports for a business/private medical practice.

PROFIT & LOSS STATEMENT (P&L)

Also called the income statement, the P&L shows revenue minus expenses and either your practice’s net profits or loss.

The income statement gives you a snapshot of how different areas of the business is performing. For example, did the practice match revenue projections? Is the practice staying within budget?

BALANCE SHEET

The balance sheet is a simple document that shows what your business is worth. It list all of your assets and liabilities.

The report provides a quick and simple way to see what you own, who you owe, and revenues owed to you.

RECEIVABLES REPORT

This report – also referred to accounts receivables (AR) – shows you who owes you money, how much they owe, and the age of the debt.

In a perfect world, you would avoid extending credit to anyone. But in the business of private practice, we provide credit to virtually every single patron. Therefore, this report is critical to understand and review frequently.

CASH FLOW REPORT

If you’ve balanced your checkbook before, the cash flow report is a supped up version of that. The report shows you the number of checks you’ve written, your deposits, and your account balance.

This report is the best way to verify that your bank account balance is correct, and there are no unusual charged or errors.

GOOD HEALTH = STRONG PROFITS

 

You wouldn’t neglect to review a delicate patient’s lab results. So don’t neglect to familiarize yourself with these important financial reports and review them regularly.

Want To Be An Awesome Practice Manager? Learn How To Calculate This Key Performance Indicator

Revenue per encounter is an excellent barometer of your practice’s financial health. There are many things that influence the revenue per encounter and consequently allow you to see the impact of things such as:

  • Are your claims being processed timely?
  • Are your claims being paid properly?
  • Are you being paid fairly?
  • Is your payor mix excellent, fair or poor?
  • Are you following proper CPT coding guidelines?

To determine your practice’s revenue per encounter, you’ll need 2 sets of data. The first is the number for patient visits during the previous 12-months. The second set of data you’ll need is the practice’s total revenue over the same time period. With these two data sets, you can calculate how much revenue your practice generates per visit.

The formula is simple:

Revenue / Encounter = Revenue Per Encounter

If you want to get a bit sophisticated, you can break down the revenue and number of encounters by month. I recommend you go the extra mile on this one. You’ll see why in a bit.

What’s Next? Screen Shot 2015-01-09 at 6.50.29 PM

Once you have the two data sets, you want to set up a simple spreadsheet that looks similar to the image on the right.

You will notice that the Excel sheet mock-up shows monthly variation in the revenue per encounter.

There are multiple explanation for the variance, but generally, it can be explained by the ratio difference between the practice’s sick and well visits.

During the winter months, the practice sees more sick visits and less check-ups while the summer months brings well visit encounters with higher per visit revenue due to vaccines and ancillary services.

Flu season influences revenue per encounter as well. A busy or mild flu season will have an obvious impact on patient encounters.

Want to go a step further? Do the same break-down by provider, by month.

With this simple exercise, the practice is able to estimate the number of encounters and revenue on a monthly basis for the coming year. Moreover, the practice is able to predict its revenue stream in an effective manner and plan for cash outlay such as when the vaccine bills are due.


 

Thanks to the Pediatric Management Institute for providing the majority of the content for this post. 


 

If you found this post helpful, please share it using the social media buttons below.


 

What Does Taking Patient Vital Signs Have To Do With A Medial Practice’s Financial Health?

Screen Shot 2014-08-20 at 9.56.10 AM

I don’t know about you, but when I first started managing our practice, it took me a while to understand what part of the business I needed to measure. In other words, what were the best performance indicators I needed to keep tabs on to ensure the practice was doing well. Of course things like cash flow and account receivables were obvious to me due to by background.  But it was apparent that the medical business world is different than, let’s say, a law firm or an accounting firm.

In some respects, there are overlapping metrics, but in the private practice business world, there are other KPIs (that is what the cool kids call it) that are crucial to measure.

If you are in the same boat I was a few years ago, then this post is going to help you out.

But first, in order to get into the right frame of mind, think of KPIs or Key Performance Indicators as patient vitals. Just like recording body temperature, pulse rate (or heart rate), blood pressure and respiratory rate among other things are an important part of what clinical staff do to assess a patient’s well-being, good practice managers also check their practice’s “vitals” in order to determine the practice’s financial wellbeing.

Our friends at Pediatric Management Institute were kind enough to let me re-post an article they published that highlights Four key performance indicators. As if that wasn’t helpful enough, PMI also took the time to write a brief description for each metric as well as illustrate how to calculate the metric.

Enjoy!

Accounts Receivable Turnover

Description:
ART shows your practice’s collections for a given period compared to your total accounts receivable balance.

Why Is This Important?
This KPI is important because it is a barometer of how well you are bringing in the money owed to you. In the example below, you can see that every 1.52 months, you are essentially collecting or adjusting all the money owed for services rendered. In a perfect world, the A/R will turn rapidly. During times of increasing charges such as flu season, this amount will be much different than during the spring. That is why comparing the month of January to the month of May is very misleading. Practices should compare same months when running this analysis.

Formula:
Provider or Practice AR / Provider or Practice Average Monthly Collections

Show the Math:
$87,500 / $57,500 = 1.52

Clean Claim Rate

Description:
This shows the number of “clean” claims submitted compared to all claims filed with managed care plans.

Why Is This Important?
A “dirty” claim is a claim that will have payment delays. More billing systems attempt to catch claims that may be missing important pieces of information before sending to the managed care company for payment. These “dirty” claims should be routed back to the person responsible for the claim not being clean so that they can learn why their actions could have caused a delay in payment. This feedback is a learning process to ensure that your staff and providers seize the opportunity to avoid similar mistakes going forward.

Formula:
Clean Claims / Total Claims Submitted

Show the Math:
950 / 1,000 = 95%

Cost per Encounter

Description:
CpE shows your practice cost per encounter.

Why Is This Important?
This KPI is important because it helps you ascertain the cost to provide care for each patient you see. This becomes a valuable statistic when you are negotiating with managed care companies so you know what it cost you to provide care to a child- especially in capitated contracts!

Formula:
Total Operating Expense / Office Encounters

Show the Math:
$450,000 / 5,000 = $90.00

Net Collection Ratio

Description:
NCR shows total collections as it relates to expected contracted reimbursement rates from payors.

Why Is This Important?
While a practice may charge $300 for a series of CPT codes, the managed care company may have a contract to pay you $210 when you add up the combined allowables for the billed CPT codes. As such, many practices use the Net Collection Ratio to examine the amount of payments compared to the negotiated rates.

Formula:
Total Payments / (Total Charges – Contractual Adjustments)

Show the Math:
$800,000 / ($900,000 – $75,000) = 96.97%

Keep in mind that these are not ALL the KPIs a practice should monitor. There are actually quite a few more. Don’t worry. I knew you’d ask yourself, what are the other KPIs Brandon? 

Head on over to the Pediatric Management Institute for 15 Key Performance Indicators.

#23 Step by Step Guide To Setting Prices For Your Medical Practice [Pediatric Practice Management AwesomeCast]

At the end of last year, Chip and I talked about New Years resolutions. I shared a few things I had on my list of things I wanted to accomplish in 2014 and Chip provided several suggestions we could do as a practice. One of Chip’s resolutions for practices, was to adjust our pricing.

I wrote his suggestion down. The truth is, I haven’t looked at our pricing in a couple of years. So I knew it was time.

The thing is, I wasn’t sure if I was setting our practice’s pricing correctly, so I asked Chip to give me some direction. After talking about it a little we came to the conclusion that this would be a great AwesomeCast.

So here you have it. How to set up your practice’s prices, step-by-step.

Audio Only

You can listen to the AwesomeCast by visiting the links below:

iTunes

Pediatric Practice Management Media Cast 

What Every Pediatric Practice Manager Needs to Know About Vaccine Inventory

This is a guest post by Paul Vanchiere. He is the co-founder of Pediatric Practice Institute, a pediatric centric service company that helps practices and healthcare networks leverage their success and maximize their potential. 

Continue reading “What Every Pediatric Practice Manager Needs to Know About Vaccine Inventory”

#20 Key Performance Indicators Smart Practice Managers Measure [Pediatric Practice Management AwesomeCast]

Screen Shot 2013-11-07 at 7.42.08 PMFor today’s AwesomeCast, I invited my friend Paul Vanchiere from the Pediatric Management Institute. Apparently, Chip had more important things to do… Pfff. Family. So he was MIA for this recording.

If you don’t know about the Pediatric Management Institute, make a note to visit. Paul and his team are doing some really cool things to help pediatric practices manage their business better.

Paul knows a few things about key performance indicators, why they are important, and most important, how to calculate them. So I sat down with him and asked him a few questions regarding the topic.

On the AwesomeCast, Paul shares with us an area on his website where you can find explanations, formulas, examples and descriptions for all the key performance indicators.

For details check out this link: Calculators – KPI 

And if you want to learn about the seminars Paul and his crew is doing around the country, visit: PMI Seminars

Here are other ways you can check out the AwesomeCast:

#8 Key Metrics We Should Use to Gauge the Financial Health of Our Medical Practice, Part II [Practice Management VideoCast]

Chip and I continue our discussion on key reports we ought to be looking at when assessing the financial health of our practices.

In this AwesomeCast, Chip and I talk about E/M distribution, specifically the 9921x and how looking at these CPT codes and comparing with each other can provide a lot of insight into the clinic’s billing practices, among other things.

We also talk about Sick to Wellness ratio. Chip walks us through his process on determining the sick to wellness ratio and what are the sort of things this report tells him about a practice.

As always, we’ve made the AwesomeCast available in various formats. Check out the links below and find the one that best suits you.

1. Google+ Community

2. Pediatric Practice Management Mediacast PodCast

3. iTunes

And of course, YouTube: