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.

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. 


 

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Do You Struggle With Budgeting?

Budgeting Practice Management Budgeting is no easy task. It is cumbersome, slow, frustrating and most

often wrong by the time you finish with it. Most of us are really bad at budgeting, therefore we avoid it like the plague.

But we should all agree that budgeting is very important and quite frankly a must when running a business.

The way that I’ve approached budgeting for the practice over the years is by keeping it as simple as possible. And then, once I’ve mastered the simple, or at least feel comfortable, I’ll add another level of complexity.

If you are feeling a overwhelmed about this budgeting thing, I’m gonna share my KISS budgeting process. Hopefully, you’ll realize it isn’t that difficult

So here we go.

EXPENSES

Start by determining your expenses for the previous year and write that number down. Some people include only the operational cost (ie rent, employee salaries, advertising, medical supplies), while others include owner’s salaries, malpractice health insurance etc.

Because we are keeping it simple, we are not going to debate which one is better than the other. So pick your total yearly expense number – whatever that may be – and don’t worry about which one has more merit than the other.

FORECAST

Think hard about the year ahead. Do you think you will spend more or the same amount of money in the coming year? Things to consider that will increase cost: moving the practice, adding staff, adding a physician, buying equipment, advertising more, buying an EMR, transitioning to another practice management system.

I would also throw in here how much money you’d like to put away for a rainy day. For example, a rainy day fund in case ICD-10 transition goes worse than we anticipate.

NOTE: Always account for more than what you think you’ll need. Remember that cost always rises. So even if you think you are going to replicate the previous year, take into account price increases from your vendors, employee raises or even a payer paying less for a CPT out of the blue.

REVENUE PER PATIENT

Once you have that “cost” number, you’ll need to know your average payment per patient seen.

Formula: Total Revenue (12-month period) / Total Number of Patients Seen (12-month period) = Average Rev Per Patient.

COST/AVG REV PER PATIENT

Take the cost number you came up with and divide it by the average rev per patient. What does this result gives you? Number Of Patients.

Cost / Average Rev = No. of Patients

This Number of Patients result is in essence the amount of patients the practice has to see in order to cover your cost.

GET FANCY

If you want to get a little fancy, you can divide the No. of Patients number into number of months, weeks or days the practice is open. This will give your practice specific patient counts that will help your practice stick with the budget.

 Few things to keep in mind.

Many things can alter a practice’s Rev Per Patient number. For example, if the practice start seeing more of the patients that carry less than ideal insurance plans, your average will drop.

If you happen to see more of the better paying patients then your average will increase; which may result in having to see less patients a day stay within budget.

If the practice miscalculates cost or doesn’t anticipate a big expense, the numbers will shift as well.

Types of visits will also sway the numbers. Office visits generally pay less than wellness visits.Remember, we are talking about averages. Averages are, well, they are averages.

Now, I’m not suggesting this budgeting method is perfect or comprehensive. But at the very least following these steps will put you on a better path than doing nothing at all.

The point of this exercise is to try to help those of us that struggle with budgeting, or have no idea where to begin, and to think about how to approach this in a less overwhelming way.

Second, the simplistic approach will motivate readers to give it a try. Doing some budgeting is better than none at all.