Are You Making These 5 Financial Mistakes In Your Medical Practice?

We know doctors don’t get finance or accounting training during the time they spend in medical school. As a result, they tend to rely heavily on practice managers, accountants and other financial experts with managing their money.

 

But as medical practice owners (aka small business owners), the buck stops with the doctor. Thus, it is wise not to rely blindly on the “experts” and from time to time take a look at areas of the business for yourself.

screen-shot-2016-03-26-at-11-33-49-amBelow are five areas I’m going to suggest for you to explore. Get acquainted with these suggestions. You never know. Overlooking them may be affecting your practice’s bottom line.

1 – PAYING HIGH-INTEREST RATE LOANS

Loans can be great financial tools to help practices remain liquid (aka have cash in hand) when cash flow is low or if an unexpected expense arise.

But practices that mismanage these loans can end up paying fees and interest that eat up what are already thin margins.

It is important to be aware that not all bank loans are created equal. Equally important is understanding terms – interest rates vary depending on the type of loan – and knowing concepts like the difference between a secured loan vs. a non-secured loan.

Overusing loans, not reevaluating them periodically and failing to adjust to current circumstances or failing to stay informed on interest rates are all things that can erode business’ income.

2 – OVERLOOKING HOW YOUR CREDIT CARD MAY BE CHARGING YOU INTEREST

Doctors love to credit cards to pay for practice expense. Why? For the credit card points, of course. A single doc can potentially accumulate six figures in points by paying for vaccines alone. Free airfare anyone?

Even though you may pay the balance in full every month, I suggest to look carefully at the card’s fine print first to understand how the credit card charges interest. Because some cards charge a daily interest based on the daily balance.

Let’s say you have a credit card that charges 10% monthly interest. But you’re not concern about the interest because no matter how much you charge the card in a month, you pay it off – in full – at the end of the month.

Banks are well aware of this. So to make money off people that pay their balance in full, they divide the monthly interest by 28 (cycle days). So a 10% monthly interest, the credit card will charge you .0357% daily on your balance.

3 – MAXING OUT CREDIT CARDS

Thirty percent of your credit score is based on how much of your available credit you are using. If the card is in your name, and you have cards maxed out, your credit score drops.

Low credit scores can be an issue, of course, when applying for a loan of any kind; high credit card balances often lead to denied applications.

Are you paying a higher interest rate on some of your credit cards because you carry high balances on others? It’s worth checkin.

4 – NOT PLANNING FOR A RAINY DAY

Most practices are tremendously unprepared financially for unforeseen circumstances. Partly because most, if not all, the money that comes into the practice is spent or distributed in full to each partner at the end of the year.

You don’t need to be around long to know the unexpected comes by often. Hence, the practice should always have a reasonable amount of money set aside because sooner or later you’re going to need it.

Not only is it crucial for your business to set money aside for financial emergencies, but it also is good business practice.

Not to mention that with cash reserves, instead of drawing from those high-interest loans or maxing out your credit card, you’ll have what I like to call a cushion fund for times when we need money to get us through a rainy day.

5 – NOT DRAFTING A PARTNERSHIP AGREEMENT

I’ve seen this happen before. A few docs decide to quit their employment to start their medical practice.

The group aligns with the vision of serving patients better, the lure of sticking it to the man and the prospect of increasing their income.

The excitement of opening up your practice with friends or like-minded coworkers and everybody coming together towards a common cause often puts the task of drafting a partnership agreement on the back burner.

Don’t delay a partnership agreement. In fact, do it as soon as possible. Here is why:

a) It’s the wise thing to do.

b) It is better to work out details when everybody tends to be happy excited and looking forward to the future than to work out the details during a nasty, vicious divorce.

Drafting a partnership agreement when you are angry, resentful, feel duped or taken advantage of is… well, I don’t have to tell you it’s bad.

It is also important to review and update your agreement every few years with your attorney to ensure it reflects current circumstances.

 

 

Are Practice Management Consultants Worth Hiring?

In the end, the practices who invest in themselves are, almost always, the top performers. You’ll see among best performing practices, that many have engaged – and continues to engage – consultants on matters that are outside their expertise.

This is a guest post from Chip Hart. Chip is a frequent contributor to PediatricInc and former co-host of the highly revered Pediatric Management Awesomecast. When Chip isn’t protecting independent pediatric practices against evil conglomerates, naysayers, and the League of Shadows, you can find him at PCC doing… something (I’ve never figured out what is it that he does at PCC, exactly). 


I will never forget the scene. I was the lonely consultant in the dark and shag-carpeted basement “conference room” of a large pediatric practice and was giving them a stern lecture about their pricing. The practice hadn’t updated its prices in years and was undoubtedly losing money. Lots of it.

Chip Hart and Brandon Betancourt
Working really, really hard.

After my explanation of RVUs and why 105% of Medicare wouldn’t cut it, the senior partner – well, the loudest one, anyway – looked me in the eye and said, “OK, that sounds smart, let’s just raise our prices.” It was the response I was hoping to get.

The youngest and newest partner jumped in quickly, “What?! How can you listen to this guy?”

Uh oh, I thought. His voice cracked, “…I’ve been telling you this same information for almost two years and he just waltzes in here and says ‘Correct your pricing.’ and you do it just like that?”

I honestly thought he was going to cry in frustration and relief. 10-minutes of back-and-forth among them ensued. I just stayed out of it. At the end of the year, the additional $250,000 they collected erased the discomfort and awkward part of the memory for them.

I didn’t forget, however. I remember sitting there thinking, “This poor practice lost hundreds of thousands of dollars simply because they were unwilling or unable to listen to themselves. They had to hear it from someone else.”

HOW DOES THIS HAPPEN?

The answer is both obvious and convoluted. I have often said that the most important and difficult task for any small business is to find and hire good people. Unquestionably, this challenge extends to the hiring of practice management consultants.

Pediatric practices successfully hire consultants all the time without a tremendous amount of consideration – realtors, attorneys, I/T – but when it comes to getting help on the inner workings of the practice, the majority of pediatric offices too reluctant to ask for help.

And when they do ask for help, it’s often ineffective.

Every practice I visit codes imperfectly, yet some practices lose tens or even hundreds of thousands of dollars a year as a result of their inability to address the problem.

Most practices could use help negotiating with insurance companies, yet remarkably few of them do. Many practices need help with a compensation model or managing a challenging partnership, yet most of them just live with the problems and hope it will go away. And so forth.

Physicians, unfortunately, are uniquely susceptible to mis-using consultants, even if it is simply to not use them enough.

You expect most vendors and consultants to try to take advantage of you – all doctors are rich, right? – while having trouble admitting that you cannot solve all of your own problems.

Combine those aversions with the impecunious nature of most pediatricians, and there is no surprise that I meet practices every week who would rather lose another $15,000 this year due to a poorly designed superbill and bad pricing than pay a consultant half that amount to fix the problems.

HOW AND WHEN DO YOU KNOW YOU NEED A CONSULTANT?

There is no magic formula, but try these parameters on for size:

  • When there is an issue that your partnership cannot resolve, or when a neutral third party can facilitate a necessary change in your practice, consider a consultant.
  • When you are not an expert in the matters that affect your practice or if there is simply another party who might be more effective and efficient at addressing the matters, consider a consultant.
  • When your practice is losing more money on an issue than it would cost you to fix, consider a consultant.
  • When the amount of money you would pay a consultant is less than the amount of money you would generate seeing patients, consider a consultant.

Those last two examples are often conjoined in a death spiral of inaction. Many of you don’t want to pay a consultant $20,000 to renegotiate a contract increase of $50,000 annually because “you can do it yourselves.”

Yet, you don’t do it. Or you start the project and sink 10, 20, 40 hours into the task – often worth more to the practice than what you would pay the consultant – and then never complete the job.

Pediatricians, as business owners, are notoriously bad at examining the return on their potential investments and usually focus far too heavily on only the costs.

Pretending to be 100% self-sufficient serves no one except, perhaps, the insurance companies. Your patients don’t benefit, your lifestyle suffers, and you leave money on the table.

HOW THEN DO YOU HIRE A PRACTICE MANAGEMENT CONSULTANT?

First, hiring a consultant involves a lot of common sense. You want a written contract that spells out the terms of your obligation.

The terms should clearly outline your expectations, identify the fundamental goal, and determine conclusion of the contract. Ultimately, it involves a relationship of trust and confirmation. Some suggestions that go beyond the generic:

1 – Pediatric practices are different, don’t let a potential consultant tell you otherwise.

Most medical practice consultants live in the Medicare world and look for “alternative income sources” that just don’t exist in pediatrics.

More importantly, the attitude and (often unspoken) philosophies of pediatric practices differ from other medical specialties. Find someone who knows pediatrics.

2 – Work with a consultant on one or more smaller projects and build up to a strong relationship.

Before you leap into that full payer-mix and negotiation mission, see how well you work together on something smaller, like simply reviewing the state of your existing contracts. If you are not getting the kind of performance you expected, better to have not committed so heavily.

3 – Don’t be afraid to use different consultants for different needs.

Just as you may not be an expert on RBRVS or pediatric compensation models, your consultant may not know it all, either.

Although some consulting resources pride themselves on their breadth of experience, depth is usually more important. A good consultant might look at your practice and identify work that needs doing. A great consultant can identify work that needs doing, but suggests another resource.

4 – Even after you have chosen a consultant, keep an eye out for conflicts of interest.

Although they are impossible to avoid and sometimes even lead to efficient work (like one consultant recommending another), conflicts are often poorly revealed in the industry.

5 – Use your network of pediatric peers to help vet your consulting needs.

Surely, if your potential consultant expects to work with you, he or she can provide you with pediatric references whom they have helped with similar issues. SOAPM is an excellent place for a sanity check.

In the end, the practices who invest in themselves are, almost always, the top performers. You’ll see among best performing practices, that many have engaged – and continues to engage – consultants on matters that are outside their expertise.

How Well Do Parents Know What You Do As a Pediatrician?

It’s hard to appreciate the value that pediatricians provide when one is not aware of exactly what it is that pediatricians do.

During the summer months, I posted on our practice’s Facebook page, a note encouraging parents, to schedule their children’s wellness visits.

Although the message was for our entire Facebook community, I wanted to catch the eye of parents with teenagers. Don’t know how well you manage teens in your office, but in our office, we have decent wellness visit numbers with younger patients. The teen population?

Not so much. Once the teen years kick in, we mostly see them when they are sick.Screen Shot 2016-02-26 at 11.48.51 AM

I wanted to encourage parents to make their wellness visits but also throw in a subtle nudge to parents with teens.To get their attention, I opened with this line: Did you know pediatricians are trained to treat children from birth to adolescence? Then I went on to talk about the importance of wellness visits etc.

Something interesting happened. The post outperformed other Facebook post. It received more likes that than the ordinary. But that the surprise me. What surprised me the most, were the comments from parents.

One mom said, “it’s good to know the pediatrician can see my teen.”

Another said, ” Timothy is going to be so happy when I tell him Dr. B can still see him.”

WHAT WAS THE LESSON?

It’s an age-old lesson. It’s a lesson on assumptions and what happens when we make them.

That simple, otherwise ordinary status update, got me thinking about how well (or not) we communicate what it is that we do as pediatricians. If so many people weren’t aware that pediatricians can treat teens and beyond (0-21), what else don’t they know? The irony is that our website is tagged with the line “Pediatric & Adolescent Medicine.”

OPPORTUNITY

We clearly have a communication problem. And I would argue that our lack of proper communication about what it is we do as pediatricians (more than runny noses and giving shots) is why many parents don’t see the distinction between a retail clinic and a pediatrician.


 

It’s hard to appreciate the value that pediatricians provide when one is not aware of exactly what it is that pediatricians do.

 


 

The good news is that there is a significant opportunity for pediatricians to cover a lot of ground. How so? By using social media channels to educate our community about all the great services we are trained to provide.

I also believe that leveraging this opportunity could aid your practice in differentiating itself from the competition.

WHAT IS YOUR COMMUNICATION STRATEGY?

Since I realized there was a chasm between our assumptions and the reality, I’ve been intentional about informing our community about the training, knowledge and expertise our pediatricians can address.

Some of it may seem too obvious for those of us that do this every day. Like explaining the importance of wellness visits.

But the truth is, some parents don’t know about yearly wellness visits. They assume that because the child no longer needs shots, they don’t need to go to the doctor.

Beyond promoting wellness visits, I use many of the things included in the Bright Futures guidelines as a way to highlight that a visit to the pediatricians is highly comprehensive.

And by educating our population, I’m also marketing our practice in a unique way. Instead of mentioning in a promotional piece that we accept most insurance plans, I may mention that how we can provide family support, safety and injury prevention, or mental health.

MARKETING STRATEGY

Not only is promoting and sharing this information relevant and valuable to parents, but I also think it is an excellent way to differentiate ourselves from the MinuteClinics or other medical services that overlap with pediatrics (i.e. Urgent Centers, Family Practice, Telemedicine).

YOUR CHALLENGE

Think about your medical practice’s communication strategy, or lack thereof. What is your practices unique selling proposition? What problems do you solve that others don’t? Then think about how best to communicate your message. Also, consider the channels you’ll be delivering your message. By channels I mean, traditional advertising, email campaigns, social media, etc.

Remember, each channel is unique, thus requires you to craft the message differently.

I’ll leave you with this… times are changing. That is certain. And we have two options, two paths to choose from. Disagree with how things are changing, or find ways to agree with the shifts in a way that benefits you and your practice.

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.

5 Sure Ways To Accomplish Little

Lines accomplishments focusTrust me on this one. Follow these five tips and I can ensure you will have a harder time managing your medical practice. Money back guarantee!

1 – DON’T WRITE GOALS DOWN

It’s far better to think about your goals on the drive to work in the morning and then forget them two days letter. Who wants to keep track of stressful things anyway?

Besides, you’ll only be disappointed 6-months from now when you discover you’ve only accomplished 4 out of the 5-goals.

2 – BE VAGUE

Refrain from being specific about your goals, strategies or expectations. The broader, the better. Maybe your goal was NOT to improve your A/R by 10%. Maybe your goal was to wish for Devine intervention so that all the people that owed money would spontaneously pay their medical bill with the practice.

3 – DON’T DEFINE SUCCESS

Since your intentions are to really, really be successful, you will have no problem making it happen organically. Wish hard!

4 – PLANNING IS NOT NECESSARY

Forget about a plan, action items or steps that need to be taken. You are busy. I know. There is no time for this preparation nonsense. If you desire it enough, surely you will achieve it. Everything will work itself out, right?

5 – TIMELINES? Pluheeze!

Deadlines are only good for one thing, and that is increasing one’s anxiety. Besides, what difference does it make if you decide on an EMR 1-month, 12-months or 6-years from now? All that matters is that you will end up with an EMR, eventually.

Never mind that the sooner you set a timeline the sooner you can move on to improving the office workflow, organize yourself better and streamline processes. Who wants that hassle?

 


 

Bonus Tip:

6 – ACCOMMODATE EVERYBODY’S NEEDS

Make sure you please everybody. It’s the only way to keep the harmony. Delay making changes for fear it will not please everybody. For example, You have two partners that are holding out despite the fact that the majority is on board? Don’t hurt their feelings by going against them.

Good luck!

10 Signs You Are An Over Stressed Medical Practice Administrator

I ran across this list a long time ago. So long ago, that I don’t remember where I found it.  I can’t take credit for all of them, but some are originals. Feel free to add your own.

Enjoy!

Screen Shot 2015-08-29 at 12.26.28 PM

1. You haven’t booked your vacation yet because you are waiting to fill out a prior-authorization form.

2. You insist on setting an example so you schedule time with your friends and family in 10 – 15 min increments depending on the reason for the visit.

3. You’re incline to charge a no-show fee when parents don’t RSVP for your children’s birthday party.

4. You are going to burst into flames if you hear one more time from a patient “my insurance company said you billed it wrong.”

5. During confession you had the priest sign a Notice of Private Practice (NPP)

6. When your kids bring up an issue of concern, you ask them if they documented it in the chart?

7. When you go to the pharmacy to buy something, you feel like you’re aiding the enemy. Especially if there is a MinuteClinic.

8. You stop whatever you are doing to engage with anybody that says doctors make too much money.

9. You often confuse EOBs and your bank statement.

10. You insist on checking if your purchase has been adjudicated when buying from Amazon.

Embrace Change And Transform Your Medical Practice

In medicine, spontaneous change isn’t encouraged. And for good reason. Life is at stake. Change is only encouraged when there has been plenty of scientific evidence to support the change.

Screen Shot 2014-08-21 at 11.37.11 AMWhen it comes to changes as it relates to the business side of medical practices, many adopt the same posture that is common on the medicine side.

For example, new AAP recommendations/guidelines, treatments, screenings, clinical protocol and vaccines? We’re okay with  implementing these changes. Retail based clinics intruding on our turf, disrupting “our” medical home model? Unacceptable.

Vaccine pricing increases… Facebook… Yelp, Healthgrade.com…ICD-10… high-deductible plans, unwelcome.

Apples and oranges?

You might say this isn’t a very good comparison. You may be thinking that adopting new guidelines from the AAP or adjustments to the vaccine schedule based on the CDC’s recommendations is not the same as MinuteClinics “stealing” patients or negative – unfair – reviews on Yelp.

I’d argue they are the same based on the premise that all of these changes – whether medically driven or market driven – challenge our practice’s status quo.

We’re in a unique position

One of, if not the biggest, challenge we have to manage, is the tug of war between being clinical providers and business owners. On one hand, medicine is about people’s health. Therefore medicine should not be influenced by market-forces, financial and economic influences, or consumer trends. Medicine is driven by science and patient care.

On the other hand, private pediatric practices are businesses just like a car-wash is a business, just like a dry-cleaners is a business, just like Microsoft and Apple is a business.

This means private independent pediatric practices are not sheltered or protected from market-forces or trends that challenge and potentially disrupt the businesses.

If we are in business, then let’s be in business.

The business world – the non-primary care business world – not only accepts changes, but they embrace it. At least the ones that want to survive or that have survived.

Change demands from them to find new ways to adapt, create, meet and resolve the new challenges. Change also gives them motivation to remain competitive.

Episode On How We Embraced Change

A few years ago, a large, well established pediatric practice, opened shop right next door, literally. We were so upset when we found out.

We wanted to call the landlord and complain to them about how unfair it was to rent space to a pediatric practice next door. Why couldn’t they find an OB practice?

We didn’t call or complain, much. But here is what we did.

We assembled the team to brainstorm ways we could keep our competitive advantage. We asked ourselves, how could we improve? What areas of our practice could we enhance? What did we do really well? What didn’t we do so well? Could we provider a better experience? How so?

Adapting

We made several changes. For example, there was a renewed commitment towards providing unsurpassed medical service from our staff. We decided to open early and close later than the practice next door. On our website, we highlighted a couple of our ancillary services (i.e. VEP) and our extended hours. We also began to stagger lunch breaks so that we wouldn’t have to close for lunch.

The market rewards those that change

Looking back, the pediatric practice moving next door actually made us a better practice. Without them, disrupting our status quo, we would have remained complacent. And complacency doesn’t drive advancement, growth, or progress.


Did you like this post? Did it resonate with you? If so, I’d like to read about it. Write your thoughts the comments section below. Oh, and don’t forget to share this post. Help me, help others to embrace change. 


Extra, Extra – Now Offering Coaching Services

Screen Shot 2015-02-03 at 7.56.46 PMPeople always ask me if I do practice management consulting.There was a time when I did. But for the past two or so years, I’ve responded by saying no. I enjoy consulting and love to do it, but I had to stop because of the time commitment.

Recently, I was talking with a loyal reader of PediatricInc about this very topic and she suggested I do remote coaching.

My friend, who owns her practice, explained that she doesn’t necessarily need a comprehensive on-site consult. “I just want to ask a question about my practice or run things by someone familiar with practice management,” she said.

She went on to say, “…you know doctors don’t get training on business, management, marketing, collections…. having somebody to reach out to that has the business and practice management training would be valuable.”

“Like a practice management coach?” I asked. And she said, “ yeah, that is a good way to put it.”

We talked a little while longer. By the time we finished up, my loyal reader and friend had convinced me.

Today I’m announcing a new service on PediatricInc called PMB Coaching for those pediatricians and/or managers that want my perspective on practice management, discuss in detail a blog post, run something by me or provide another set of eyes.

Interested in learning about the PMB Coaching?

Click on this link.

 

Pediatric Practice Management Seminar You Don’t Want To Miss

The content in many practice management seminars or conferences are either too generic (the one size fits all medical specialty approach) or too specific (subspecialty focused) in my view. As a result, it makes it difficult sometimes to figure out how to apply the lessons from other medical specialties to pediatrics.

If only there was pediatric specific seminar, where everybody in attendance speaks yScreen Shot 2014-11-21 at 10.10.07 AMour language (the language called Pediatrics), are aware of my specific challenges and when I receive advice, tips, suggestions or recommendations, it is provided with in the context of pediatrics. Wouldn’t that be great?

Well, our prayers have been answered.

My friends at the Pediatric Management Institute have put together an awesome line-up of speakers (Disclosure: I’m one of the speakers. But I’m not including myself among the awesome ones), presentations and case studies for a one day seminar in the San Francisco/Oakland area that you will not want to miss.

This one day seminar packs a lot of information. Here’s a glimpse of the topics that will be discussed:

  • Coding, The Basics and Beyond
  • Set Your Practice Prices Fairly and Easily
  • Brave New World: Future Pediatric Models
  • Key Performance Indicators for Pediatric Practices
  • Easy Methods to Collect Patient Balances
  • The 5 Legal Issues To Watch Out For In a Pediatric Practice
  • Top 10 Coding Lost Opportunities
  • Five Concepts to Maximize Your Marketing
  • When to Add Another Provider to Your Practice
  • ICD-10, Ready or Not!
  • Patient Recalls
  • Budgeting for a Pediatric Practice

Whether you are an expert in practice management, employed by a large health organization or just starting to learn about how to properly manage a medical office, this seminar offers a valuable learning opportunity.

But wait… there is more!

The PMI team is holding the seminar at the Holiday Inn & Suites Oakland Hotel Airport , which as the name implies, is right next to the Oakland airport. No need to rent a car or arrange for additional transportation. You’ll be right there. Fly in. Attend the seminar. Fly out.

For a PDF on the topics, speakers, location and date (Saturday January 24, 2015)  click on the link: Pediatric Management Institute Seminar

Psst…. one more thing.

If you use the code “PediatricInc” when you register, you will receive $75 off your registration. How cool is that? This offer is exclusive to PediatricInc readers. Now you can bring someone along and save $150.00. If you bring one more person, you’ll save $225.00… it’s like the gift that keeps on giving. 🙂

Register

 

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.