T o effectively manage your practice, you must have timely financial numbers available to you — and most importantly — as the owner of a practice, you must set aside the time to utilize them. And how often you do this may make the difference between averting a financial derailment or becoming mired in one. Here, we’ll take a look at the specific information you should be analyzing, along with your accountant, and we’ll discuss how often you should review this information to make sure the financial health of your practice is sound and that you don’t encounter any nasty surprises at the end of the year. Staying on Top of the Numbers Many physicians only look at production and receivables during the year and wait for the annual meeting with their accountant to study the year’s performance in more detail. This just isn’t good enough if you want to be able to recognize trends and correct problems as they are occurring. Set aside time throughout the year to look at and analyze the current financial numbers. Plan on meetings at least once a quarter, monthly is ideal, but may be unrealistic. Your office manager needs to make sure the accounting and billing reports are available in a timely fashion. I recommend having the meeting within 25 days of the end of the period. This schedule forces your accounting and billing department to stay current. There is nothing more tedious than looking at stale numbers. The following is a list of the minimum financial statements and billing reports that need to be available for the meeting: • Comparative Income Statement. • Comparative Balance Sheet. • Statement of Cash Flows. • Aged Accounts Receivable Report. • Account Receivable Reconciliation and Billing Report. Comparative Income Statement is a report that shows the earnings or losses for a given period. It shows all of the money the practice has earned (revenues) and all of the money the practice has spent (expenses) during the current period. In the columns next to this information, are the budgeted income and expense figures and the income and expenses for the same period 1 year ago. These comparative numbers allow the doctor to quickly review variances between budget and the prior period figures. The comparative income statement is important because it’s the basic measuring stick of profitability. Comparative Balance Sheet is a snapshot of a business’ financial condition at the end of the current period. A balance sheet comprises assets, liabilities, and owners’ equity. Assets and liabilities are further split between current (less than a year) and long term (more than a year). This report helps the owner understand the financial strength of the practice and spot trends, particularly in the area of receivables and payables. Statement of Cash Flows is used to analyze the cash inflows and outflows of the practice. Use this report to focus your attention on the trail of cash, where it came from and where it is spent. This report does a much better job than the income statement in answering the age-old question: “If I made this much money, where did it all go?” Aged Accounts Receivable Report shows the amount due to the practice for services that have not as yet been paid. These receivables are sorted by payer class (i.e. Medicare, Medicaid, private insurance and patient) and then spread into the following categories; Current, 31 to 60 days, 61 to 90 days, 91 to 120 days and 121 and over days past due. One of the historical benchmarks for accounts receivable (A/R) has been the target of 60 days of revenue in A/R. The term, “days of revenue” is based on the average amount of charges per day. If the practice averages $12,000 in charges a day, 60 days of revenue would equal $720,000. Therefore, the practice should have no more than $720,000 in A/R at any given time. Roughly 85% of your accounts receivable should be collected within 90 days. The bulk of your receivables should actually be collected within 60 days with the remaining amount in the 61 to 90 day category. The amount due in the 91 to 120 day category is very important to keep track of, because this category represents billing problems. If the billing department or billing company is running smoothly, then collectable amounts would have been resubmitted and collected by this time. Amounts in the 121 days and over category are the problem accounts. Amounts should not be allowed to languish in this category, if the billing is not being actively worked, then the amount should be written off to bad debt. It is a common error for billing departments to write-off bad debts to contractual adjustments. This is a mistake; contractual adjustments should only be used when the full amount received is less than the amount billed due to an agreement with the payer. Account Receivable Reconciliation and Billing Report shows the activity affecting accounts receivable for the current period. The activity shown is Production, Collections, Contractual Adjustments, and Bad Debts. This report is generally done monthly. I like to show this information in a single row, and then benchmark the numbers with the prior 11 months in the rows above. A rolling average of the ratios listed below is then compared to the prior 5 years of averages. This way you can easily compare the current information with information from the prior month/years to spot trends. Remember, the key is not always in the numbers and ratios themselves, but in the change of the numbers and ratios over time that is important. This information can also be compared against goals that are set in advance and/or industry averages. Most employees hate to reprocess unpaid or denied bills. This leads to a natural tendency to let collection of these bills slide. The longer receivables go uncollected, the greater chance they won’t be collected at all. If you don’t keep track of the above ratio and keep pressing your billing staff or billing company to keep the ratios at an acceptable level, you will start to see the performance of your practice fall off. Analyzing the Numbers As doctors, you have been trained to utilize test and lab reports along with your training and experience to diagnose the health of your patients. Diagnosing the health of your practice is very similar. By analyzing these reports on a timely basis, you should be able to ascertain how well the practice is performing and isolate areas needing improvement. There is an old adage, “Numbers Don’t Lie.” If your practice is not able to reach or maintain industry benchmarks, there are problems that need to be addressed. Working harder and seeing more patients can mask these problems for a while, but an inefficient practice is ultimately frustrating for doctors, employees and the patients.
Monitoring the Financial Health of Your Practice
T o effectively manage your practice, you must have timely financial numbers available to you — and most importantly — as the owner of a practice, you must set aside the time to utilize them. And how often you do this may make the difference between averting a financial derailment or becoming mired in one. Here, we’ll take a look at the specific information you should be analyzing, along with your accountant, and we’ll discuss how often you should review this information to make sure the financial health of your practice is sound and that you don’t encounter any nasty surprises at the end of the year. Staying on Top of the Numbers Many physicians only look at production and receivables during the year and wait for the annual meeting with their accountant to study the year’s performance in more detail. This just isn’t good enough if you want to be able to recognize trends and correct problems as they are occurring. Set aside time throughout the year to look at and analyze the current financial numbers. Plan on meetings at least once a quarter, monthly is ideal, but may be unrealistic. Your office manager needs to make sure the accounting and billing reports are available in a timely fashion. I recommend having the meeting within 25 days of the end of the period. This schedule forces your accounting and billing department to stay current. There is nothing more tedious than looking at stale numbers. The following is a list of the minimum financial statements and billing reports that need to be available for the meeting: • Comparative Income Statement. • Comparative Balance Sheet. • Statement of Cash Flows. • Aged Accounts Receivable Report. • Account Receivable Reconciliation and Billing Report. Comparative Income Statement is a report that shows the earnings or losses for a given period. It shows all of the money the practice has earned (revenues) and all of the money the practice has spent (expenses) during the current period. In the columns next to this information, are the budgeted income and expense figures and the income and expenses for the same period 1 year ago. These comparative numbers allow the doctor to quickly review variances between budget and the prior period figures. The comparative income statement is important because it’s the basic measuring stick of profitability. Comparative Balance Sheet is a snapshot of a business’ financial condition at the end of the current period. A balance sheet comprises assets, liabilities, and owners’ equity. Assets and liabilities are further split between current (less than a year) and long term (more than a year). This report helps the owner understand the financial strength of the practice and spot trends, particularly in the area of receivables and payables. Statement of Cash Flows is used to analyze the cash inflows and outflows of the practice. Use this report to focus your attention on the trail of cash, where it came from and where it is spent. This report does a much better job than the income statement in answering the age-old question: “If I made this much money, where did it all go?” Aged Accounts Receivable Report shows the amount due to the practice for services that have not as yet been paid. These receivables are sorted by payer class (i.e. Medicare, Medicaid, private insurance and patient) and then spread into the following categories; Current, 31 to 60 days, 61 to 90 days, 91 to 120 days and 121 and over days past due. One of the historical benchmarks for accounts receivable (A/R) has been the target of 60 days of revenue in A/R. The term, “days of revenue” is based on the average amount of charges per day. If the practice averages $12,000 in charges a day, 60 days of revenue would equal $720,000. Therefore, the practice should have no more than $720,000 in A/R at any given time. Roughly 85% of your accounts receivable should be collected within 90 days. The bulk of your receivables should actually be collected within 60 days with the remaining amount in the 61 to 90 day category. The amount due in the 91 to 120 day category is very important to keep track of, because this category represents billing problems. If the billing department or billing company is running smoothly, then collectable amounts would have been resubmitted and collected by this time. Amounts in the 121 days and over category are the problem accounts. Amounts should not be allowed to languish in this category, if the billing is not being actively worked, then the amount should be written off to bad debt. It is a common error for billing departments to write-off bad debts to contractual adjustments. This is a mistake; contractual adjustments should only be used when the full amount received is less than the amount billed due to an agreement with the payer. Account Receivable Reconciliation and Billing Report shows the activity affecting accounts receivable for the current period. The activity shown is Production, Collections, Contractual Adjustments, and Bad Debts. This report is generally done monthly. I like to show this information in a single row, and then benchmark the numbers with the prior 11 months in the rows above. A rolling average of the ratios listed below is then compared to the prior 5 years of averages. This way you can easily compare the current information with information from the prior month/years to spot trends. Remember, the key is not always in the numbers and ratios themselves, but in the change of the numbers and ratios over time that is important. This information can also be compared against goals that are set in advance and/or industry averages. Most employees hate to reprocess unpaid or denied bills. This leads to a natural tendency to let collection of these bills slide. The longer receivables go uncollected, the greater chance they won’t be collected at all. If you don’t keep track of the above ratio and keep pressing your billing staff or billing company to keep the ratios at an acceptable level, you will start to see the performance of your practice fall off. Analyzing the Numbers As doctors, you have been trained to utilize test and lab reports along with your training and experience to diagnose the health of your patients. Diagnosing the health of your practice is very similar. By analyzing these reports on a timely basis, you should be able to ascertain how well the practice is performing and isolate areas needing improvement. There is an old adage, “Numbers Don’t Lie.” If your practice is not able to reach or maintain industry benchmarks, there are problems that need to be addressed. Working harder and seeing more patients can mask these problems for a while, but an inefficient practice is ultimately frustrating for doctors, employees and the patients.
T o effectively manage your practice, you must have timely financial numbers available to you — and most importantly — as the owner of a practice, you must set aside the time to utilize them. And how often you do this may make the difference between averting a financial derailment or becoming mired in one. Here, we’ll take a look at the specific information you should be analyzing, along with your accountant, and we’ll discuss how often you should review this information to make sure the financial health of your practice is sound and that you don’t encounter any nasty surprises at the end of the year. Staying on Top of the Numbers Many physicians only look at production and receivables during the year and wait for the annual meeting with their accountant to study the year’s performance in more detail. This just isn’t good enough if you want to be able to recognize trends and correct problems as they are occurring. Set aside time throughout the year to look at and analyze the current financial numbers. Plan on meetings at least once a quarter, monthly is ideal, but may be unrealistic. Your office manager needs to make sure the accounting and billing reports are available in a timely fashion. I recommend having the meeting within 25 days of the end of the period. This schedule forces your accounting and billing department to stay current. There is nothing more tedious than looking at stale numbers. The following is a list of the minimum financial statements and billing reports that need to be available for the meeting: • Comparative Income Statement. • Comparative Balance Sheet. • Statement of Cash Flows. • Aged Accounts Receivable Report. • Account Receivable Reconciliation and Billing Report. Comparative Income Statement is a report that shows the earnings or losses for a given period. It shows all of the money the practice has earned (revenues) and all of the money the practice has spent (expenses) during the current period. In the columns next to this information, are the budgeted income and expense figures and the income and expenses for the same period 1 year ago. These comparative numbers allow the doctor to quickly review variances between budget and the prior period figures. The comparative income statement is important because it’s the basic measuring stick of profitability. Comparative Balance Sheet is a snapshot of a business’ financial condition at the end of the current period. A balance sheet comprises assets, liabilities, and owners’ equity. Assets and liabilities are further split between current (less than a year) and long term (more than a year). This report helps the owner understand the financial strength of the practice and spot trends, particularly in the area of receivables and payables. Statement of Cash Flows is used to analyze the cash inflows and outflows of the practice. Use this report to focus your attention on the trail of cash, where it came from and where it is spent. This report does a much better job than the income statement in answering the age-old question: “If I made this much money, where did it all go?” Aged Accounts Receivable Report shows the amount due to the practice for services that have not as yet been paid. These receivables are sorted by payer class (i.e. Medicare, Medicaid, private insurance and patient) and then spread into the following categories; Current, 31 to 60 days, 61 to 90 days, 91 to 120 days and 121 and over days past due. One of the historical benchmarks for accounts receivable (A/R) has been the target of 60 days of revenue in A/R. The term, “days of revenue” is based on the average amount of charges per day. If the practice averages $12,000 in charges a day, 60 days of revenue would equal $720,000. Therefore, the practice should have no more than $720,000 in A/R at any given time. Roughly 85% of your accounts receivable should be collected within 90 days. The bulk of your receivables should actually be collected within 60 days with the remaining amount in the 61 to 90 day category. The amount due in the 91 to 120 day category is very important to keep track of, because this category represents billing problems. If the billing department or billing company is running smoothly, then collectable amounts would have been resubmitted and collected by this time. Amounts in the 121 days and over category are the problem accounts. Amounts should not be allowed to languish in this category, if the billing is not being actively worked, then the amount should be written off to bad debt. It is a common error for billing departments to write-off bad debts to contractual adjustments. This is a mistake; contractual adjustments should only be used when the full amount received is less than the amount billed due to an agreement with the payer. Account Receivable Reconciliation and Billing Report shows the activity affecting accounts receivable for the current period. The activity shown is Production, Collections, Contractual Adjustments, and Bad Debts. This report is generally done monthly. I like to show this information in a single row, and then benchmark the numbers with the prior 11 months in the rows above. A rolling average of the ratios listed below is then compared to the prior 5 years of averages. This way you can easily compare the current information with information from the prior month/years to spot trends. Remember, the key is not always in the numbers and ratios themselves, but in the change of the numbers and ratios over time that is important. This information can also be compared against goals that are set in advance and/or industry averages. Most employees hate to reprocess unpaid or denied bills. This leads to a natural tendency to let collection of these bills slide. The longer receivables go uncollected, the greater chance they won’t be collected at all. If you don’t keep track of the above ratio and keep pressing your billing staff or billing company to keep the ratios at an acceptable level, you will start to see the performance of your practice fall off. Analyzing the Numbers As doctors, you have been trained to utilize test and lab reports along with your training and experience to diagnose the health of your patients. Diagnosing the health of your practice is very similar. By analyzing these reports on a timely basis, you should be able to ascertain how well the practice is performing and isolate areas needing improvement. There is an old adage, “Numbers Don’t Lie.” If your practice is not able to reach or maintain industry benchmarks, there are problems that need to be addressed. Working harder and seeing more patients can mask these problems for a while, but an inefficient practice is ultimately frustrating for doctors, employees and the patients.
