Manage Cash Flow: No Margin, No Mission!
Take action to bolster revenue and give your practice financial breathing room.
There are several reasons why cash flow may be impeded in medical practice, and there are several strategies to mitigate that risk and keep your practice running smoothly and efficiently. Ultimately, you must know your needs and your market, and be ready to adjust your management, the services you offer, and, potentially, with whom you are willing to contract.
First, Know Your Needs
The first order of business is to determine your monthly cash flow needs. Hire a medical business consultant to perform and analyze a pro forma (a statement of your practice’s financial activities). This crucial step is too often overlooked. Given today’s managed care market, however, you are well advised to analyze the “musts” in your practice and determine the financial outcome you want to achieve.
Put your goals in writing and check back periodically to see if priorities have changed. The questions below are a good place to start, but do not comprise an exhaustive list:
- How much money does the business/practice want to make?
- Is this realistic based on specialty, region, and current offerings?
- Does the practice know how to analyze potential, medically necessary offerings not currently being done (or who to ask if it does not?)
- Does the practice want to expand?
- Is the practice space adequate?
- Is owning vs. renting possible to create equity and save cash?
- Could marketing in the “right” areas bring better paying patients/insurance to the practice?
- Does the practice continue to see patients with bad debt, racking up more unpaid claims/bills?
What personnel are key to your mission? Can the practice thrive without them?
- Staffing ratios have changed, but a 3-4:1 staff-to-provider ratio should be the rule. Busy is not the same as efficient.
- Are there clear productivity guidelines to determine if staff is achieving goals? Are the goals being revisited weekly? Monthly? Quarterly?
Outline achievable goals and make people accountable.
- This includes administration and providers.
- Use data, not feelings, to make business decisions.
- What is the return on investment (ROI) to add new staff/services?
What are the losses to the practice (monetarily and in morale) to keep inefficient or problematic staff members?
- Is the practice over-insured or paying too much? Get second (and even third) opinions to avoid redundancies.
- Are consumables being purchased in bulk to improve margins/profit? Has the practice looked into alternative suppliers or contract revisions?
- Are immunizations, injectables, or medication expiring before use?
- Is the practice billing for all supplies not inclusive to the service or procedural definition? Does this vary by payer in your region?
Is accounts receivable (A/R) managed so payments are posting within 2-3 weeks?
- Is A/R being worked by the billing company?
- How successful are they?
- Is the A/R growing or improving?
- Should A/R be brought back in-house because nobody watches out for your money like you do?
- Should A/R be sold to a third party to improve immediate cash flow, and to remove it from the books?
Remember: Business as usual is not good business. Constantly reanalyzing and moving toward collective business and practice goals will keep your practice nimble and mitigate cash flow losses.
Next, Take Advantage of Immediate Opportunities
There are many ways you can increase your cash flow, right now. Consider the following ways you can manage and cut back on wasted revenue.
Give a discount to patients who pay using cash, check, or credit card at the time the service is rendered. The practice is not obligated to offer the insurer this discount unless it is willing to pay for services rendered on the same date the patient is seen (I’ve never seen this happen).
Contractually, a time-of-service discount may not be feasible for some services. Check with a respected healthcare attorney in your state if you have any question about what is appropriate. When allowed, such discounts can save the patient money and get cash in the door, immediately.
Some opponents argue that discounted services make it harder for patients to reach their deductible; however, patients unlikely to reach their deductible due to low utilization still benefit. In some instances, the discounted rate (e.g., 40-50 percent reduction) may even save the patient money, compared to the amount the insurer has contracted with the practice.
Renegotiation, Policy Adherence, and Payer Relationships
Be proactive when negotiating contracts. Joining a good physician-hospital organization (PHO) or provider organization can improve gross income by 10-15 percent, or more.
Contracts for workers’ compensation, federal insurers, or federal contractors are usually “take it or leave it.” The provider cannot amend the contract, and it can literally take an act of congress to change the contracted fee schedule.
For private payers, scrutinize the time in which the insurer must pay the practice, the time the practice has to appeal, and the fee schedule. Some contracts are in violation of state prompt payment laws, but if you agree to the contract you may need to hire an attorney to re-assert your rights. Most contracts allow appeals within 90 days, but you should negotiate for six to 12 months. You can also negotiate to change the fee schedule. I have seen contracts where a 40 percent increase in the fee schedule occurred due to a challenge by the practice. Many practices do not challenge payer contracts — too bad for them.
Guard Against Embezzlement
Medical Group Management Association (MGMA) data suggests the majority (>70 percent) of individuals who embezzle money have done so previously. Here are a few tips to avoid and protect against embezzlement:
- Get bonded. Bonding your company takes personal bias out of the investigation process because it financially protects your organization. And the bonding company — not the doctor or practice — seeks prosecution. Bonding is cost effective (typically hundreds of dollars, to a few thousand dollars), and the insurer will often risk-stratify the practice because it has a stake in doing so. Theft insurance also reimburses you for any stolen cash.
- Perform daily front desk reconciliation: Have two people verify the balance sheet at the end of every day for all cash, credit card, and check transactions. Each person must sign off on the total; nobody leaves until both independent counts are done. Checks and cash are most vulnerable. Using an electronic deposit for checks prevents a thief from cashing the checks.
- Account for outgoing monies. Have an accountant, administrator, or the owner verify checks written to payroll, vendors, charity, etc., every month (or at least once per quarter). Checks for “petty cash” can result in hundreds of thousands of dollars stolen over several years, even in a small practice. The owners of many small practices review every check that goes out the door. This is not feasible in a larger practice, but the point is clear: Checks and balances are necessary.
- Reconcile all billing department checks, daily. Electronic funds transfers (EFTs) are becoming common, but checks are not likely to go away, any time soon. Cell phones or other electronic scanning systems now allow money to be deposited immediately —perhaps into someone else’s account. Daily reconciliation and verification of payment against services rendered will identify the money going into A/R, and will allow your billing team to track deposits.
Most billing companies and electronic health record administrative panels can provide a report linking paid and unpaid claims. These are usually based on human postings, so a two-person verification system is best to protect the practice and billing personnel.
Many practices are reluctant to work with personal injury cases due to the perceived hassles of attorney work, workers’ compensation M1 forms, letters, etc. But in most states, motor vehicle insurance, homeowners, and other personal injury insurers pay the practice/provider directly for whatever fees are charged. Some states impose limits or a fee schedule, but payments are typically better than those from Medicare or private insurance.
You also may receive payment for attorney phone calls, letters, depositions, and court appearances. The latter can be worth thousands of dollars, per case, and you may request payment before services are rendered.
Workers’ compensation claims require the most onerous paperwork; however, when you learn the rules, payment typically exceeds the private payer arena.
If the insurer is still litigating, or if responsibility for costs is still being debated, payment may be delayed for months (or years) while treatment is being rendered. The end payout is usually very good; in the meantime, the practice can charge the patient’s commercial insurance (or even Medicare). When the case settles and the practice is paid, the practice refunds the commercial program or Medicare. If you fail to charge the insurer, or the patient has no insurance and no means to pay, the practice may be stuck with the outstanding bills. Most patients and practices do not want this risk, which the above methodology helps to avoid.
Diagnostic medicine is crucial in identifying pathology, but can also aid in disease prevention. Perceptive practices provide both excellent customer service and a great revenue source by providing these services under their own roofs. Under the Affordable Care Act, you can anticipate a push to more outpatient services in settings that are not hospital affiliated. Patients don’t want to pay inflated costs at the hospital for lab or other diagnostic services, and they like the convenience of one-stop shopping.
By analyzing the ICD-9-CM codes for various diseases (e.g., diabetes, hypertension, allergy, smokers, chronic obstructive pulmonary disease, asthma, etc.), you can develop a diagnostic menu relative to available testing. For example, in-house serologic allergy testing can generate as much as $2,000 to $5,000 per month, for an initial cost of $7,000 to $10,000.
When deciding whether to offer such services, determine the potential volume and recurrence based on medical necessity and payer policy. Research what the billable CPT® codes pay, and determine if the volume of patients tested will support the cost of equipment, etc. The return on investment may be excellent, and you can mitigate risk by running a pro forma on the anticipated expenses and income.
I have seen several internal medicine practices bring in $5-10 million per year doing everything from nuclear stress tests and mammography, to diagnostic ultrasound, bone density, and pulmonary function testing. This additional revenue comes from medically necessary testing that typically is sent out of the practice.
Unintended Free Care
Philanthropy and medicine go hand in hand, but free care should be intentional, not accidental. Medicolegal risk aside (and these are very real), not charging for a last-minute medication adjustment as the patient is leaving the office, or for a quick question in the emergency department or doctor’s parking lot, results in lost revenue.
Practices lose an estimated 10 percent of gross revenue from unintended free care. If a consult is requested informally, ask that it be made formal. If a patient medication tweak occurs for a prescribed medicine, be sure to note it in the patient file. As a result, the service might qualify as a level IV visit, rather than a level III. Over time, the revenue adds up.
There are many ways to protect cash flow. Some involve limiting spending and optimizing the practice, while others require more in-depth analysis of practice policy and procedures, as well as the clinical offerings the practice might offer. Being proactive, not reactive, is key. Most experts recommend a six-month war chest for ICD-10 implementation. That means six months of expenses for the practice should be in the bank (in cash, or a combination of cash and line of credit). The above strategies, along with excellent accounting and banking relationships, make this daunting task achievable and give the practice financial breathing room.
Dr. Jorgensen is the owner and board chair of Patient360, practicing pain management and osteopathic manipulation in central Maine. He is triple-boarded in family practice and osteopathic manipulative treatment, as well as neuromusculoskeletal medicine and osteopathic manipulative medicine, and has a Certificate of Added Qualification in Pain Medicine. As a consultant and speaker, Jorgensen lectures nationally on billing and coding issues, and provides expertise for the FBI, OIG, and DEA. He has published a second edition of A Physician’s Guide to Billing and Coding with his brother, Raymond T. Jorgensen, CPC. A third edition is scheduled to publish summer 2014. Jorgensen is a member of the Lewiston, Maine, local chapter.
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