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Healthcare Practice Strategies - Spring 2015 - Early Warning: Signs of Practice Financial Problems

May 13, 2015

Through training and experience,medical practitioners are well versed in the distinct warning signs of various health conditions — the telltale signs that health problems are afoot. However, the clear signs of financial problems in the practice often go undetected.

Following are a few key warning signs of potential problems in practice finances that you should keep an eye out for:

• A drop in receivables — A significant drop in accounts receivable can signal a drop in production. It could simply be a bump in the road — a physician returning from a two-week vacation wouldn't be expected to have much in the way of charges in AR. Or, it could be a signal of something more worrisome, like a loss of referrals, for example.

Action: Prepare a monthly summary accounts receivable report showing comparisons over several months as well as year-to-year.

• Lagging collections — A steady increase in receivables over 90 days old may signal a problem with collections. A high percentage of AR in the 90-day bucket could be due to anything from delayed claim submissions to dirty claims or a host of other issues that require attention.

Action: Create a detailed accounts receivable report — a basic aging report as well as aging by insurance company and, separately, for patient receivables and insurance receivables.

• A jump in adjustments — Substantial variations to your normal adjustment rate can be a sign of anything from embezzlement to changes in billing patterns or payer mix. Or, it may just be a recurring data entry error.

Action: Depending on your billing cycles and productivity, adjustments can follow charges by two to eight weeks. To accommodate for this, compare the current month's adjustments to charges and collections from the prior month or even the month before.

• A surge in overhead — Even with a firm hand on cost control, a practice's overhead will inevitably rise in step with the consumer price index. Yet a sharp and sudden increase in medical supply costs, for example, demands investigation. When running the numbers, it's important to remember that the other part of the overhead equation is revenue. Your overhead percentages may be inflated if revenues are declining.

Action: Make sure you understand the averages for your area of practice or specialty, and then compare costs from month to month and year to year. Better: Monitor practice expenses by category — staff, facility, office supplies and medical supplies.

• Unexpected late charges and penalties — A medical practice that can't pay its bills within 30 days may be suffering from serious cash flow issues. Getting dinged with late charges and penalties is compelling proof.

Action: Review practice bank statements for overdrafts or returned checks.

Where There's Smoke…

When it comes to financial problems, the trick is to act while the flames are still small. For many practices, this starts with an ongoing monitoring program that includes the following:

Benchmarking Obtain data from your state medical society or organizations such as the Medical Group Management Association to establish benchmarks for your practice. A simple digital dashboard of relevant metrics and key indicators makes it easier to spot variances. The idea is to create a system that will draw your attention to critical issues quickly.

Monitoring Have a practice administrator, physician manager or independent advisor conduct monthly monitoring of the practice's financial indicators. Of course, this entails having accurate data — billing, collections, accounts receivable, payer reimbursement and practice financial statements — available on a timely basis each and every month. If financial information is late or is being withheld, it could be a sign of trouble.

ReviewingSchedule a regular monthly meeting to review and discuss the information from your practice management software and bookkeeping reports with all stakeholders in the practice.  

Just as you monitor the vital signs of your patients, you will also need to monitor the signs that reveal your practice's financial health.

Healthcare Practice Strategies - Spring 2015

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