What the future holds for medicine and physician practices is uncertain. However, one point does seem to be clear: Physicians need to take a more active role in managing their practices. Socioeconomic factors have created large businesses disguised as medical practices, forcing many physicians to take crash courses in accounting, business and finance.
Now, more than ever, medical practitioners need to be involved in managing their office, anticipating future market needs and responding to those needs with high quality, convenient, focused services. They need to adopt the same management techniques and tools used by successful businesses in other industries if they are going to survive and thrive in the in the world of “big” business.
Future Trends
While I don’t pretend to have the ability to see the future, I have attempted to identify three practice management trends that will likely continue and have a substantial impact on the way neurological surgeons view and manage their practices.
First, the medical practice landscape is changing at a rapid pace, and the development of more complex medical groups and affiliations will likely continue to accelerate. As larger, multi-specialty group practices become more prevalent, physicians will need to recognize and anticipate changes in the marketplace, and be able to introduce innovations in the way services are provided.
Second, it is no longer enough to be just a good surgeon or physician. Today, medical practices must possess the resources and competencies to grow revenue while providing cost-effective services to the marketplace. Improvements in technology (both clinical and administrative); competition for patients, patient lives and contracts; a tight labor market and changing demographics; reduced reimbursement; and soaring practice expenses are related challenges that will continue to plague many medical practices.
Last, the healthcare marketplace is more consumer driven. Medical practitioners need to recognize this and successfully adapt to the demands of an increasingly well-educated, market-driven consumer.
Steps to Improve Financial Performance
Given the challenges facing physicians, successful practices must take proactive steps to combat negative trends and improve their overall financial performance.
To improve practice operations, processes can be streamlined to reduce costs; productivity improvements can be implemented by physicians and employees to increase revenue; a reporting structure can be created that allows for better decision making by physicians and employees; and a rewards system can be implemented to recognize hard-working employees.
To determine how you can improve your medical practice’s performance, consider the following management procedures.
1) Internal Cost Reduction Strategies
Cost reduction strategies focus on reducing the internal costs generated by medical services provided to the marketplace. To offset internal costs, physicians should:
- Maintain tighter control over supplies, reviewing usage against budget and continually looking for suppliers with better prices.
- Review equipment for usage and obsolescence. Underutilized equipment can be sold and obsolete equipment can be replaced with equipment that is more productive and less costly per procedure.
- Sell unused furniture and fixtures.
- Review maintenance and repair expenses. Equipment that has a high maintenance cost may be a candidate for replacement by newer, more productive machinery. Also, take a hard look at maintenance agreements, which may be substantially higher when compared to the reliability of today’s equipment.
- Analyze telephone charges for the types of calls made and the length of those ccalls. Local telephone companies can analyze call patterns and prescribe a cheaper calling solution. Also, make sure you are not paying for lines or equipment that are not used.
- Examine postage expenses and identify increases not related to the rising cost of stamps. Reduce or eliminate the use of next day delivery.
2) External Cost Reduction Strategies
These strategies include the cost of services purchased from outside consultants or vendors. To reduce such costs, physicians should:
- Review the practice’s use of office space. Sublet or reduce unused space to free up cash flow and reduce overhead.
- Review insurance policies for adequate, cost-effective protection. Challenge your insurance broker to improve coverage while reducing overall costs.
- Reduce professional fees paid to accountants, attorneys or other professionals. While this expense is generally viewed as a necessary evil, properly managing these relationships can be a tremendous source of additional cash flow. Be prepared when making calls to these professionals and limit the amount of time you spend on the phone. Request detailed billings, review the bills and ask for additional documentation where questions arise.
- Analyze banking and finance charges. Make sure that you ask for compensating balances to offset bank charges
3) Asset and Credit Management Strategies
These strategies ensure that you are getting the most value from the resources invested in your practice.
- Refinance higher interest debt. Review leases and renegotiate or restructure high cost arrangements.
- Charge interest on delinquent accounts.
- Negotiate and take advantage of all discount policies offered by vendors.
- Accept credit cards.
- Review billing cycles to maximize the effectiveness of account receivables.
- Establish sweep accounts with your bank to take advantage of the average daily collected balance that sits in your account. The money should be swept into high quality, interest-bearing instruments and swept back to cover checks written.
4) Personnel Resources
When managed properly, personnel costs and productivity can have a substantial impact on practice profitability.
- Review the number of full-time employees in your practice against industry averages.
- Compare wages for all employees in light of the marketplace. For those employees that command a premium over the market, use bonuses instead of annual raises to reduce the long-term effect of continued salary increases.
- Review workers compensation insurance, as well as medical, life and disability insurance to make sure you are getting the most value for your money.
- Review vacation policies to make sure they are competitive in the marketplace but also to ensure that you are not paying out for benefits that have not been earned or accrued.
- Analyze retirement plans. Are the administrative costs too high? Are you paying for the same service from your accountant and the plan administrator? Could you reduce the overall expense to the practice by adding a 401(K) plan that your employees can contribute to? If you integrated your plan with Social Security would it reduce the overall cost of your contributions?
5) Management Reporting
The use of timely, relevant, properly formatted reports to manage your practice cannot be overstated. This is a crucial link between setting financial and operational goals and managing the practice to achieve them.
When generating a practice report, include a monthly balance sheet, income statement and operating report along with revenue projections and expense budgets. This can be done internally or through your outsidee accountant.
Once the reports are generated, key financial operating ratios should be tracked and analyzed. The accompanying trends should be reviewed in light of your practice budgets and projections, and actions should be taken to impact any negative trends that come to your attention.
6) Revenue Enhancement
Physicians can improve their financial performance by improving their ability to negotiate favorable managed care contracts and reducing practice expenses as a percentage of revenue. To accomplish this, physicians must:
- Review fee schedules on an annual basis. Marginal fee improvements, combined with proper contract negotiations and expense management, will improve overall financial performance.
- Improve the collection of receivables. Monitor gross and net collection percentages, the average number of days revenue is sitting in accounts receivable balance, the average number of days it takes to send out a bill and other indicators of performance.
- Review cash management techniques. Allow the cash collected to work for you by managing the number of times bills are paid each month. By only paying twice each month you get the benefit of the interest on your deposits, while reducing the cost associated with bookkeeping or accounting.
- Maximize collection agency performance. If they are collecting a high percentage of the dollars you turn over, you are probably turning the accounts over too soon and incurring unnecessary additional collection costs. If they are not collecting enough, you may be turning the accounts over too late. Also, negotiate the fees they are charging.
Meaningful, sustainable performance improvement is achieved by setting clear objectives and goals, properly managing revenue opportunities, challenging every expenditure, identifying areas in which you can reduce or eliminate costs, implementing cost cutting measures where appropriate and continuously reviewing practice financials using timely, relevant, properly formatted reports. By following these checks and measures, you will improve your financial performance in the age of declining reimbursement.
Terry Peltes is Vice-President of Physician Management Services for Medaphis Physician Services Corporation-a business management company in Atlanta, Georgia, servicing more than 20,000 physicians and nearly 2,000 healthcare organizations across the nation. For more information on Medaphis, call (770) 444-5829 or visit their Web Site at www.medaphis.com