Your practice revenue is outpacing expenses and thats good. But theres more to maintaining your practices financial health than simply seeing to it that more money is coming in than going out. You need to know whether you have the right balance of income and expenditures, as well as the right type of income, to be confident your practice is fiscally strong.
Keep an eye on financial indicators There are several key indicators of financial health in medical practices: Payor mix. There is no “right” mix when it comes to payors, but its important that you know what yours is. To determine your payor mix, total your gross practice revenue and then determine where it comes from. For example, you may find that 40% of practice revenue comes from Medicare, while 25% comes from Blue Cross, and so on. Tracking the payor revenue percentages at least quarterly will help you understand which third-party payors are gaining or losing ground as your sources of practice revenue. Payment schedules. Determine how much your payors pay and how long it takes them. If you calculate your average revenue per visit by payor, you can tell that one payor, for instance, pays an average of $95 per visit based on the services you provide, while Medicaid pays an average of $65. At the same time, you also can determine which payors are slowest to pay. The worst offenders may actually be costing you money. Even if dropping them isnt an option, you may be able to use your findings to your advantage when its time to renegotiate your agreements. Patient volume. Its important that you know how to measure your productivity. Volume equals revenue, but only for the time you actually spend in direct patient care. If youre seeing four patients an hour, how much of that time is with the patient and how much is looking for charts or dictating? Once you know that, you can look for opportunities to boost billable hours. If your office staff has charts ready for each patient, for example, or if you can type your notes directly into a computer, you may be able to add one more patient an hour. To compare your practices revenue with that of other practices in your specialty, use the Medical Group Management Associations Physician Compensation and Production Survey. Overhead. Good financial health isnt all about revenue. If your operating costs are excessive, your practice may still look a little sickly. To see where you stand, divide your expenses (salaries, rent, malpractice insurance, technology) by your revenue. Multiply the result by 100 to get your overhead rate the costs you incur in generating revenue. The higher the rate, the less there is available for physician compensation and practice growth investments. Depending on your area of practice, your overhead rate could be as high as 55% or as low as 30%. If it seems too high, look at where the moneys going and see where you can save. Consistency pays off Whatever measures you choose, monitor them quarterly. Not only will that give you fair warning if a financial problem is looming, but it will lay the groundwork for sound business decisions down the road. Consult your health care consultant or financial advisor to decide what other measurements (such as capital budgeting metrics, gross and net collection ratios, and accounts receivable aging) are appropriate for your practice, as well as to consider options for improvement. No matter how you look at it, having a solid understanding of your practices financial health is fundamental to its long-term success.