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Anticipating and Planning the Finances of Your Medical Practice


Knowing your percent of collections, days aging out in accounts receivable, and payer mix will all help budget your practice finances in a much more efficient manner.

Each month (or more often for some) we sit down and pay our bills, do our banking, and look at our accounts. We live within our means based upon our income and responsibilities. We are able to anticipate what our monthly income will be and we live based upon this. So, how is your company's financial health and functionality any different? Knowing or being able to predict your monthly inflow will help you make good, solid decisions for your business instead of overspending one month and struggling to meet payroll, and then having abundance the next. This can cause tremendous stress and it's not necessary.

Here are a few ways that you can start monitoring your inflow:

The first thing you want to know is: What is your average days in A/R, from the date the patient was seen to the date the payment was posted and deposited? This is a very simple calculation of dividing your charges and inflow and multiplying that by the number of days in the month. For instance, January and December have 31 days, where June and September have 30 days. Here's a spreadsheet you can use to start filling in your monthly charges and your monthly A/R. This will help you understand how long it is taking for your claims to be paid. You cannot improve on any area until you know where you stand.

Now that you know how many days are in your A/R aging category, this will enable you to anticipate how quickly your claims will be coming in for payment. Is that number above 60 days? You have some clean up to do, if so.

Knowing your percent collections is also critical in being able to predict your inflow. If you bill out $700,000 one month and only get $200,000 back in inflow, this is something you'll need to know. This is also where your days in A/R will come in handy. It will help you know if you bill out $700,000 how quickly that might come back in. If your days in A/R are at 90, then you know you have approximately three months before you'll see that return. If you are getting back $200,000 this month, and your number of days in A/R is 90, look back three months at your billed out charges, and use your average percent collections to calculate what you should be getting back. Here's another handy spreadsheet to help.

Knowing and understanding your payer mix will help you know how much you'll be paid. For instance, if you subscribe to an IPA or several HMOs and do not have many larger payers, then your inflow and percent collections will be low. If you have a balanced mix of lower payers and higher payers (like Medicare, Cigna, HealthNet, etc.) and you know your contracted rates (what you'll be paid) you can do some quick calculations and know within a few thousand dollars what your income will be that month.

Of course these are estimates, and denials can change this inflow drastically. This is why sending out clean claims the first time is so very important. Have those checks and balances in place with your front- and back-office staff. Know your coding rules and collect your copays, coinsurance and deductibles when possible.

All of these will enable you to plan and operate within your means, and with much, much less stress!

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