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Physicians are now tapping accountants for expanded services
Can't grab 10 minutes to look at your practice's bigger financial picture? Maybe an accountant can help. Long accustomed to getting help filing their personal income tax statements or maybe handling payroll, more physicians are now tapping accountants for expanded services. They are an integral part of many groups, even small ones.
For Dr. Frank Ingrish, a solo dermatologist in Alexandria, La., an accountant is indispensable.
"In my practice, it's just routine," says Ingrish. "I can't imagine going without a CPA (certified public accountant). My accountant handles the basics, like taxes, monthly statements, and bookkeeping, but he also spots trends in my daily payroll operations."
"Bottom line, if you assume that a medical practice is a business, then a good relationship with a CPA brings a strong business discipline to your practice," agrees Ken Hertz, an independent healthcare consultant and former practice administrator in Alexandria, La. "I'm talking about controls for handling money, reporting financial performance, and evaluating the health of the practice, then using those financial tools to make informed decisions about leasing, renting, and purchasing. There's also encouraging the development of operating budgets so you have an ongoing guide and series of benchmarks to measure how you're doing."
That said, not all accountants are created equal. Knowing what to expect from yours and taking some time to identify and discuss your needs can turn a mediocre arrangement into a revenue-building, cooperative relationship.
Know what you want
First thing: Know who you've hired or want to hire and what you want them to do. Accountants fall into two camps: public accountants and certified public accountants. Both are generally trained in accounting and business principles, but CPAs must pass a rigorous exam testing their grasp of accounting and tax principles, auditing standards, and business law. CPAs are also state-certified and must meet continuing education requirements.
The services you need from an accountant also fall into two camps: basic financial services and healthcare-specific services, including revenue enhancement, practice valuation, mergers and acquisitions, practice restructuring, and physician compensation. Sit down with your administrative staff and partner physicians and make a comprehensive list of what data you want, how often you want to meet with the accountant, and which tasks you'll keep in-house.
While it's tempting to save money by keeping most tasks in-house, make sure to do the math. It may seem cheaper to have your practice manager handle most accounting tasks than to pay an accountant's hourly rate, but if the manager makes unwitting errors or spends so much time on accounting issues she does nothing else, your practice may end up spending more money than it saves.
"We've taken back some tasks from our accountant, but there are some areas where we absolutely need an accountant's expertise," says Linda Minkel, practice administrator at the Pacifica Institute of Cosmetic Surgery in Camarillo, Calif. "The more you do in-house, the more you'll save on accounting bills, but it has to make sense. Sometimes the savings hides a waste of time and effort. For example, it's cheaper for me to do payroll, but it eats up my time, so we outsource that."
Outsourcing can also provide additional security. Most practices need more oversight of their quarterly or even monthly operations.
"In small offices you often find one person is in charge of a physician's money, life, and schedule," says Rick Blum, president of Kingsley Consulting Group Ltd. in New Orleans. "That one person is trusted immensely with everything. They open the mail, take the checks, make the deposits, keep the records. Even if this person doesn't deliberately commit fraud, which they're in a position to do, they can make honest mistakes no one's there to catch, and then the practice is in trouble, especially at tax time."
"I've heard horror stories about doctors who were duped by trusted managers," says Minkel. "For me, it's a confidence-builder to know that if I make a mistake there's an accountant who'll bring it to my attention. That way I don't have to worry about the data I turn in at tax time, and no one has to worry about whether I'm doing my job."
Get questions answered
Whether you have an existing relationship or are looking to hire someone new, it's also important to have an open conversation with an accountant about his or her experience and expectations. Start by asking about healthcare experience.
"Ask them how many doctor clients they have -- what's their medical experience?" suggests Larry Lehman, a practice administrator and CPA with Specialty Clinics of Georgia in Atlanta. "The medical profession has multiple unique accounting problems you don't run into in other fields. If your CPA isn't familiar with those problems they can do you an injustice. And don't be afraid of lots of clients; our CPA has 40 to 50 other physician clients. The more clients an accounting firm has, the more experience they have."
Present your needs thoroughly. "You sit down and determine what the skill sets are in the practice and which functions need to be filled, and then decide whether these functions can be filled from within or by outsourcing," says Hertz. "Then you sit down with your CPA candidates and you present those needs very specifically. There shouldn't be any surprises."
A good accountant should be able to tell you if your expectations don't jibe with how much you are willing to spend on accounting services -- an important issue to sort out before beginning a relationship.
Some issues don't make it to the negotiating table at all, but can end up costing you and coloring your entire relationship with your accountant. What are their hours? How much time do they have for questions and consultation on basic issues that take only a little time?
For instance, "Ask whether you're going to be charged every time you make a call," suggests Minkel. "If you have a quick question and you call the accountant to check it, are you going to find that two-minute call on your next bill? And what about emergencies? If I get a call from our workers' comp carrier saying they want to audit our records by a certain date, I have to be able to get that information from the accountant in just a few days' time."
Include the CPA
Whatever the specifics, be sure to make the accountant-practice relationship a substantive one. Often practice members see the accountant as an outsider who comes in to criticize or to blame, and this is especially true when you only see your accountant at tax time. Making an effort to involve your accountant in your practice on a more regular basis creates a more collegial atmosphere.
Face-to-face contact is especially important; if the accountant is just a voice on the phone, you'll never really feel connected. Many practices have monthly in-person meetings with their accountant; some include their accountant on their board of directors. Other accountants are invited to company retreats. Doctors too busy to give face time should receive written updates on a regular basis, tracking their individual performance as well as the business of the practice as a whole.
"At our practice, each doctor has an individual cost center," says Lehman. "The CPA reviews their costs and income at the end of each quarter and then does personalized financial planning for them."
Footing the bill
How much you pay for accounting services varies according to the scope of those services and the size of your practice. Estimates run from .5 percent to 2 percent of monthly expenses, or .7 percent to 1 percent of yearly practice revenue. Put into dollars, that can mean $30,000 to $40,000 per year for large practices and $8,000 to $10,000 per year for small and midsize practices. Some one-person practices receiving minimal services may pay as little as $2,400 per year.
"A large cardiology practice might be billed $40,000 a year, and that's .5 or .6 percent of yearly practice revenue," says Greg Gates, a principal at Gates, Moore & Company in Atlanta. "A two-person practice might be billed $8,000 a year, and that's closer to 1 percent of their yearly revenue."
That annual fee can seem daunting once a practice figures out exactly what level of services it needs. But don't give in to the temptation to scrimp on accounting to save money.
"I can justify the cost of using an accountant on the basis of third-party payers alone," says James D. Knoepp, MD, a cardiovascular surgeon recently retired from private practice and now a critical care intensivist at St. Francis Cabrini Hospital in Alexandria, La.
"Third-party payers require so much information -- I wouldn't have time to practice medicine if I tried to track it, provide it, and verify it myself," says Knoepp. "And with all the other legal requirements for practices today, from collections to revenue flow to billing processing and Medicare, you're in trouble without a certified accountant working on your team."
Also, a good accountant will more than make up for their fee in savings to you. "I always said if I didn't save my client at least the amount I was billing, that client didn't need me," says Lehman.
Bottom line, the most important thing you can do to make sure your investment in an accountant is efficient and cost-effective is to take responsibility for letting the accountant know what you want and when you feel you're not getting it.
"Most accountants get busy," says Gates. "It's hard for them to step back and say, what can I do for THIS client."
And when you do get reports from your accountant, don't let them gather dust. "You want to know doctors are reading your reports," says Lehman. "Sometimes smaller practices say, 'Oh, we don't have to worry about tracking all those factors, and we don't have the time or money to get in deep with an accountant,'" says Hertz. "But every practice of every size needs controls and alert mechanisms in place to monitor their financial health. Costs are rising, reimbursements are down, the rules are constantly changing, and you've got to be smarter and smarter about the financial side of your practice. Part of that is getting smart about your accounting."
Lori Rogers-Stokes can be reached via email@example.com.
This article originally appeared in the July 2003 issue of Physicians Practice.