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Here's what physicians and medical practice managers can do to keep the financial side of their practices running smoothly.
Whether it's declining reimbursement or old-fashioned collections issues, the financial end of running a practice can trip up even the most highly skilled clinicians.
Spiraling overhead forced internist Sheila Bee and a partner, internist Anita Lane, into breaking away from a traditional multispecialty group in 2012 to form a direct-pay practice.
"We had central billing and contracting, a chief financial officer, and a chief executive officer, and then each site had its own overhead as well as the centralized services," Bee says. "The more overhead you have the less you end up taking home, and it got to the point, with electronic health records and increasing costs from all the paperwork and collections, that our overhead was a very high percentage of gross revenues. As a working mom you start looking at how much you're spending on childcare and wondering if it's even worth it after you pay your sitter. I was having to see more and more patients every day and worrying that I was going to miss something [clinically]. It just became a situation where I didn't feel like I was giving the care I wanted to give. It got to the point where I said, 'I'm quitting or changing course.'"
Today the partners' practice is a blend of a retainer and a fee-for-service model. It's a direct-pay practice, but it produces appropriately coded forms for patients to submit to their insurance companies for possible reimbursement.
Eliminating the process of billing insurance carriers and instead requesting immediate payments from patients has enabled the partners to run their practice with just three staff members, down from the eight they had for themselves and another half-time physician when they were part of the larger group.
Saving that overhead means they can charge lower fees to patients, which they hope will help them retain their patient roster as healthcare reform matures.
"Our goal was to provide great care at a decent price for patients," says Bee. "We now have time to really listen to our patients and address their problems."
Choose smart alternatives
Immediate payment for service, as required at Bee's practice, isn't an option for many physicians who work under contract with insurers, but there are several things clinicians can do to keep the financial end of their practice running smoothly, experts say.
Outsourcing is an obvious answer, but isn't always a panacea, says Grace Terrell, president and chief executive of Cornerstone Health Care, a North Carolina multi-specialty group that includes about 250 physicians.
She joined her in-laws' practice in 1993, which merged two years later with several other practices to form the foundation of Cornerstone. One of the group's first decisions was to outsource the billing function, which proved to be a mistake, she says.
"There were issues right away with accounts receivable. So we took that back in-house and were able to create processes that made sense for revenue cycle management from the very first time a patient interacted with our service," says Terrell.
Most small practices can't justify keeping all financial functions in-house, of course, so Terrell suggests putting all business decisions through a test.
"Are you going to buy it or build it? If you buy something, the question becomes, are you buying it at the right price? If you're building it, what is the cost of that decision relative to your capabilities?"
And when it comes to purchasing new technology aimed at boosting efficiencies or generating new patient flow, she says, stay flexible.
"Don't invest in technology that ties you exclusively to a particular vendor. As we move more to accountable care, a lot of the technology will have to be redesigned for new revenue sources," she says.
Consider collection safeguards
Just staying on top of basic financial management is often easier said than done, notes Judy Boesen, a practice consultant Bee hired to manage several functions of the practice to free them up for patient care, and who consulted with the partners on establishing their payment model.
For her physician clients in more traditional insurance relationships, Boesen helps establish a credit card payment system so that patients are automatically billed once the insurance company processes a claim.
"If you don't do this, you know that the physician bill is usually the last to get paid because the patient now feels better and has moved on," she says.
Don't saddle an ill-trained staffer with major financial management responsibilities, says Boesen.
"You can't rely on a medical assistant or a receptionist to be the office manager anymore," she says. "You need a qualified manager to keep you compliant with OSHA, HIPAA, and even labor laws. You also need someone who can look at your expenses for ways to save money."
Even if you hire an outside accountant to manage the books, someone inside the practice needs to keep an eye on what's going out the door, Boesen says, recalling several times when she was able to flag and correct unexplained hikes in previously negotiated fees for practice supplies, while consulting with practices.
Boesen also assisted Bee's practice with defining staff salaries and handling requests for raises and time off. "When you work so closely it's sometimes hard to put on the business hat and say no to a request," says Bee. "With this arrangement that awkwardness is removed."
Plan for future challenges
Finally, don't just think about the bottom line when it comes to your practice financials, Terrell says. Think about the top line.
"If you're in a primary-care practice and 30 percent of your revenue comes from acute-care office visits, and now patients are bypassing you and going directly to Walgreens, then you need to think about new revenue sources," she says.
"I think you can expect multiple problems with financials in the coming years as we face an increasingly complex world and disruptions in revenue. It's important to anticipate this and not just throw in the towel."
Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached at email@example.com.
This article originally appeared in the June 2014 issue of Physicians Practice.