Creating a financial strategy for your private practice is key to achieving and sustaining financing success. The strategy that works best for your business will depend on the specialty and size of your practice.
Different strategies may need to be applied throughout the life of your practice to ensure it can adapt to changing economic conditions. In this article, we’ll review the top 7 strategies for successful financial management and how to effectively apply these strategies to your practice.
What Is Financial Management?
Financial management for medical practices involves the process of planning, organizing, directing, and controlling the financial resources of the practice to achieve its goals and objectives. This includes managing revenue, expenses, and cash flow to ensure the financial stability of the practice.
Effective financial management is essential for the success of any medical practice. Medical practices must manage their finances efficiently to maintain a healthy cash flow, maximize revenue, and minimize expenses. Financial management for medical practices involves several key activities, including budgeting, tracking expenses, billing, collections, negotiating with payers, and monitoring accounts receivable.
Best Financial Strategies For Your Medical Practice
1. Create A Budget
A budget is a financial plan that outlines expected income and expenses over a period. Creating a budget helps you understand your practice’s financial situation and set realistic goals for the future.
You can create a budget using accounting software, spreadsheets, or other financial management tools. Your budget should include items like salaries, rent, utilities, supplies, marketing expenses, and any other expenses your practice incurs.
Compare your budget to the balance sheet at year end to monitor compliance. If you notice significant discrepancies in your budget versus your actual annual expenditure, reevaluate your financial needs and adjust your budget for the following year.
2. Attract New Patients To Your Practice
A consistent flow of new patients into your practice is essential for healthy revenue cycle management. Leveraging your contacts with other medical practices in the area is beneficial to increasing patient referrals from qualified sources.
Having a solid marketing strategy in place for your practice is also important for bringing in new patients. Online and digital have the best return on investment in today’s world. Utilize SEO to increase your online presence and put your practice’s name in front of more patients.
3. Optimize Your Billing Process
The billing process is a crucial part of your practice’s revenue cycle. Billers are among the highest paid support staff in a medical office, but are well worth the investment. A qualified biller should be certified in your specialty and is frequently updating their knowledge to keep up with annual changes in billing and coding.
You can optimize your billing process by implementing electronic billing, which can help reduce errors and speed up the billing cycle. You can also use automated reminders to encourage patients to pay their bills on time. Additionally, having a streamlined collections process can help you recover unpaid balances quickly.
4. Negotiate With Payers
Negotiating contracts with insurance payers can lead to better reimbursement rates and a more consistent revenue stream. By negotiating with payers, you can ensure that you’re getting paid fairly for the services you provide.
You can negotiate rates with payers by researching the rates that other practices in your area are receiving and using that information as leverage. It is also worth looking into a managed care organization (MCO), which will negotiate these rates on behalf of their group members. While there are dues associated with joining an MCO, the increase in payer rates often far exceeds the cost of the organization dues.
5. Monitor Your Accounts Receivable
Monitoring your accounts receivable regularly is critical to maintaining a healthy cash flow. You should keep track of your outstanding receivables and follow up with patients who have outstanding balances. You can also implement an aging report that categorizes outstanding balances by age to help you prioritize collections efforts.
Assign a dedicated biller or supervisor to manage your aging accounts receivables. While collections companies can be one way to collect on outstanding balances, their collection fee can cost you up to 50% of the overall balance.
Utilize a dedicated staff member in-house to reach out to patients and set up payment plans enables the practice to collect more money while also maintaining a better patient-provider relationship.
6. Maximize Payer Reimbursements
To maximize your reimbursements, you should stay up-to-date with reimbursement rates for different procedures and codes. You should also ensure that you’re billing correctly by using the correct codes and following the proper billing procedures.
Schedule an annual meeting with your billers to review the reimbursement rates of your most commonly billed procedures and compare that against your fee schedule.
Your fee schedule should be 10-15% higher than the reimbursement rate of your top payers. By maximizing your reimbursements, you can increase your revenue and improve your financial performance.
7. Implement Practice Management Software
Practice management software can help you manage your practice’s finances more efficiently. The software can streamline tasks like scheduling appointments, managing patient records, and billing.
Practice management software should be accessible by all owners, managers and stakeholders of the practice, with monthly reports shared to the business’s accountant. This ensures everyone is informed of trends like increasing costs or decreasing patient census before these trends can impact your bottom line. By using practice management software, you can reduce errors, increase efficiency, and improve patient care.
Hold An Annual Financial Meeting
For any financial strategy to be effective, all stakeholders within the practice need to be on board with it. It is best practice to meet at least once per year to discuss your practice’s financial strategy and how successful it has been to your bottom line.
Consider including your practice’s accountant or financial advisor to join in this conversation. It is often beneficial to include a 3rd party stakeholder that actively participates in the financial reporting of your practice.
Place Trust In Your Practice Manager
If you are reading this article, there is a good chance you are the practice manager for your organization. If you are an owner or physician, this is my message to you: place trust in your practice manager.
The practice manager is the central hub for any medical practice. He/She will have their pulse on every aspect of the business – from managing staff and patient satisfaction down to the cost of supplies and payer reimbursement rates. This individual is likely to know your business better than you do.
Because a practice manager wears so many hats on a given day, it is essential they have access to support for any given task. Encourage your manager to participate in a local management group, such as PAHCOM or Medical Group Management Association (MGMA). Entities like this exist to support practice managers and offer them the resources they need to excel in their roles.
Allow Your Strategy To Be Flexible
The most successful financial strategy is one that is flexible and can adapt to changing conditions. While the need for medical care is constant, certain economical variables can greatly impact your bottom line. The economic variables that most commonly affect the health care industry include:
- increased competition in the market
- decreased reimbursement rates from insurance companies
- large shift in payer mix
- sudden departure of a provider or key staff member
- medical practice lawsuit
- significant change in patient census
Invest In Your Practice’s Financial Strategy
Overall, financial management for medical practices is a critical function that requires careful planning and execution. By managing revenue, expenses, and cash flow effectively, your medical practice can achieve its financial goals and provide quality patient care.