My Weblog

2010 OR/WA MGMA Annual Meeting

The OR/WA MGMA Annual Meeting is scheduled for April 17-20, 2010 in Bellevue, Washington.  This year's meeting will examine the major trends affecting medical practices, and will explore the changes that we're likely to see in the next few years.  More information can be found at www.omgma.com. 

Identity Theft Policy Enforcement Delayed.

The Federal Trade Commission (FTC) recently announced another delay in its enforcement of the new Red Flags Rules. The new compliance date is now November 1, 2009.

The FTC’s Red Flag Rules effect health care providers. Red Flags are activities that suggest possible patient identify theft. Under these rules, you must take steps to identify these suspicious activities in your day-to-day operations and to prevent or mitigate the damages from such identify theft activities. The rules require you have a written plan or policy.

The FTC has published a How-To Guide for Business concerning these new Red Flag Rules. You can view the guide online at this link: http://www.ftc.gov/bcp/edu/pubs/business/idtheft/bus23.pdf

Some ideas on selling your practice

Here are some things to keep in mind before you sell your practice and retire:

√An independent appraisal of your practice can help you establish a fair price and give potential buyers an idea of what they will pay. Medical practice appraisals are usually based on three primary factors: Accounts Receivable, Equipment and to a lesser extent, Goodwill.

√Don’t let your collections (accounts receivable) decrease in the months prior to selling. Reducing your accounts receivable will have a negative impact on two of the three key factors considered by an appraiser.

 

√Cutting back your workload just before retirement will generally mean a lower selling price for your practice. Cutting back will mean less revenue but your expenses won’t fall as much. Work extra hours and see more patients just before you sell in order to increase collections.

 

√Ideally you would add a physician to your practice who wants to purchase the practice when you retire. You should negotiate an employment contract with the physician that states the younger doctor is going to buy the practice. A timeline should be established for the takeover and a formula for setting the purchase price.

 

√Aim for an all-cash deal. Don’t finance the sale if you can avoid it.

 

√Avoid taking a percentage of future revenues as a portion of your payment. This is especially true if you are no longer involved in the practice.

√Enhance your practice’s appeal by sprucing up the office prior to putting your practice on the market. New paint and new carpet. Also clear out all unnecessary furniture to give the office a more spacious look.

Avoiding Taxes the Wrong Way

Tim Lott, a Certified Public Account and partner in the Maryland firm of Naden/Lean, writes a great blog for dentists called Dental CPAs.

 

In early November, Tim had a great post concerning the wrong way to avoid paying taxes on your practice income: read his post. Not depositing cash or insurance checks into your business account(s) at the end of the year in order to reduce your taxable income is a risk you do not want to take.

 

 

Time to budget for 2009

This is the time of year when I start hearing many questions about finances.  Why are we not making the kind of money we used to?  Why do we have so many employees?  Why are operating expenses so much higher this year?  Many times, these questions would not have appeared or could be easily answered had the practice had a well thought out budget.  Too many practices place little emphasis on the budgeting process and are therefore shocked when financial performance is not what was expected.  Follow these guidelines in preparing your 2009 budget:

 

1.      Make it Simple -  Most practices fail to budget because most administrators think it is a process that is too complex or time consuming.  In reality, a budget is just an analysis of what you expect will come into the practice and what will go out.  Start with a simple Excel spreadsheet and your profit and loss statement from the previous year.

2.      Expenses: Use MGMA - You know what they say whey you “Assume”, right?  It makes an …out of ………..  Well instead, let us call it an “educated guess”.  Go through each of the lines from your previous year profit and loss and determine if the line item is expected to increase or decrease in the coming year.  It is common to expect your expenses to increase with inflation.  There may also be other expenses you know will increase so be sure to include those known increases as well.  After this has been done, add a column that shows what percentage of revenue each expense line represents.  Use the MGMA cost survey to determine if this is high or low relative to your specialty and think about what you can do to make these line items fall more in line with the benchmark.

3.      Revenue: What do you expect? – See my blog post from October 9.  Use this spreadsheet to estimate your volume of patient visits and contractual payment terms.  Know your payer mix? If not, you should.  Setting up expectations regarding payer mix on the front end will help identify your variances from the budget during the next year.  What services could you add and what impact could they have on the bottom line?  When do your physicians plan to take time off? Do your physicians understand the negative impact time-off has on cash flow? 

4.      Revisit Monthly – A budget is not a concrete object, it is a process.  You should revisit your budget on a monthly basis and revise it if you have determined that your assumptions or educated guesses are incorrect.  Adjust and move on.  Do not just stick with it.

Fraud and embezzlement protection

Fraud exists when employees have the following:

 

1.      Financial pressure

2.      An attitude that can rationalize stealing

3.      An opportunity

 

Most medical practices have little or no control over the first two of these characteristics for their employees. However, the last one can be the biggest factor in removing the possibility of your employees embezzling from you. 

 

Over the last year, three of my clients have experienced employee embezzlement.  Each of these cases involved one of their most trusted employees stealing over $100,000 from the practice.  Why did this happen?  There was financial pressure, rationalization, and most importantly, an opportunity.  Take these five simple steps to ensure you have the proper controls in place for your practice.

 

1.      Have someone independent of the accounting function open all mail and receive co-pays.  Have this employee separate the EOB (explanation of benefits) from the checks/payments and prepare a calculator tape for each.  The employee should take the checks/payments to the bank and give the EOB’s to Accounts Receivable for posting to patient accounts.  The person opening the mail should not have any access to customer accounts.  This step reduces the likelihood that someone could steal a customer payment and write off the corresponding receivable.

2.      Have a doctor receive the bank statement unopened each month.  The doctor should review canceled checks and unusual transactions before giving the bank statement to accounting.  This step can catch employees forging signatures, writing checks to fictitious vendors, or fraudulent ATM transactions.

3.      Have a doctor review the bank reconciliation each month for un-reconciled transactions and unusual adjustments.  One common fraud scheme is to steal a deposit and rationalize the action with the thought of paying it back later. It’s not uncommon that the fraudster tries to cover up the missing deposit by recording a fraudulent un-reconciled deposit.

4.      Only allow the owners to authorize payments and sign checks.  Do not, and I repeat, do not allow any employee of the practice other than an owner to sign checks or use a debit card.  I know this may seem like an inconvenience at times but I’ve simply seen this privilege abused too many times.

5.      Make sure your computer server is located in a secure location (i.e., in a locked room or closet) to prevent the opportunity of identity theft. 

 

If you have a strong suspicion or concern about fraud in your practice, you should consider having your accounting firm conduct a fraud assessment of your office.

Tool for estimating your revenue

Recently I presented at the Oregon Medical Group Management Association’s Fall conference in Bend, Oregon.  The conference was held at the Riverhouse Hotel and Convention Center.  I was extremely pleased with the location and the facilities of the conference.  Hat’s off to the Executive Council who I’m sure worked tirelessly to put on such a great and well organized event. 

My presentation was titled, “Business Planning for Your Medical Practice” and covered the basics of setting up a solid business plan for a startup group practice, joint venture, or simply to get your practice to revisit it’s game plan for the future. 

 

During the presentation, I had noted that revenue can be extremely difficult to estimate in a medical practice because there are so many factors that influence reimbursement such as payor mix, procedure mix, conversion factors, etc. As a supplement to the presentation, I created a tool to help a practice estimate it’s revenue based on  payor mix and specific procedures performed.  Many of the attendees had requested the Excel spreadsheet as well as the PowerPoint presentation that was used so that they could customize it for their physician leaders.  You can download those documents using the links below. 

Download revenue_est_tool.xlsx

Download business_planning.pptx

You are welcome to copy them, make changes, and share them with others.  Furthermore, if your practice would like us to assist you in the process email me info@jrcpa.com .

Compensation plan pitfalls

Recently, a client asked that I come in and meet with their physician group to redesign their physician compensation system.  The previous formula was extremely complex and difficult to understand.  Of the five physicians in the group, one of them was extremely involved in developing the formula and understood it backwards and forwards.  The other physicians did not understand how the formula was calculated and were growing resentful of it.

 

Every month, when the production formula would be presented, the physician who understood the formula would try and explain the formula and answer questions.  Over time, dislike of the formula grew because the four other physicians were not able to understand it.  Sound familiar?  I’ve found that the following four items are critical in redesigning a compensation system:

1.    Hire an outsider to develop the formula.  When one of the key stakeholder’s is the one developing the formula, it’s easy to wonder what’s in it for them.  Remove this distraction by hiring an outside consultant to do the dirty work.

2.    Block out an afternoon or even an entire day to meet with the entire group and discuss compensation philosophy.  Compensation should influence behaviors that you want the practice to adopt.  For example, is this an “eat what you kill” formula or is it going to reward physicians for serving on boards or treating a certain patient type (Medicare) that may not pay as well. Your philosophy needs to be agreed on before an effective compensation system can be put in place.

3.    Keep it simple.  In almost every case I’ve seen, the existing compensation formula is too complex.  As a result, physicians do not understand what they are being compensated for.   

4.    Last but not least, agree on one formula BEFORE running sample data.  I often hear physicians say, “that sounds good but I’d really like to see the last years actual numbers run through the formula using three different scenarios before we decide what option to choose”.  Let me tell you this NEVER works because each physician will pick the option that works to their best interest.

Oregon/Washington MGMA set for Portland

Mark your calendars! The Oregon/Washington Medical Group Management Association Annual Meeting is scheduled for May 17-20, 2009 at the Portland Convention Center.

This meeting is lining up to be a blockbuster event. A few of the keynote speakers already scheduled to appear are Jeff Taylor, CEO of Monster.com and one of the most powerful speakers you will ever hear. Jamie Orlikoff is a nationally recognized expert on emerging healthcare trends in this country. John A. Kitzhaber, MD, former Governor of Oregon always has something interesting to say about healthcare reform. Plus several other well known speakers.

I have been asked, along with my colleagues on the Jones & Roth healthcare team, to present one of the breakout programs at the annual meeting. We can’t wait. See you next year in Portland!

Dealing with poor paying patients

Do you often have trouble collecting deductibles or co-pays?  Most patients don’t pay because they figure that no one really expects them to pay.  Try giving them the option of rescheduling their procedure or visit the next time they are not prepared to pay.  You may be surprised how many patients find a way to come up with their payment.  Here are some ideas for increasing your collections from poor paying patients:

 

·         Avoid Offering Credit – Medical practices are not in the business of financing.  Leave that business to the people who specialize in it (banks, credit card companies, etc.).  Encourage your patients to use their existing credit cards to cover medical expenses. 

·         Be Consistent – Too often, medical practices have billing policies saying that they will not see patients if the balances are not paid in full.  Yet, when the patient arrives, no one sticks to the policy.  Make sure the front office staff can see when patients have co-pays, deductibles, and other unpaid balances and train them to be consistent with the office policy.

·         Pick up the Phone – If your patients haven’t responded after sending multiple statements, it’s usually because they don’t think it’s important.  Avoid continually sending statements to your patients and pick up the phone.  It’s amazing how many patients either don’t understand what they owe or are simply avoiding the issue all together.

·         Get Physicians Involved – Few physicians like dealing with poor paying patients.  Set up a weekly meeting with your physicians to inform them about patients with balances due and what process you will be going through to collect from the patients.  Set policies on what balances will be sent to collections or written off.