Medical Practice Accounting and Financial Modeling

Vice President at Butler and Company - Certified Public Accountants
Jun. 21, 2016

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Medical Practice Accounting and Financial Modeling

  2. 2 • Vice President – Butler and Company CPAs, PC • Serving clients since 2003, providing advice to individuals and closely- held businesses, with a focus on professional services, medical and veterinary practices, individual taxation and business start-ups. • Honored in 2011 as one of New Mexico’s “40 Under Forty” by NM Business Weekly • 2010 AICPA Leadership Academy Graduate • Board member for Alta Mira of New Mexico • Member at Large of the AICPA Governing Council • Family consists of Tina (CNM in Training), Levi (Lil’ Dude Extraordinaire) and Baby #2 (coming in December) • Was a Seattle Seahawks fan WAY before they won the Super Bowl Jason Deshayes, CPA, CGMA SPEAKER BIO
  3. 3 • Various forms of modeling your internal financials • Modifiers for any model • Financial metrics • Accounting platforms to consider • Q&A TODAY’S AGENDA
  5. Everyone is treated equally All revenues are shared equally based on ownership Costs are shared in the same percentage that revenue is No correlation to production, but simplistic to understand Values production/collection over anything else Providers are often considered profit center Overhead is a cost center allocated to providers Without modifiers, non-production business activities not rewarded Places value to procedures based on CPT codes Collections are split according to everyone’s percentage of RVUs Monthly versus year-to-date SO MANY OPTIONS “HALFIES” KEEP WHAT YOU KILL RVUs
  6. Practice model that allocates financial resources equally without consideration of individual efforts or use of resources The easy way out Does not tie financial compensation to any efforts Bad producers are equally rewarded as good ones What do you do with non-owner providers? Without some measurement tool, you don’t have a way to properly compensate your non-owner providers other than “here’s some cash” Only appropriate in my eyes for sole providers who only have to split the pot with themselves “HALFIES”
  7. 7 This is the model that many practices work with, mostly because it allows providers to be “semi-independent” while getting the benefit of cost sharing with other providers. Generationally, this is a model that many professional service companies (lawyers, accountants, engineers, consultants, etc…) owned by baby boomers seem to work well in. Given the direct impact of specific types of patients with a more favorable pay mix, there are many ways to game the system by encouraging staff to schedule higher dollar procedures with better paying insurance or self pay. There is very little incentive to consider what is best for the practice. More traditional model What are some of the pitfalls? KEEP WHAT YOU KILL
  8. Revenue by provider is based on collections (not billings) Call money can be directly allocated to provider Other forms of income beyond billed charges (medical directorship, etc..) Physician compensation and benefits (health insurance, retirement, etc..) Nurses and support staff directly assigned to the provider Other costs tied to the provider – malpractice insurance, donations, marketing, etc… Cost center that includes all of the non-provider specific costs to run the practice Various ways to allocate to the profit centers Consider fixed and variable components to overhead FINANCIAL BREAKDOWN DIRECT REVENUES DIRECT EXPENSES OVERHEAD
  9. 9 Attach units of value to CPT codes Apply those units to overall collections Somewhat ties production to collections Removes the “gamesmanship” by tying overall collections to RVU efforts Requires upfront time by the physicians to attach value on each CPT code RVUs
  11. Building and training next generation physicians; coaching on meeting metrics Mentoring Modifiers MODIFIERS Targets that align production to bonuses and other forms of compensation Production Goals Handles in-practice testing, quality control and regulatory reporting Clinical Director Leads the overall business operation of the practice Practice President
  12. 12 Are the physicians incentivized to think about what makes sense for the practice beyond their personal benefit? Are practice cash flow needs being met by the model? Retention, funding profit sharing/retirement, etc.. Is the practice adequately prepared for future retirements and incoming doctors? Do the providers understand the model? How often are they exposed to it beyond bonus time? OTHER CONSIDERATIONS QUESTION ONE QUESTION TWO QUESTION THREE QUESTION FOUR
  13. 13 Needs to be practical and easy to explain (to everyone!) Tie it directly to the financials – numbers (generally) are impartial All new providers need a “Financial Model 101” class If the practice undergoes a change, take a fresh look at whether the model is appropriate anymore Address concerns with providers sooner than later PICKING THE RIGHT MODEL MAINTAINING THE MODEL OUR RECOMMENDATIONS
  14. Patient visits Monthly charges and collections (including coding) Number of provider work days Freshness of your accounts receivable Patient and payer mix PRACTICE METRICS
  15. 15 • No single measure taken out of context is able to explain a situation • Look at trends, not isolated instances Be careful not to give too much weight Take things in context Have a second set of eyes on this • Look at comparative numbers on the financials • Helps identify trends and potential “hot spots” • You have a lot on your plate as a practice manager • Have an outside advisor assist with reviewing these and determining where concerns lie MORE ON METRICS
  17. Data is stored either locally or on a service Typically, you purchase the license Backup protocol extremely important Data is stored in the cloud; access is completely remote Software is leased; not owned (unless using hosted solution) Inherently better collaboration with outside parties HIPAA issues – most systems are not inherently compliant Number of users needed Ask your CPA for their thoughts! ACCOUNTING PLATFORMS DESKTOP/ SERVER CLOUD BASED OTHER THOUGHTS
  19. (505) 821-0893 4811A Hardware Dr. NE Albuquerque, NM 87109 THANK YOU FOR LISTENING