Give Your Medical Practice an Annual Physical

Give Your Medical Practice an Annual Physical
By Deborah H. Wells, CPA, MBA, Shareholder, Alpern Rosenthal

Have you given your medical practice its annual physical lately? Do you assess your practice’s health based on how much cash is in the bank? Do you find that your practice catches problems, mistakes and errors long after the fact?

Benchmarking your practice gives you the ability to determine your practice’s health at a point in time. This gives you an opportunity to objectively measure your practice’s health compared to other similar practices.

Benchmarking has been used in many different industries to help business owners grow their businesses and increase productivity and financial strength. For the medical practice, this is just as important and key to your strategic planning.

Benchmarking your practice involves analyzing your key business indicators and using that information to assess your practice’s strengths and weaknesses. This information allows for strategic planning to target weaknesses and leverage strengths to build a healthier medical practice.

The basic steps of a formal benchmarking procedure include:
1. Be sure your practice has good financial and practice data. If you are comparing bad internal data to the benchmarking data, you will not get satisfactory value. If you are not comfortable with your practice’s financial data, then your first action is to correct this. This may be an indicator of ever-greater problems, i.e., weak internal controls, all charges not being billed, etc.

2. Determine the benchmarking indicators important to your medical practice’s financial health. This will require you to determine what key indicators are applicable to your practice and have a direct effect on financial success. Since all medical practices are unique, this is a key step in assessing what drives your practice’s financial success. Some of the more popular key indicators include:
• Days in accounts receivable
• Aging of receivables
• Cost of overhead expenses (rent, staff, supplies, etc.)
• Physician and staff compensation
• Gross charges and collection rate
• Current ratio and other key ratio indicators

3. Obtain cost, compensation and production survey information to benchmark your practice data. There are various organizations that produce these surveys including the Medical Group Management Association (MGMA) and the American Medical Association (AMA) as well as specialty associations.

4. Compare your results against the benchmarking indicators. To get the best value from this process, don’t only compare your results to the median indicators, but also compare to the “best practices” indicators when available. This will push you to compare your practice with the top performers and not just the average practice. After tracking your results for a time, you can benchmark your current results against prior results to assess improvements.

5. Analyze the positive and negative variances. Pay special attention to variances that are related to differences between your practice and the median practice in the survey data. For example, if you have a higher percentage of Medicare or Medicaid patients than the average practice, your variances can fluctuate substantially. This will need to be addressed in your analysis.

These steps should allow you to determine your practice’s strengths and weaknesses and help you to determine where to put your attention and resources in preparing an action plan. For example, if your days in accounts receivable are much higher then the median, you need to start assessing why this is the case. Is this an indication that your collection efforts are not effective?

To address practice weaknesses in an optimal way, prepare goals, intermediate steps and a timeline. This plan should be communicated to all responsible personnel. Also, plan to assign responsibilities for all tasks and develop a reporting mechanism to track progress on a monthly or quarterly basis. Without a measurement and monitoring system in place, it is less likely that positive change will result.

Benchmarking is a great tool for assessing your medical practice’s health. This allows for you to find problems in their early stages and address them quickly.

Deborah H. Wells, CPA, MBA, is a Shareholder and Director of the Medical Services Group for Alpern Rosenthal. She can be reached at 412-281-1018 or at dwells@alpern.com.

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