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Practice Management Series:
Navigating Through a Challenging Economy

Part Two of Three.

Improve the Financial Health of the Practice

Today's economy has forced many medical practices and businesses to reevaluate the way they operate. Some practices were fully prepared for a down economy and are actually growing. Other practices were caught unaware and are struggling. In this practice management series of articles, I will discuss 3 Rules, 3 Steps and 3 Strategic Initiatives that will help you emerge stronger and healthier from this challenging economy.

The Three Rules to observe during these challenging economic times were introduced in the first installment of this series of articles. (Part 1 can be found in the 2009 June issue of Currents.)

Rule #1: Don’t Panic.
Rule #2: Get Engaged.
Rule #3: Be the Leader.

The primary topic was strengthening the infrastructure. Several tactics were offered to help achieve this. Additionally, the three steps to take during tactical and strategic planning activities were introduced and demonstrated. The Three Steps; inspect, evaluate and modify will also be applied to Strategic Initiative #2 in this article.


How is your practice performing financially? Paying attention to the fiscal performance of your practice is an area to which you may want to dedicate a little more time. On a cautionary note, try to avoid the pitfall of analysis paralysis. Remember, the goal is to gather the pertinent information and ultimately use it to take action and make improvements.

Step #1: Inspect

There are several ways to inspect the financial health of a medical practice. I highly recommend comparing your performance to both internal and external metrics. Internal metrics include the profit and loss statement, productivity reports, payroll summary reports and the accounts receivable aging analysis. Some areas to focus upon are collections, new and existing patient encounters, fixed and variable overhead ratios, net collected revenue by provider and revenue per patient encounter. The next step is to compare the data to the previous year's performance. This step will assist you in gaining performance perspective and understanding the financial performance trends of your business.

Step #2: Evaluate

Once you have completed the internal assessment, you are ready to compare your results with external data sources, The ASAPS, ASPS, The Health Care Group, Kline and Company and The BSM Consulting Group/Allergan Practice Consulting are all good sources for external benchmark data.

Many physicians, with whom I work, have a familiarity with the profit and loss statement. Unfortunately, the amount of time spent reviewing this statement is minimal and usually focused only upon the top and bottom line numbers. Now is a good time to begin paying more attention to the numbers in between.

Spending hours evaluating and re-calculating the numbers is not recommended. Your accountant and bookkeeper should already be doing that. I recommend increasing your understanding of what affects your larger, individual line-item expenses. The typical big areas you want to understand better include payroll, rent, medical supplies and marketing. These line items are all areas in which there may be an opportunity to increase efficiency and eliminate wastage. Once these areas have been addressed, you can move down to the next tier of expenses.

Tactical opportunity

A new opportunity for dermatology practices in the area of decreasing medical and surgical supply costs has recently emerged in the form of a Group Purchasing Organization (GPO) offered by the Aesyntix Physician Network. This GPO is specific to Dermatology and can help practices achieve cost savings from 5% to 20% on their medical, surgical and business supply purchases. It is endorsed by ADA/M and is a free service. Additional information is available in other articles found in this section of our website.

Many physicians have become complacent with regard to financial oversight. They have relied too heavily upon others to manage their financial affairs. The reality of the situation is that no one has a higher interest level in your finances than you. Getting the right information is critical to making better decisions about your business.

Some other tips regarding the financial health of your practice include reviewing your internal controls.

  • Appropriately segregate duties in the area of cash handling and receivables to minimize the risk of embezzlement.
  • Consider having your financial advisor prepare and maintain a three month cash flow forecast in order to avoid any surprises.
  • Review all of our insurance policies and evaluate the necessity. You may want to consider having several brokers bid for your policies.
  • Re-assess the relationships you have with external professionals. Are you getting what you need from your current attorney, accountant and consultants? Are they serving your practice to the best of their abilities, or have they taken your business for granted? Are they delivering timely, accurate and useful information at a fair market price? Make sure you are getting your money's worth and that you utilize them to the fullest
Step#3: Modify
Tactic: Create a budget

The single biggest area of opportunity I have observed regarding fiscal responsibility in the medical practice lies in the area of budgeting. The days of falling backwards into the flowery fields of success have come to an end for most medical practices. Having a plan and a budget with operational and expenditure parameters is essential to successful daily operations.

A budget is simply a financial planning tool that lists all planned expenses and revenues. It is a forecasting tool which enables the management team to apply appropriate intervention in a timely manner.

Simple 6-step process for creating a budget:
  1. Gather all historical income and expense financial data.
  2. Separate into fixed and variable expenses.
  3. Perform assessment of future trends and changes based upon past performance.
  4. Establish expenditure limits.
  5. Monitor and compare the actual results on a monthly basis (at a minimum) and compare it to the plan.
  6. Make necessary changes and modifications.

Make sure that you diligently work within the parameters of your budget. Celebrate success with your management team when this is accomplished. When you exceed the budget, strive to understand what happened. Have your management team provide the cause and then offer coaching and counseling to avoid going over budget in the future. Holding yourself and the management team accountable is essential to the success of budgetary compliance.

The budget planning process will provide you with the information needed to implement change. Appropriate oversight, accountability and flexibility will help you achieve the goal of improved financial growth and stability for the practice.

Part Three of this series will appear in the August/September edition of Currents and will cover the strategic initiative of making the most of every patient encounter. This series of articles will be followed up by a lecture at the ASDS Practice Management Pre-Conference on Wednesday, September 30 in Phoenix, Arizona.

About the Author: Page S. Piland is the founder and president of Core Healthcare Consulting. He has more than 20 years of management and operations experience. He has been a featured speaker and has lectured on the subject of Healthcare Practice Management at multiple national medical society meetings.