Monitoring Practice Cash Flow
Many practice expenses must be paid regularly—whether cash flow is strong
or weak. Focusing on cash inflows and outflows can help ensure that your
practice will have sufficient cash on hand to meet its ongoing needs.
Plan Ahead
Budgeting is an essential tool for managing cash flow. By determining in
advance the amounts you’ll need to pay out month by month to keep your
practice in business and anticipating monthly revenues, you can identify
potential shortfalls and plan for them. If you don’t already operate within
a budget, consider creating one.
Certain expenses are relatively fixed and can be predicted, while others are
not. A well-structured budget will let you project your monthly total cash
needs by estimating variations in physician draws, office staff costs,
equipment costs, taxes and other expenses.
On the income side, insurer and Medicare claims collections and patient
payments usually lag both the delivery of medical services and the
associated operating expenses. A budget will let you anticipate your
practice receipts month by month.
Budgeting your monthly expenses and receipts may reveal a seasonal cash flow
gap, such as during the first quarter when patients need to satisfy
deductibles. You may be able to avoid or reduce this gap by setting aside
cash during other periods. Arranging for standby short-term financing is
another possible solution.
Track Results Every Month
After setting up a budget, you’ll need to take some time each month to track
your actual expenditures and receipts against the budgeted amounts. Be sure
to determine the reasons for any significant variances. For example, there
might be a holdup in claims payments from a specific payer, a spike in the
number or type of rejected claims or delays in processing claims or
remittances. By making timely adjustments in your spending or billing, you
may be able to counter cash shortfalls before they become serious problems.
Strive for Faster Collections
Fixed costs and the need to retain and compensate your providers and support
staff can limit your cost-cutting flexibility. So, when cash flow gaps
develop, improving performance on the revenue side is often an easier and
better strategy than cost cutting. You might require or reemphasize the
collection of patient co-pays, deductibles and prepays at the time of
service. It’s easy for two to three months to pass prior to the collection
of these point-of-service fees. Other possibilities: Speed up claims
processing by requiring the submission of clean claims within a certain
number of days after a service is rendered, be sure your staff is promptly
processing and appealing or resolving all denials of claims and consider
giving fewer notices before delinquent accounts are sent to a collection
agency.
We Can Help
Please call a member of
Somerset's Health Care Team
if you are concerned about your cash flow. We can help you measure and
improve your practice’s financial performance.
Health Care Commentaries is
provided by Somerset’s
Health Care Team
for our clients and other interested persons upon request. Since
technical information is presented in generalized fashion, no final
conclusion on these topics should be made without further review. For
additional information on the issues discussed, please contact a member
of our Health Care Team. This
document is not intended or written to be used, and cannot be used, for
the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
.jpg)