The day has finally come. You’ve decided to open your own practice. But before you do, consider the financial steps necessary to ensure a thriving practice.
You wouldn’t run a marathon without creating and sticking to a training program. Forgo one and you won’t have the endurance to make it to the finish line. So why would you dive headlong into opening a medical practice without fully understanding all of its financial aspects? The following strategies will help you formulate a plan and gain a clear picture of what a medical practice costs to open and operate.
Enlist the expertise of an accountant specializing in health care
An experienced health care accountant and consultant can save you time, money and headaches. When hiring one, make sure he or she is supremely organized. A good accountant will play a key role in advising you on budgeting, managing operating costs and tracking cash flow, as well as helping to minimize taxes and preparing your income tax returns. It is critical that your accountant keeps you financially solvent or you’ll be out of business in no time.
He or she should be proactive, responsive and experienced in health care. Furthermore, they should have knowledge of laws and regulations that will affect your practice such as HIPPA, employment law, as well as federal, state and local tax laws.
Streamline and follow meticulous accounting practices
It is imperative that you streamline your accounting functions and create a system conducive to ensuring that all your t’s are crossed and your i’s are dotted. When you decide to hire an accountant, the following reports will become staples in your accounting processes; helping you manage expenses, ensure cash flow, spot trends and plan your future:
Income Statement (Profit and Loss)
This report shows what you have earned and what you have spent. It will help you keep expenses in check, identify where you are losing money and where you are most profitable, offer a clear picture of your loan attractiveness for banks and other creditors, in addition to facilitate the preparation of your income tax return.
This report shows what your practice owns (assets) and what it owes (liabilities). It projects your practice’s overall financial health and is a good barometer of how well your practice would rebound from a setback. The greater the assets are above the liabilities the better, as the difference between the two is your practice’s equity.
Read the fine print before signing on the dotted line
Whether you purchase your office building outright, lease the property or buy a practice from a retiring physician, understand all of the details in the agreement before you sign. Know the local zoning ordinances, what (if any) construction must be done to the space and consider the medical equipment you’ll need. Also, consider if you are penalized for breaking the lease and whether there is ample parking for patients.
Overlooking these areas or not giving enough forethought to them could end up costing money and causing stress for you and your practice. Prior to purchasing a building for your practice or leasing a space, run through the numbers with your accountant to determine the patient volume the office can handle. Patient volume is an integral piece in preparing your budget. Additionally, you must factor in the extra space needed for administrative staff and equipment.
Allocate funds for office equipment and furniture
Now that you’ve selected your space, you need to ensure that you have the funds for the necessary office and medical equipment/furniture. Prices for medical equipment have grown exponentially over the last decade. Items such as lasers, MRIs and X-RAY equipment can blow a practice’s budget quickly. This line item should be determined well before you shop for your office space.
Negotiate profitable contracts with insurance companies
Maximum reimbursement from health insurance companies is necessary for the financial health of your practice. Perform your due diligence. Research how many other practitioners in your specialty the insurance company has on its panel and how many members they have in your area. Compare reimbursements from other insurance companies. These factors can affect the degree of leverage you have in negotiating a profitable contract.
Select the right medical billing company
Dealing with insurance reimbursement is time consuming and complicated. Partnering with a good billing company can provide benefits much greater than the costs. The billing company should know and understand the relationship between your practice and the insurance companies. They should be able to help you with your contract negotiations and be familiar with all of the carriers in your geographic area. Get references.
Start your practice with a good EHR system
Electronic Health Records (EHR) are essential in today’s technology driven environment. Your EHR system should be integrated with your billing system to facilitate the electronic payment process which can help improve cash flow by reducing accounts receivable.
Make sure you have adequate insurance
In today’s highly litigious society, one judgment against your practice can result in the loss of your business. Malpractice insurance can cover your legal representation for medically related actions that patients bring against your practice or you. Insurance is also available for theft, loss or accidental transmission of a patient’s electronic information.
Moreover, you will need insurance related to your employees including workers’ compensation, health insurance and employment liability insurance which protects your practice from wrongful termination suits, wage/hour disputes, harassment, discrimination, and similar employment laws. Lastly, do not forget general liability and property insurance.
Setting up a medical practice can be daunting. However, with the right financial planning you will be in a strong position to focus on what you do best — taking care of your patients — without sacrificing the bottom line.
Brian Bastis, CPA, is a partner at Ryan & Wetmore, PC. He is a past president of the National CPA Health Care Advisors Association (HCAA) and remains active in other aspects of the organization. The company specializes in accounting and consulting services for health care organizations, real estate firms, construction companies, government contractors, and also offers tax ligation and litigation support services. The firm, with offices in Silver Spring and Frederick, Maryland, as well as Vienna, Virginia, is a member of Health Care Advisors Association (HCAA), Medical Group Management Association (MGMA), American Institute of Certified Public Accountants (AICPA) and Maryland Institute of Certified Public Accountants (MACPA). Mr. Bastis may be contacted at 301-668-7860 or firstname.lastname@example.org.
Mr. Bastis is a proud member of the National CPA Health Care Advisors Association. HCAA is a nationwide network of CPA firms devoted to serving the health care industry. Members provide proactive solutions to the accounting needs of physicians and physician groups. For more information contact the HCAA at email@example.com.