Improving Medical Practice Cash Flow

June 2, 2014
Ed Rabinowitz

Although cash flow is the lifeline of a medical practice, most medical practices usually miss opportunities to improve their cash flow management.

Cash flow is the lifeline of a medical practice. Stephanie Davis, a senior consultant with Halley Consulting Group, acknowledges as much. Nevertheless, she believes that when it comes to cash flow management, medical practices only fair mediocre.

“There are lots of opportunities,” Davis says. “When I go to a practice—whether it’s hospital owned or independent—there are opportunities I see from the time I walk in the door. It never ceases to amaze me.”

It starts with the patient

Davis points out patients have a much higher out-of-pocket expense today than in previous years. And every year the patient’s financial responsibility increases. She says practices that have a really good handle on cash flow and cash flow management communicate well in advance with their patients.

For example, do patients know and understand what their financial responsibility is for service prior to treatment?

“Insurance has changed,” Davis says. “It’s more than just a $5 co-pay when patients come for their visit. We have high-deductible plans, we have lots of coinsurance that’s owed, and there are tools that physicians can use to do eligibility checks that will better educate the physician and therefore better prepare the patient for what their financial responsibilities are when they come to that practice. I think making those expectations clear and consistent for your patient in general is such a positive thing.”

Despite how obvious that would seem, Davis says she meets with many physician groups that do not have a strong financial policy or strong communication with patients regarding financial requirements. Some of those physicians, she explains, say they want to focus on patient care and not bring the financial topic to the forefront. But what happens then, she points out, is patients often receive an unpleasant surprise.

“Patients receive their care, and then all of a sudden on the back end they’re getting some crazy bill from the billing office, and they’re trying to figure out why do they owe that amount?” Davis says.

The financial health of the patient is just as important as the care delivers, she says, and addressing both requires communication. When the physician engages with the patient, he or she is more knowledgeable and prepared for the balance.

Accounts receivable financing

One strategy for improving medical practice cash flow that Davis is not a fan of is accounts receivable financing. While the strategy was fairly popular 20 years ago, she doesn’t believe it will be successful going forward because payment models have changed and continue to change.

“More value-based payment methodology is being used, so I can’t believe that financing that account for people is going to ring true,” Davis says. “And when you look at the healthcare trends with payment being more patient responsibility, patient liability, those are things that aren’t going to be applicable in a financing model.”

She also explains that accounts receivable financing is a model that, once in, is very difficult to exit. Many lenders require payments from Medicare or Medicaid to be paid directly to them to cover the debt, leaving little for the practice. Once in the cycle, it’s difficult for practices to recover and re-establish themselves.

“You can put business agreements in place, but given the state of patient responsibility today, I don’t see [accounts receivable financing] as a viable option moving forward,” Davis says.

Examine payer relationships

A better option for cash flow management is close examination of payer relationships. Davis says she has visited many physician groups in different markets, and all too often those groups have not sat down and renegotiated reimbursement contracts with their managed care payers. And when practices are reimbursed, are they collecting what they should? Davis stresses that it’s critical to validate that practices are being reimbursed as they should.

She adds that it’s vital to have well-educated, well-trained staff working on the front line. Staff that does not possess the necessary skill set can negatively impact cash flow, such as delaying payment from a payer due to registration or referral issues.

“We’ll pay a lower wage to that front desk staff and, in the same breath, we’re putting all of this expense on the back end—trying to correct errors, trying to fix claims, trying to figure out why our accounts receivable looks the way it does,” Davis says. “But we’re not bringing in the caliber of person or giving that individual the training and tools they need to be successful to drive the revenue cycle.”