Still a Long Way to Go for Practice Finances

While physician practices have made a lot of progress in managing costs, typically, the billing, collections and accounts receivable processes haven't changed much over the years. Here's how you can update these issues.

I have been practicing as a Certified Public Accountant since 1979. The majority of my practice has been devoted to health care, specifically small- and medium-sized physician practices. Over the years, I have witnessed many changes in the way we advise and consult with our physician practices. While much progress has been made, there are still some lingering issues that seem to remain the same today as they did back in my early years.

When I first started consulting with medical practices, there were revolutionary ideas used by consultants and accountants such as “managing your supply cost.” Someone even came up with the ingenious idea of “getting multiple quotes for major purchases.”

Then as things progressed, we suggested our clients manage overtime cost and negotiate the terms of professional office building leases. Some of the more progressive practices actually looked at their overhead as a percentage of collections and charges and their days in accounts receivable at least once a year! These were some of the more progressive practices 30 years ago.

Now in 2013, many of those issues have become standard operating procedures for most of the small- and medium-sized medical practices all over the country. Practices have learned to watch their expenditures, control their medical supply costs, and manage their payroll costs to some degree with very few exceptions.

However, based on my experience, the billing, collection process and management of accounts receivable has not progressed in the same manner. Recently, I was in one of my physician practice client’s office and I noticed they had kept some old accounts receivable ledgers from many years ago. A handwritten entry in this ledger dated February 1946 was as follows:

Cesarean Section Spinal — 1 Hour — $25.00

Interestingly, in January 1952 this group became very sophisticated and began typing their invoices on ledger sheets. The typed entry was as follows:

Splenectomy — Ether — S.P. Induction — $35.00

I could just picture this practice handwriting this bill, or even typing it on an old typewriter, and mailing it to the patient in hopes of receiving payment. They would probably continue mailing that bill every 30, 60, 90 days or so until payment was received or they probably just got tired of mailing it and forgot about it all together. Postage stamps cost 3 cents during that time. Very few patients appeared to have any health insurance at all.

That was certainly a different time, where accounting was performed with a handwritten pen or typewriter and you actually had to manually apply stamps and seal the envelopes. While that process has been improved, I am not so sure that the management of the revenue cycle has progressed so rapidly in many cases.

The physician owners of a practice have to become involved on a monthly basis regarding the activity of the revenue cycle and the management of the accounts receivable.

What I am suggesting is nothing new. You and your staff members have heard these suggestions from many consultants and accountants for as long as you have been in practice, but very few physicians have applied these suggestions on a consistent basis.

To put into practice these oldies but goodies, your practice should at least provide the below information on a monthly basis. The physician should devote one hour to go over this information with the staff by asking questions and understanding the differences. This will be the most profitable hour the physician could ever spend.

You should be looking at the following:

• Charges, collections, contractual adjustments, bad debts and the gross collection percentage. This should be a 24-month look back with explanations of any variances over 5%.

• A review of the detailed accounts receivable aging for the current and prior 23 months compared to a pre-set budget by the physician owners.

• Front desk collections — what percentage is the front desk capturing of the total amounts due upon an office visit.

• Dollar amount of rejected or returned claims for the past 24 months with an explanation of cause and action to prevent in the future.

• Detail analysis of the collection agency activity including past collections, accounts that have been added for the current month.

• Commit to significant coding training including an outside review by an expert.

Try this for six months and you will find it makes a difference in your practice’s collections and overall profitability. I would also suggest that you have your certified public accountant review the schedules and calculations for accuracy each year. These simple steps are very old school but will grow your bottom line.

Hal “Buzz” Coons, III is a shareholder/director in the Birmingham, Ala. accounting firm of Pearce, Bevill, Leesburg, Moore, P.C. www.pearcebevill.com.

Pearce, Bevill, Leesburg, Moore, P.C. is a proud member of the National CPA Health Care Advisors Association (HCAA). 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 HCAA at info@HCAA.com.