Do you have a good understanding of practice finances?
One of the most startling findings to me in the National Demonstration Project (NDP) was that many of the practices did not have a good understanding of their own practice finances. In fact, at one point in the study, investigators gave up asking for balance sheets or income and expense statements as no coherent information could be assembled from the information. The information was available, just not in an easily understood form.
I have long argued that physicians (we’ll focus on family physicians here) really need business and management training. Many physicians realize this and go on to get a Master of Medical Management or Master of Business Administration, but it really doesn’t take a whole other degree to gain sound business basics in a practice. Physicians can certainly hire a manager or accountant to put a plan together and monitor that plan. However, it behooves the physician to understand and watch the plan as well.
I am lucky on this point. I work for a multi-specialty group essentially as an employed physician, and the company forms, accounts and adjusts my business plan. I've always felt a responsibility to learn about it, however, because working for a larger company can put you in a vulnerable position if you do not understand practice finances.
If you are not sure whether you have a handle on your practice finances, ask yourself the following questions: Do you have a plan? And can you produce an income and expense sheet monthly?
A simple plan starts with: What do you hope to accomplish financially in your practice? Is there a certain amount of money you expect to make each month? How much of his money is for your salary? How much is for your staff? Are there capital expenses you need to fund? Asking these starter questions can help you identify how much help you will need and from whom.
Here are some further tips to get you started in understanding your practices finances:
1. Start collecting copies of bills your office is paying.
2. Hire an office manager with some business experience.
3. Review the business aspects of the office on a regular basis, at least quarterly.
4. Methodically review collection rates from payers (monthly collections divided by charges).
5. Evaluate vendor costs for supplies on a regular basis.
6. Stock medical supplies on a par schedule (i.e., a standard monthly amount).
7. Re-evaluate duties, consolidate and promote staff.
A simple monthly income and expense statement looks as follows:
| Gross Revenues||$36,000||$40,000||($4,000)|
| Revenue and Deductions|
| Bad Debt||$1,000||$1,000||0|
| Net Operating Revenue||$34,000||$38,000||($4,000) |
| Overhead Expenses|
| Salaries - Staff||$2,000||$2,200||($200)|
| Benefits - Staff||$800||$800||0|
| Med/Surg Supplies||$3,000||$2,500||$500|
| Other Supplies||$2,500||$3,000||($500)|
| Purchased Services||$1,000||$1,500||($500)|
| Total Operating Expenses||$15,000||$18,000||($3,000)|
| Available for Compensation||$19,000||$20,000||($1,000)|
The simplest expense sheet takes the revenue coming in and subtracts expenses, with the difference remaining as physician compensation. Obviously, compensation models are often much more complex than this. However, having an understanding of practice finances on this basic level is crucial. Practices should compare year-to-year costs, the percentage of total expenses for each overhead category, and actual costs versus budgeted costs to stay on track. Having an expense sheet also helps you identify the largest portion of your cost structure. You can also calculate your average income per visit (revenue divided by visits) and then use that figure to analyze your collections and the rates stated in your contracts. Knowing these types of numbers will become more and more important in our near future when negotiating for positions and with payers.
Here are some additional resources:
Running a Practice (AAFP resources)
Financial Management Tools (from the FPM Toolbox)
“Vital Signs” for Assessing Your Practice's Financial Health (FPM, Nov/Dec 2009)
Peer-to-peer learning was a major benefit of participating in the National Demonstration
Project (NDP). On the facilitated side, the study was set up with three groups of six practices. Each group had a facilitator who conducted monthly conference calls, with topics ranging from a review of technology vendors to emotional support in going through changes. A Balint/book review group was spun off from our group, where we reviewed and discussed books like Better by Atul Gawande and How Doctors Think by Jerome Groopman. This format allowed members from each of the six practices to have tight personal relationships with others who were going through the same transformative processes.
We also attended several learning collaboratives, where we heard from national experts on topics such as open access, implementing an EHR system and group visits. Hearing from the experts was valuable, but so was hearing from one other. At one collaborative, for example, we heard an impromptu presentation by one practice that had achieved the best cycle times (i.e., the time it takes a patient to complete his or her visit at the office), and we naturally wanted to hear details on how they did it. Flexibility in the schedule allowed for this extremely helpful learning to occur.
Peer-to-peer learning continued after the NDP closed, with the Touchstone group continuing monthly calls for about one year and having two annual “reunion” collaboratives thus far. These continue to be wonderful opportunities for networking and ongoing assistance in navigating the medical home. Many of the practices are now embarking on NCQA recognition and learning from NDP peers on how to most efficiently do this.
One of the best peer learning tools is Delta Exchange. This networking web site launched by TransforMed now has hundreds of members, from physicians to nurses, consultants and practice managers. Members can share documents, read blogs and articles, and post questions to the group. Just last week, in going through the NCQA application process, our practice needed a one-page handout to inform patients about the medical home. Instead of reinventing the wheel, I went to Delta Exchange and “asked” the group if anyone already had such a document. That same day, I had three examples. This type of sharing is invaluable. It helps the spread of ideas and saves time in busy offices.
Clearly new pilots and experiments in the medical home arena must have peer-to-peer learning as a component of the project. Unfortunately, many states prohibit this type of shared learning due to legislative prohibition of collective bargaining. Family physicians need to be aware of these restrictions especially when discussing financial arrangements to fund medical home initiatives. Several pilots have been successful in getting legislative “safe harbors” to allow such exchange of information. (See http://www.coloradoguidelines.org/pcmh/conveningorg.asp.)
Think back to medical school where a peer group was so helpful to maintaining your sanity. Study groups, late night “talks” and social events kept us going through those four years. Hopefully most of our lives have settled down now. However, the type of change required to transform the typical family medicine practice into a medical home reminds me of those fours years. It was invaluable to have my “buddies” in the form of other practice members helping me through the process.
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About the Author
Melissa Gerdes, MD, is a family physician practicing at Methodist Family Health Center – South Arlington in Arlington, Texas, and former president of the Texas Academy of Family Physicians.
Note: This blog is no longer updated; this is archived content.
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