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Chapter 1---ACCOUNTING BASICS
Introduction
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INTRODUCTION
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Why is understanding financial concepts important?
ACCOUNTING TERMS
When you are involved with the management of a business, you must become familiar with accounting terms and forms in order to better understand your finances. By understanding basic terminology, you can better understand what your accountant is talking about, and you can make informed business decisions.
A few common but necessary accounting terms are listed below.
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ACCOUNTING METHODS
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Who
uses financial statements?
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Your accountant can assist you in choosing a methodology for your practice. For simplicity in accounting, in light of the steady nature of medical practice, the cash method is recommended. THE ACCOUNTING CYCLE |
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Here's how a simple accounting cycle would work:
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Chapter 2---
MAXIMIZING YOUR
PRACTICE REVENUE
Many factors and variables work together to either make a practice a financial success or a financial failure.
ANALYZING YOUR PRACTICE ACCOUNTS RECEIVABLE
SITUATION
Accounts receivable is the term for all the funds that are due from
patients to your office. A goal of every practice is to keep cash income high and accounts
receivable as low as possible as well as collected in a timely manner.
| HARD
FACT # 1
THE OLDER ACCOUNTS GET, THE HARDER THEY ARE TO COLLECT |
The Costs of Accounts Receivable |
However, in today's practice environment, it's nearly impossible to collect in full on every patient that comes in the door:
| HARD
FACT # 2 THE COSTS OF EXTENDING CREDIT AND PROCESSING CLAIMS ARE SUBSTANTIAL. |
The costs of pursuing, processing, documenting, and collecting accounts receivable include accounting equipment, such as accounting computers, paper, phone lines and telephone expenses, postage, electricity, and other supplies, as well as payroll-related expenses used on staff toiling to collect on these accounts. You may also need to contract with a collection agency or other collection service to pursue payment on more stubborn accounts. As accounts grow older and remain unpaid, the likelihood increases that they will never be paid at all. When you don't receive payment in full on the day of service, you stand a chance that you will never see the money at all. |
Many offices have an unwritten policy, which is expected to be mutually understood among the staff. However, some of the duties and responsibilities may be vague or not universally understood. Outlining your policy for the entire staff to see more clearly delineates WHO is to do WHAT, and provides for consistent understanding among the staff. This also helps to prevent the situation of ill-feelings between one staff member who is more lenient in collections and one staff member who is more aggressive in collections.
Methods of Income Enhancement:
ASSESSING
AND REVIEWING
FEES AND CHARGES
Setting Initial Charges
There are many sources of information you can access to set your charges in the
right ballpark for your demographic location:
Setting fees that are too low can cause patients who would have tolerated a high initial fee to be dissatisfied with a rapid increase of fees.
| HARD FACT #3 |
Coding is the bottom line; it determines how well you will be paid for your work. |
Levels of service (brief, limited, intermediate, comprehensive, etc.) indicate the amount of time, effort, knowledge, and risk associated with the care given. The level assigned to a visit or encounter can't necessarily be judged ONLY by the amount of time consumed.
Charge slips and superbills should be considered "legal tender", just like cash or checks, and should be accounted for at the end of each day. That is why numbered superbills or charge slips are of help. EVERY NUMBER should be accounted for, and VOIDS should even be kept. If you have had 40 patients come in, you should have forty charge slips to back this up. If one is missing, treat it like lost money, and FIND it. There should also be documentation for all over-the-counter payments that come in, so that money cannot be "pocketed" by the staff.
A good superbill or encounter form will have as many procedures as possible listed on it---in this way, it serves as a "checklist" or "menu" for the doctor to mark his or her selections (services rendered). Also, this makes for less handwriting to "interpret".
You also need to develop a system to track services rendered OUT of the office, such as surgeries, hospital visits, house calls, emergency room visits, after-hour visits, and the like.
Before you RAISE prices, or to determine HOW MUCH to raise prices, you may need to ask yourself a few questions:
GIVING PATIENTS "BREAKS:
- Partial professional discount (use judiciously)
- Prescription or medication samples
- Educational materials (prevent costly future health problems)
- Manufacturers' coupons from pharmaceutical companies, to be used toward cost of Rx
- Lists of costs of various common medications at pharmacies in the area
- "Quantity" discounts for multiple members of a family (those with no insurance; use judiciously)
- % Discount for immediate payment
- Payment by credit card
OFFICE PROCEDURES THAT
IMPROVE CASH FLOW
PREREGISTRATION OF NEW PATIENTS
Preregistration is an important part of improving cash flow even before a service is
rendered. An efficient preregistration system helps to decrease collection problems.
A patient who finds out at the end of his visit that payment is due TODAY is less likely to pay it (or be prepared to pay it) than a patient who had advance notification of the practice's policy.
Preregistration also is an opportunity to give the patient written information about the practice and its policies. This helps to avoid many misunderstandings, including those regarding financial responsibilities.
You and your staff can work together to develop a preregistration form that will
capture all the information necessary for your office. You can also develop standard
information that should be given to the patient over the phone prior to the first visit.
Your staff should be trained to skim over these forms to be sure all necessary information
has been filled in.
A registration form should have an assignment of medical benefits clause, and a financial agreement clause, so that SOMEONE takes the responsibility for final payment on the account.
EFFECTIVE INSURANCE CLAIMS PROCEDURES
You have taken a look at your accounts receivable (moneys owed your office), and you notice that it is growing rapidly from month to month. And you curse the insurance companies... "They are so slow and inefficient!" Well, the blame doesn't necessarily belong heaped only onto the insurance company; the problem may be originating right in your own office. You need to take a critical look at your claims submission process to be sure your own procedures are not without fault.
For more information on effective claims procedures, refer to Section 2's chapter on "Patient-oriented administrative policies".)
COLLECTION PROCEDURES
What to Look For in a PATIENT ACCOUNTS MANAGER (or any person assigned to detailed
collection responsibilities).
Chapter 3---Accounts Payable
COST CONTAINMENT
Cost-containment is not a subject that can be isolated in one chapter of these materials. In every aspect of the operation of a practice, there are ways that costs can be monitored, maintained, or improved.
PURCHASING STANDARDS
WHO WILL MAKE THE DECISIONS?
Like any other function of the practice, the activity of purchasing needs a little
structure and planning in order to work optimally. In most practices, the office manager is responsible for ordering supplies to keep the
office stocked efficiently. Usually the manager will be given a dollar limit for the
purchasing of equipment ("all items over XXX dollars must be approved for purchase by
the physician in charge").
Leasing VS Buying
You and your accountant are in the best position to decide whether leasing or buying is
better for the equipment you need.
The general rule of thumb is: if you plan to use it until it falls apart or is worn out, buy it. In cases like that, buying is cheaper than leasing because the item has deductible depreciation over a period of years.
Copiers are as a rule a good thing to lease because they really take a beating in a medical office and will need to be replaced every few years.
Leasing may also be a good option if you are just starting out in practice, need equipment, and are short on capital or can't get a loan.
Read your lease agreements carefully. Watch for specific wording as to maintenance and repairs. You may be required to pay for repairs yourself, you may be required to have all repairs done by a specific party, or you may have to pay a monthly maintenance fee for the item. These additional costs may offset the apparent savings you are anticipating with the low lease payment.
Tax considerations in lease VS buy
There are tax consequences involved in paying cash for equipment VS leasing. Medical
equipment is as a rule 100% depreciable over five years, and furniture is 100% depreciable
over a course of seven years. In order to take advantage of the full available
depreciation for purchases of office equipment, medical equipment, or furniture, the total
purchase prices can't exceed $200,000, and the items must be on your premises and in
active use before the end of your fiscal tax year.
With a lease, you can't depreciate anything. You can deduct lease payments themselves.
If you intend to lease an item with an option to buy, be sure the lease contracts and the purchase contracts are separate, so that the IRS does not disallow the deductions you have taken for the lease payments.
INVENTORY CONTROL
Starting out you will need a small amount of many different types of things. It's the
nature of the beast for a specialty that treats such a variety of conditions. Space
considerations are usually critical in a family practice setting
Quantity Discounts
Some suppliers will allow you to buy a large order at a quantity discount, pay in
installments, but only deliver it little by little, so your space is not tied up.
Quantity discounts are fine if you have obtained an exceptional price, but it is not a good deal if you have nowhere to store the items, or it will take YEARS for your practice to use them all, or if you have spent large amounts of cash that you might need to use elsewhere.
Monitoring
Someone needs to be in charge of controlling inventory. Invoices need to be checked to
ensure that all items are received, with terms as promised and prices as quoted.
By keeping track of WARRANTIES, contracts, and agreements, terms can be carried out to the fullest, thus alleviating some possible unnecessary costs. Scheduled maintenance and repairs on equipment and machinery greatly help to extend the value and useful life of the item.
CHOOSING YOUR SUPPLIERS
The Fine Art of Negotiation and Recognizing a Good Price
CONTROLLING CLINICAL EXPENSES
SURGICAL INSTRUMENTS
Surgical instruments come in three grades and three price ranges.
GRADE OF INSTRUMENT |
Pakistan Grade |
American Grade |
German Grade |
Quality |
poor |
moderate |
excellent |
Lifespan/multiple use |
short |
moderate |
long |
Purchase cost |
inexpensive |
moderate |
costly |
If an instrument is going to be used rarely or sporadically, Pakistan grade may be sufficient. If an instrument is going to be used frequently and with great precision, a German grade would be an appropriate choice.
Instrument and Equipment Repairs
Some surgical instruments can also be repaired, sharpened, or realigned, often for a
smaller cost than replacement.
Your medical supply company may be able to train your staff regarding the proper care and cleaning of instruments, or may be able to bring a salesperson or literature from the instrument manufacturer to teach proper use and care of surgical instruments.
Hospitals often contract with "instrument maintenance services" to maintain and repair their surgical instruments. Check to see if your practice can bring its instruments to the hospital on the same day, to be sharpened, repaired, or aligned with the rest. Just be sure your instruments are adequately marked, so you get them all back.
Blood pressure cuffs and stethoscopes can also be repaired piece by piece, usually at less cost than replacing the entire item. As with all equipment, check to see if a guarantee exists before paying outright for repairs.
MEDICAL SUPPLIES
Some sources of medical supplies are:
Name Brand VS Generic or "House" Brand
Many suppliers offer several grades of brands of the same type of item. Medical supplies
are often like medications---generic and brand name may be exactly the same or similar
enough. There is not much difference between a generic cotton ball and a name-brand cotton
ball, so why pay the higher price? If quality and availability are equivalent, consider
the cost savings of an alternate brand.
Disposables VS Reusables
The rule of thumb is that disposables can save you money, but only if you use enough of
the item to buy it in large quantity. Most doctors use disposable needles but still find a
linen service more economical than throwaway linens. Another consideration is whether you
have enough storage space to stock up when the price is right.
With some disposables, they don't always cost less, but they do save time, for example, the cost and time used in autoclaving.
Medicines and Immunizations
It is unwise to buy more medicines than you can use before the expiration date, unless you
have an agreement with the company to give credit for expired unused meds returned. Also,
keep checking the invoices that come with injectibles---as the price goes up, you may need
to adjust the fee charged to patients. Immunizations are a case in point. Comparison
shopping is definitely in order. If you find a lower priced item than what you are using
that works just as well, make the switch and evaluate.
Immunizations and other medications can sometimes be purchased through hospital discounts or physician purchasing pools, or other group-buying plans at substantial savings. Manufacturers often offer direct-purchase plans.
Suppliers often are willing to negotiate discounts on flu vaccine if you place your order well before the flu season begins, and may even postpone your payment until after the season is over. Some may supply syringes at no cost.
As a rule, one of the most costly places from which to buy medications is a pharmacy. This also applies to general medical supplies.
LABORATORY SERVICES
With the advent of "instant" lab testing and with office size laboratory
equipment, smaller amounts of lab work are needing to be referred out of the office.
However, this requires your in-office laboratory to be assigned a CLIA level of laboratory
assignment that may require registration fees, inspections, quality documentation, and
specialized staff.
Many offices simply write down laboratory orders and send the patient off to a lab and find this to be more cost-effective than having an in-house lab or hospital to have the work done. However, this is inconvenient for the patient, and there is no guarantee that the patient will go promptly (or at all) to have the work done.
An option that is very popular is to have the labwork drawn or collected in-office, and have the laboratory come and get the work. This type of service greatly speeds report turnaround time, and decreases inconvenience to the patient. This also relays to the patient that "my doctor is doing something about my medical problem RIGHT NOW." This would require certain people on your staff to become proficient in phlebotomy. Your local hospital or lab may have this training service.
It is necessary to comparison shop for price, convenience, service, and variety of tests available.
If you currently have a computer in your office, or have the wiring to accommodate a printer, some labs will provide a printer in your office that will print reports directly to your office from the laboratory. Some labs provide this service at no extra cost, others charge a nominal monthly fee.
When considering a service with the hospital your admit to, see if there are any special rates for doctors with privileges. NEGOTIATE A DISCOUNT. If they want your volume of business enough, they will allow a discount.
Ask for references---check with practices that use the same services, and find out what their complaints and praises are.
SPECIALTY MEDICAL SERVICES
There are several ways of getting referral and diagnostic services into your office. You
can get specialty exams and services in your office either by buying the equipment
outright or by contracting to have the services brought in on a scheduled basis.
When considering bringing such services IN to your practice, you need to consider how often you are referring these services OUT at present. If you are referring approximately one Holter Monitor out per month, it would hardly be worth your while to buy a Holter OR contract to have one brought in. However, if you are referring approximately 20 patients OUT per week to have diagnostic ultrasounds, it might make sense to have ultrasound services available IN your office, both for speed of report AND for patient convenience.
Having specialty services is helpful also for those patients who live far from the hospital or don't like the hassle of going into the hospital for outpatient services. And of course, some people have a fear of going to the hospital for ANYTHING.
Portable Contracted Services
When considering having portable services brought in, once again go to the
experts---either techs, radiologists, or both. See if the quality of the finished films
meet the quality of films you get from your current referral source.
With portable services, you can have the convenience of in-house services without the capital outlay for equipment. There are several considerations regarding portable services:
Always check with the Better Business Bureau before agreeing to such services, and check the references of practices already using this service.
MISCELLANEOUS SERVICES
LAUNDRY SERVICES
With the advent of disposable gowns and sheets, very few offices use laundry services
anymore. However, some offices still use laundry services for gowns, pillowcases, towels,
uniforms, or lab coats. Many practices have agreements with local dry cleaners who are
willing to clean employees' uniforms which have been soiled with blood or other fluids
while being worn on the job
Local Laundries and Dry Cleaners
Local dry cleaners and laundries can supply this service for you, but may not have the
capability to pick up and deliver---ask if this service is provided. Ask for references.
Find out if their services can be provided on a scheduled basis, and find out what the
usual turnaround time would be. Most of these services do not provide the linen
materials---they will just launder and press what your practice already has.
Linen Services
There are also larger companies who specialize in industrial laundry services, and who
also supply the actual linens. These companies will normally pick up and deliver on a
regularly scheduled basis, and can also provide such services as clean door mats and the
like. The advantage to such purchase is that you need not buy the actual linens, and need
not replace worn or stained linens. The disadvantage, of course, is the cost.
Again, and as always, comparison shopping is the key. Ask for a written proposal for services, and check references. Ask to see samples of the actual linens that would be provided. Ask what the policy would be regarding "stat" supplies should you run out before your scheduled delivery date. Ask if hampers or bags for dirty linens are provided. Ask if they will launder and press personal items such as lab coats.
PROFESSIONAL EXPENSES
LEGAL AND ACCOUNTING---See Week One's materials
FINANCIAL PLANNING---See chapter one of this section
INSURANCE
Insurance coverage is a very broad subject. This section is intended to give you a
summarized introduction to various types of coverage that might be needed in a practice.
ADVERTISING---see Section 4, Marketing
RENT AND BUILDING LEASES---see Section 2, Facility Operations.
BUILDING AND FACILITY---see Section 2, Clinical and Facility Management
CAPITAL EQUIPMENT
Considerations in the Purchase of Capital Equipment:
Used Equipment
Used equipment, in good condition, can help a practice to get started with minimal initial
expense. Examining room tables are an example of an item that can last 15-20 years if
carefully maintained, and can be purchased used at a fraction of the cost of a new table.
To find such equipment and furniture:
Even if the tables have torn or dirty upholstery, they can be reupholstered, at minimal cost, to match your office's decor, and still be less costly than a brand new table.
Unless the furniture is in extremely good repair and style, you would probably want to avoid putting used furniture in your waiting room, since this area is where patients will make a first impression of the office.
Rebuilt equipment
Rebuild equipment is a variation of used equipment, where critical mechanical parts have
been replaced to make the item work like new. Leased equipment is sometimes returned on
trade-in and is rebuilt before resale is attempted. Substantial savings can be obtained in
the purchase of such equipment. A warranty or other maintenance agreement should be
included in the purchase agreement to ensure continued function of the equipment.
Damaged (scratch and dent) equipment
So there is a small scratch on the side of an x-ray machine. May not be a big deal to you,
but the vendor or manufacturer may have a hard time finding a buyer for the item. Great
savings can be realized in purchasing items that have slight flaws, dents, scratches, or
minor imperfections. Some of these flaws can be easily camouflaged or repaired, and such
equipment that is completely functional may be discounted dramatically. Such savings may
allow you to buy items you might not otherwise be able to afford.
To locate such items, you may have to check with the vendor, or you may need to call the manufacturer directly. It never hurts to ask if such items are available.
OFFICE/ADMINISTRATIVE SERVICES AND COSTS
TRANSCRIPTION AND SECRETARIAL SERVICES
When your practice is first starting out, your volume may be so light that you can easily
write out each patient's chart and can dictate correspondence to your regular staff.
However, as your practice grows, you may find you are no longer able to keep up with your charting or your correspondence. A secretary or transcriptionist may be the answer.
Basically, there are two ways you can go with this--in-house services or independently contracted services.
In-house Services
In-house services require you to add to your staff. This means you must have a place for
the person to do their work, and must stock equipment and supplies for this person. This
person could be full- or part-time, depending on your practice's needs. This person would
be available also to do spur-of-the-moment work, and could keep all of your typewritten
needs fairly current. The disadvantage of this situation, besides space and equipment
needs, is that you must add this person FULLY to your payroll, which means benefits,
salary, workers' comp, FICA, and a host of other expenses.
Technology is also in process to allow for voice or computer processing of transcription, requiring little human intervention to create transcription.
Independent Contractors
The alternate route is to hire a person as an independent contractor to do this work. This
person could either come into the office at regular intervals and do the work, or could
take the work home and return it regularly. If you consider this type of service, there
are items that be included in a proposal:
As with any other type of service, comparison shop, ask for references, ask for samples of work, and demand confidentiality (particularly important if this person lives within the community of your practice). Ask what reference materials the person uses for correctness in spelling (regular dictionary, medical dictionary, PDR). Find out whether your dictating materials are compatible with the equipment used by the transcriptionist.
You can find transcription services by checking with other doctors, checking the want ads, or checking with employment agencies.
MAGAZINE/PERIODICAL EXPENSE
Free subscription services are often supplied to offices by various organizations. These
magazines usually come in a plastic binder that lists the name of the donor.
TELEPHONE
You can link into access labwork and other data on your patients. This will save you time
and phone calls.
Buy rather than lease your phone system. The system pay for itself within a short period of time in savings.
Shop for long distance services and features such as extended dialing area.
By having you and your staff answer as many questions as possible with the patient present, your staff should not have as many telephone calls to return. A well-written patient booklet should answer many of the patients' most common questions.
PRINTING SERVICES---see Section 4, "Marketing Your Practice" about "Printed Materials".
ANSWERING/MESSAGE SERVICES (AND BEEPERS)
Most offices also use an answering machine connected to the phone to handle routine or
non-emergency calls that do not require immediate action. In this way, the physician need
not be contacted for minor messages.
You will need to check what local resources for message forwarding are available. There are several basic types of systems.
There are varying costs associated with messaging services, and it is best to do comparative shopping as well as check references of current customers.
If you are using an answering service, it is absolutely necessary that you find one that is both trustworthy, accurate, AND courteous. You and your staff can treat your patients like kings and queens, but you can lose patients with a gruff or rude answering service. If time allows, ask if you can sit in and listen to how the service answers calls. Or call the answering service, do not identify yourself immediately, and judge the response.
Chapter 4---BUDGETING AND CASH DISBURSEMENTS
BUDGETING
The majority of physicians don't like the word budget. The word budget brings to mind a
figure written in stone that cannot be changed.
Budgeting is simply mapping out your finances to keep ahead of inflation.
Budgeting helps you to prepare for IRS changes, Medicare changes, and other changes that affect cash inflow and outflow. Planning ahead for inflation, competition, and reimbursement reductions can give you an advantage. By budgeting, you can allot for major expenditures at appropriate times, and keep your inflow of cash higher than your outflow.
Projecting income and expenses can be time consuming and tedious. But if you have a plan, the whole procedure is not all that burdensome.
Developing a Practice Budget
Step One---Review Expenses and Income
The first steps in preparing a WORKABLE budget are:
You will need at least 12 months worth of figures to calculate this. By doing this, you will be able to spread out over an entire year the incomes and expenses that may occur less or more frequently than once a month. With these figures, you will also be able to project what the next year will be like, and plan accordingly.
Your local Chamber of Commerce can assist you with determining/projecting how much price increases will be on the average for the upcoming year. This will help you, for example, to determine how much more your medical supplies might cost NEXT year.
Basic Expenses to Consider:
- Salaries, including all tax and social security withholdings.
- Rent/Lease of building, including all associated expenses (if applicable) such as repairs, upkeep, snow plowing, cleaning, trash removal.
- Utilities, including phone, heat, electrical, sewer, water.
- Drugs, medical, and laboratory supplies.
- Notes payable, installments, or lease payments on equipment.
- Car expenses, including installment/lease payments, gas, and repairs (keep accurate track of mileage)
- Dues and meetings, including hospital privilege fees, medical societies, AAFP, etc.
- Insurance, including malpractice, rental, car, disability, hospitalization.
- Business taxes, including Workers Comp, Bureau of Unemployment, and social security.
- Subscriptions to journals, magazines, and study programs.
- Business equipment and office supplies, including equipment, stamps, forms, printing, chart supplies, etc.
- Laundry (if applicable) of gowns, sheets, lab coats, etc.
This is information that a practice needs to know in order to make major decisions about the practice. Analyzing your overhead helps to cut unnecessary costs, decide whether to add more staff/services/equipment or enlarge your facility, or reduce staffing/services/facilities.
Even if you do not anticipate any major changes in your practice, it's still a good idea to know where you stand regarding income VS expense. Once you collect the necessary information and organize your information, you are well on your way to intelligent business planning.
Step Two---Determine fixed VS variable expenses,
The next step is to determine what costs are fixed and what costs are variable. To do
this, you will need to know what your practice spent on items THIS year and LAST year
(this is why many practices do their budget planning at the end of December or the
beginning of January).
Step Three---Assess Incoming Funds, Fixed VS Variable
Massive changes in insurance coding or Medicare policies can temporarily slow your income.
Keep up on your reading, beware of changes slated for the future, and prepare for slowed
income. If you receive your money before you have to pay your bills, you can collect
interest.
When you add a physician or make some kind of an investment such as equipment or facility expansion, don't expect immediate increases in cash inflow. You will most likely see a decline in income at first. Sit tight and wait for the investment to pay off.
Have a line of credit available for you at your bank, for emergencies.
Step Four---Calculate Expenses as a % of INCOMING MONEY
Say for example, your records indicate that your gross receipts for last year were
$100,000, and you spent $25,000 on medical supplies during that year. That means that
medical supplies consumed 25% of your gross receipts. How do you know whether 25% is a
reasonable percentage? 25% might be reasonable for a Family Practice, where you must stock
supplies for a myriad of diagnoses, but 25% might be way out of line for a dermatologist.
The Society of Medical-Dental Management Consultants, the American Medical Association, Medical Economics Press, the American Group Practice Association, and the Medical Group Management Association all have figures available listing what percentages of gross receipts for certain expenses are reasonable for your specialty. These quotes are also listed by region, because expenses vary from region to region.
Step Five---Plot out tentative expenses and income for the coming year, month by
month, allowing for inflation and increased patient volume (which will increase both
income AND expenses).
By studying expenses and income and planning for their future use, you will be less likely
to be in a bind, and can make adjustments for time periods when you anticipate cash will
be tight.
CASH DISBURSEMENTS AND FINANCIAL TRACKING
Divide obligations (bills) into three broad categories:
Pay bills when due or just before. Don't pay way ahead unless there is some kind of a prepayment discount involved. Hold on to the money and let it collect interest before disbursing it.
Chapter 5---OBTAINING FINANCING
The costs of starting up a practice from scratch are staggering. Although ballpark figures vary from specialty to specialty and from one geographic area to another, a new physician may be facing first year start-up costs of up to $150,000---not including one cent of salary. Including a conservative first-year personal income allowance, and first-year financial needs may reach $200,000 or more. Although as a physician, you will be generating some income as your practice begins to grow, it's very unlikely that you will be able to generate this amount of working capital to cover the first year. Finding proper financing helps to meet these needs.
NEGOTIATING FINANCING
When seeking loans or other financing, always SHOP AROUND and make some comparisons. The
bank you regularly deal with may not always be able to offer you the best rate.
Conversely, if you have several existing loans or accounts with a bank, the bank may be
more willing to offer incentives to retain ALL of your business with them.
You CAN negotiate with your banker on loan treatment. Banks as a rule realize that there are few risks involved in extending a loan to a medical practice. You should be able to arrange a loan anywhere from 1% to 1.5% above the prime rate. Shop for rates. Challenge rates. Find out whether the rates are FIXED, FLOATING, or BALLOONED. You can also negotiate the TERMS of the loan. You have to ASK, because your bank won't VOLUNTARILY offer to decrease or alter terms. Don't be shy about asking. Let the bank know up front that you will be checking out other lending institutions also.
If you do not need a loan right now but anticipate needing a certain amount in the near future, ask the bank to set up a "line of credit" for you. This will guarantee a loan for you up to a certain date in the future at a pre-agreed rate for a pre-agreed amount. Check and see if any fees are involved in obtaining this line of credit.
Banks normally do not offer special terms unless you ask. Rates are as a rule negotiable with both their rates and their terms. Make clear to any lending institution where you inquire that you are also checking other institutions out.
Keep up on the latest in percentage rates, even after you have established a loan with a specific bank. A variance of less than a percent could make a big difference in your monthly or periodic installment, and could mean huge savings over a long period of time. If you are considering refinancing a loan, take a quote with you from another bank to your existing bank, and they may be willing to match the rate or even better in order to retain your business.
QUALIFYING FOR LOANS
Lenders will ask for copious amounts of data in order to make an informed decision
regarding granting financing. Withholding information may tend to create a more negative
attitude from the lender. It is often helpful when explaining your needs if you can
present data for other similar types of practices (such as expenses data from Medical
Economics, etc.) that supports the idea that your situation or expenses are typical
for your practice's size and specialty.
What information is needed to consider granting a loan to an individual physician?
What do lenders evaluate when considering whether to grant a loan to an existing practice group?
NON-BANK SOURCES OF FUNDING
- General loan program----represents 90% of the SBA's loans. Guarantees up to 90% of an amount provided by commercial lenders. Can be used for fixed assets, working capital, or inventory. Works in conjunction with a lending institution, which sets the term and rate. Loan amounts are generally from $50,000 to $1 million.
- 504/503 Development Company Loan---uses private/public partnerships to finance fixed assets. Bank lends 50% SBA lends 40% Business puts up 10% Minimum amount loan total: $125,000 Project must create employment.
- SBIC (Small business investment company) program---private capital combined with SBA-guaranteed funds to provide venture capital for start-up and growth.
- Microloans---mostly for entrepreneurs in inner-city areas and rural areas
- Disaster loans---rebuilding after a disaster (flood, fire, etc.)
- Ohio Enterprise Bond Fund
- Minimum project size---$1 million. Long-term fixed rate financing of fixed assets.
- Loans can be for up to 90% of the project amount and for up to a 25-year term.
- Ohio Mini-Loan Program
- Assists with the financing of fixed assets for small businesses. The State provides a partial guarantee of an eligible bank loan by making a cash collateral deposit in the bank for a maximum of 45% of the bank loan. The lending institution sets the rate and term of the loan, but the State's participation enables the institution to offer below-market or more favorable rates.
- Maximum project size is $100,000.
Chapter 6---COMPUTERIZING YOUR PRACTICE
Automating
Your Practice
Software
Hardware
AUTOMATION
Automation does not solve problems. Automation can turn a mess into an automated mess.
If you are planning on automating your practice, be sure your books
balance first. Clean up any inaccuracies before transferring information onto an automated
system. The old adage is indeed true--GARBAGE IN, GARBAGE OUT.
Computers don't make decisions for you. They do what they are told. They provide data so that YOU can make INFORMED BUSINESS DECISIONS.
A properly working automated system helps to do routine and repetitive work accurately and quickly. Automated systems help alleviate massive amounts of paperwork and the associated storage of that paperwork. Automated systems can report data activity quickly and concisely. One single entry of data can be used for multiple uses.
Computerization can help with:
SHOPPING for SOFTWARE
COMPUTER SYSTEMS
The three basic types of computer systems are:
1. In-house---this is a system that your office has purchased and runs on its own. This can be expensive to initially set up, and unless the practice is booming, this may be financially out of your reach. However, if your office is quite busy, you will save money in ongoing costs. The only people who would have access to your system and its information would be your staff, your account or lawyer, and perhaps hardware/software support people.
2. Batch system---in a batch system, you input information into a simple terminal, and then this information is transferred to a large computer off-site (not owned by you) for processing, either transferred electronically or by putting a cassette or disk into the mail. This type of service can be a little slow, but will help your staff to get large amounts of paperwork and billing done. This type of service is moderate in cost, but is not completely efficient. There may be additional costs for terminal leases, special reports, and paper supplies.
3. On-Line system---with an on line system, you are continuously hooked up via terminal to a larger, more powerful computer off-site (not owned by you). You pay a monthly fee for being hooked up with the service. You may choose to rent or own your own terminals. You are also charged for cables in your office, special reports, electronic hookups for claim submissions to insurances, and for printed supplies, such as statements and insurance forms (some services will mail the claims for you, for a certain fee). This type of service is more efficient than a batch system, and is also, in turn, considerably more expensive per month. You also need to consider that, when THEIR computer is "down", your office cannot enter any work into the terminal (most will adjust your bill, but this still is an inconvenience).
Compare several types of computer services before choosing one. Consider the variety and quality of services you will receive for the price, and the speed a which you will receive finished services. Also ask to have included in your proposal specifics as to software and hardware support.
May be less expensive over the long run than to keep paying a billing service or computer link service on a monthly basis.
If your practice and the practice next door BOTH need a computer system, see if both practices can get together and share a computer. Each can set up their accounts receivable in such a way that the other practice cannot access the other party's data.
Avoid Putting the Cart Before the Horse
The general accepted method in implementing computerization is to choose the software
first and the hardware NEXT. The reason for this is that not all hardware (or equipment )
will work with or be compatible with all software (or programs). Some software requires a
computer that has a specific amount of disk space or storage, while other software
requires hardware that will work at a certain speed or be constructed to interpret a
certain type of computer language.
Expansion Needs
Also to be considered are storage needs and expansion needs. If you expect your practice
to grow, the computer must be able to accommodate the files and records of an increasing
number of patients, plus all the associated financial data. Be sure that your "disk
space" will accommodate your needs. If it will only be able to hold data up to a
certain point, be sure that the hardware is equipped with the means to add more disk space
(sometimes called "expansion slots"). If you are not careful in planning this,
you may end up with a hardware working up to its absolute limit and may need to be in the
market to buy a larger computer system too soon.
Smart VS "Dumb" Equipment
If you need several terminals throughout the office, each site need not be an
independently functioning computer, if you don't need that function. Some terminals can be
"dumb" terminals, used only for imputing and accessing data from your main
computer. You will not be able to run any other programs on these computers, just the
program that the terminal is linked to.
D.A.W. VS Generic
Will an IBM clone do as well as an IBM product? Very often yes. Check the warrantees to
see if there are equalities among brands. Also check on ease of repair should there be a
problem---will the entire unit have to be shipped to another country for repair, or is
local repair available?
Smart Shopping You need to comparison shop for hardware as seriously as you do for software. The general guidelines for shopping for software also apply to hardware.
Many people in the market for computerization make the mistake of automatically purchasing hardware from their software vendor. CHECK AROUND. Once you have chosen your software, get competitive quotes for your hardware. Let your computer software vendor know that you are shopping around, and the vendor may be more likely to offer you a substantial discount to obtain a software AND hardware purchase agreement from you.
Vendors can sometimes be pitted against each other. Show vendors quotes from other vendors, and see if one can outbid the other.
The price of the equipment is not the only cost to be considered. Warrantees, guarantees, training, installation, and service agreements also have costs and values, and must be evaluated when considering cost.
CONCLUSIONS FROM SECTION 3
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