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    Kenneth T. Hertz
    Kenneth T. Hertz, FACMPE
    According to the MGMA Body of Knowledge for Medical Practice Management, financial management in a medical practice involves the development and maintenance of financial systems to ensure a profitable practice. Skills in accounting, budgeting, revenue cycle management and financial analysis support effective financial management. 

    In this era of tectonic change in medical practice, which includes increasing costs; changing, and often declining reimbursement; evolving payment strategies; regulation; and an aging population, the financial management of your practice is more critical than ever. Profitability is desirable, and survival and sustainability are critical.

    A large medical group will have a supporting cast, including a chief financial officer, business office manager, controller, revenue cycle manager and others to assist with financial management.

    A small medical practice will likely rely heavily on the practice administrator to lead these functions and, in many cases, be responsible for completing the work as well.

    Two of the most important financial management skills are budgeting and financial analysis.

    Budgeting

    Budgeting’s importance cannot be overstated. It is the foundation for all financial management. Without a budget, you won’t know if your practice is meeting its revenue projections or expense targets. Without a budget, you can’t measure actual performance against goals. It’s like a ship leaving port without a destination.

    Budgeting is simple. Here are five tips to get you started.
    1. First, before you even look at a number, develop your assumptions. After all, your budget is really a price tag for your assumptions. Ask the following questions:
      • How many providers do you have?
      • How hard do they want to work?
      • How much do they want to earn?
      • How many patients will they need to see to earn that level of compensation?
      • What is happening with your payers?
      • What is the trend for allowables?
      • What has happened to the payer mix over the last two years?
      • What is happening with market demographics?
      • What is happening with your market share?
      • Are you contemplating new service lines to generate additional sources of revenue?
    2. As you review the answers to these questions, begin to form a picture of what the revenue side of the practice will look like. Profitability requires that expenses not exceed revenue.
    3. As you take a deep dive into the revenue, project it monthly, based on what you know historically of patient volume trends, provider vacation history and seasonal variances. Creating a 12-month total and dividing equally will not provide an accurate picture.
    4. Next, look at expenses. Assumptions only; no numbers yet!
      • Do you plan to purchase new equipment?
      • Will you need new service agreements?
      • Will you need to create a new marketing program to support a new service line?
      • Do you plan to add more staff? If so, how many?
      • Are you performing new procedures that will require new disposables?
      • Will you need to upgrade your technology — for example, computers, servers or phones?
      • Will you need to paint the office or purchase new furniture?
    5. Now that you’ve identified the assumptions, begin to apply numbers to the assumptions. What follows is a negotiation process of recalibration and give and take. Expenses should be calculated on a monthly basis as well, based on best projections for when the expenses will occur.

    Financial analysis

    Financial analysis is where you can make a difference. Numbers are meaningless unless they tell a story and, more importantly, lead you to action.

    Taking data, turning it into information and telling a compelling story are vital functions for the practice administrator. Anybody can print and present a financial statement, but only a practice administrator can interpret the information and make it actionable.

    How you interpret the information and how you tell the story will depend on your audience.

    Are you speaking with the practice owners and assessing the health and future of their business, or are you speaking with providers about their levels of productivity and coding ability?

    Are you meeting with the management team and discussing their performance compared to budget, and identifying solutions to remediate issues caused by poor performance in one area or another?

    Different audiences require different information, different formats and different stories. In the end, the data must be accurate and timely, and the story must be compelling and actionable.

    Financial management is a critical skill set for practice administrators. You cannot manage a practice if you do not understand how it works. Financial management entails developing and maintaining the systems and employing them to ensure the future of your practice.  
     
    Kenneth T. Hertz

    Written By

    Kenneth T. Hertz, FACMPE

    Kenneth T. Hertz, FACMPE, has held numerous leadership positions in small and large healthcare organizations in primary care, multispecialty care and large integrated systems. 


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