• Balance sheets that show the practice’s assets (cash, equip- ment) and liabilities (debts),
• Cash flow statements tracking how cash flows into and out of the practice over a defined period, and
• Cost reports detailing expenses by category. Ms. Douglas says cost reports typically break down expens-
es incurred by physician, by procedure, by specialty, by de- partment, by office location, and by health plan. She says the reports can also help physicians and staff compare incurred ex- penses and use that information to craft an operating budget. As explained by the Medical Group Management Associa-
tion (MGMA), the balance sheet lists the assets and liabilities in the order of their liquidity (how quickly they convert to cash). The most liquid assets and liabilities are current assets and liabilities because they will likely convert to cash in less than one year. Examples of current assets include cash and accounts receivable. Examples of current liabilities include ac- counts payable, payroll withholdings, and long-term debt. Cash flow statements indicate how much cash came into
the practice by category (revenue, loans, sale of equipment, and capital invested by the owners) and how much went out by category (salaries, rent, supplies, payback of loans, and purchases of equipment) over a certain period. Ms. Douglas says knowing how much of the cash collected ultimately end- ed up contributing to business operations is empowering and helps physicians run their business as efficiently as possible. More information on generating reports and understand-
ing financial statements is available in TMA’s new publication, Business Basics for Physicians. To purchase the book, visit www
.texmed.org/basics. Because proper billing for services, complemented by a well-managed collections process, can make or break the prac- tice, collecting every cent owed requires diligence. Ms. Douglas says whether a practice outsources billing or
handles it in house, staff should prepare, and physicians and practice managers should review, the following monthly bill- ing reports:
• Practice summaries that report charges, payments, and ad- justments for a specific period;
• Accounts receivable aging reports that reflect revenue due from patients and payers and that show how long accounts have been outstanding;
• Revenue analyses that track the origin and generation of revenue;
• Procedure analyses that show which physicians or nonphy- sician practitioners performed specific procedures; and
• Payer mix reports that reflect charges or collections per payer category.
Ms. Douglas recommends physicians also review at least
annually lag reports that identify services completed for which the practice has not processed claims or statements and credit balance reports that indicate any refunds the practice owes.
22 TEXAS MEDICINE March 2014
Complete the equation with analysis Generating these reports and reviewing them isn’t enough. Physicians need to go a step further, Ms. Douglas says. “Running reports without analyzing the data is like order-
ing lab work for a patient without reviewing the results. The information is useless without analysis and must be analyzed to measure the successes or failures of the practice’s revenue cycle and bottom line,” she says. Financial analysis, typically done by the practice manager,
involves consistently producing reports, monitoring key met- rics, benchmarking data to establish trends, keeping a record of reports and trends, and taking appropriate action to ensure a healthy bottom line and to address concerns. Staying abreast of key metrics, such as average service
entry lag time, is crucial to a practice’s financial health. For example, after calculating the amount of time between the date of a service and entry of the charge into the practice management system, a practice may discover charge entry de- lays, which can result in increased past-filing-deadline denials from payers and potential lost revenue. (See “Key Metrics and Formulas,” page 21.) But monitoring key metrics is only part of the equation.
Practices need to know how they’re doing compared with their competitors. That’s where benchmarking comes in. MGMA defines benchmarking as simply “comparing performance to industry standards.” Benchmarking allows medical practices to evaluate their financial performance against that of similar practices and provides a means of identifying problems and opportunities for improvement. MGMA says by periodically conducting benchmarking,
practices can evaluate and compare with industry standards their physician compensation, productivity, patient volume, revenue, operating expenses, and accounts receivable. MGMA offers complimentary benchmarking webinars and resources on its website,
www.mgma.com/benchmarking. Benchmarking can help restore a practice’s financial health.
Eight years ago, Ms. Douglas assisted a practice that was los- ing money but didn’t understand why. She conducted a rev- enue cycle assessment and benchmarking and soon realized the billing department was six weeks behind on entering pay- ments and posting charges. At that point, the practice decided to outsource billing, Ms. Douglas says, adding that the practice has a healthier bottom line today. “The practice could have gone out of business. The truth is,
if they’d managed and reviewed key metrics on a regular basis and stayed on top of billing, the situation probably wouldn’t have been so dire,” she said.
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