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Physician practices struggling to stay profitable

Know the warning signs of impending insolvency and develop a long-term recovery plan for your group, experts advise.

By Julie A. Jacob, amednews staff. Jan. 22, 2001.

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Even though physician practices rarely file for bankruptcy, medical groups are facing a financial squeeze. That's no surprise to any practice that's struggled with low or late reimbursements, either from an insurer or an intermediary such as an independent practice association. But few practices file for bankruptcy, and low reimbursements is the big reason why. Bankruptcy is for reorganizing or dismissing debts, not a tool for getting paid more.

"If the real problem is that reimbursement levels aren't high enough, bankruptcy isn't going to change that," said John Hansen, a bankruptcy attorney with Nossaman, Guthner, Knox and Elliott in San Francisco.

Unfortunately, there's no easy answer for turning around a financially foundering ship. But there are things you can do to make sure you catch financial problems before they become serious and steps you can take to right them.

At a time when so many practices are struggling, what are the warning signs that physicians should look for to check if their medical group is headed for financial problems?

The most obvious warning sign is negative cash flow, said Hobie Collins, a principal with the Medical Group Management Assn. "The costs get ahead of their revenue, and they are inadequately capitalized. It's as simple as that."

Other signs of financial distress are a high level of debt, a drop in accounts receivables, cuts in physician compensation or other changes in objective measures of financial performance, said Steve Messinger, a partner at MedTactics, a doctor practice consulting firm in Arlington, Va. [...]