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Review practice operations before adding physicians

Practice Pointers. By Karen S. Schechter, amednews contributor. July 16, 2007.

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PRACTICE POINTERS

Answers to questions about the business side of your practice

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Question: My partner and I have been in private practice together for six years. We have a steady flow of patients, and our net income seems to increase slightly each year. We are thinking of adding another physician and want to make sure our ducks are in order before we start the recruiting process. What types of indicators should we be looking at?

Answer: Making sure your practice is operating at peak performance should be a priority, regardless of whether you are recruiting a new physician. However, as is true with many situations, it often takes an anticipated change to motivate us to take a critical look at ourselves and make improvements where necessary. Here are some areas to review.

Cash flow

Make sure the practice operations are running as efficiently and cost-effectively as possible. Review key management and financial reports. Specific statistics to look at include:

• Monthly charges and revenues.
• Total accounts receivable.
• Gross and net collection rates.
• Average number of days in accounts receivable.
• Percentage of accounts receivable greater than 90 days.
• Operating expenses as a percent of net revenue.
• Current ratio.
• Debt-to-equity ratio.

Most of this information can be obtained from your practice management and accounting systems. Analysis of this data, over a period of two or more years, might lead you to some conclusions about the health of your practice and what areas are insufficient and need to be addressed.

Operations

There are several factors to look at with respect to your practice's operations. You should know the following information or have it available:

• Payer mix/top payers.
• Primary referring physicians (or other referral sources).
• Number of new patients per week.
• Number of patients seen daily.
• Lead time for a new patient to get an appointment.
• Lead time for an acute visit patient to get an appointment.
• Average time a patient sits in the waiting room.

Most practice-management systems are capable of providing the first four items. The next three may be gathered manually, or with the use of some practice-management systems or electronic medical records.

These statistics are useful in understanding the makeup of your patient population and the general direction of your practice.

Knowing your primary referral sources help direct your marketing efforts. New patients are the lifeblood of a practice. It is important for you to be aware of the number of new patients coming to your practice each week, along with their associated insurance. Depending on the specialty, the practice should see at least eight to 25 (or more) new patients a week.

The lead times required for a new patient visit, a preventive medicine visit and an acute visit may help or impede the growth of your practice. Pricing and marketing decisions may be directed by these statistics as well.

In addition to statistics, you should also be sure that you are aware of the latest advancements in technology. If you can't or don't want to implement them, then make certain you are using your current technology to its fullest.

Finally, ensure that you have the necessary controls and compliance policies and procedures in place to minimize the potential for embezzlement, fraud and other liabilities to the practice and you.

Human resources

The most important rule in this area is to know the name and general responsibilities of each staff member. This might seem obvious. But in larger practices the number of employees may be overwhelming. However, this is a form of respect that will benefit you and your practice tenfold.

In addition, be aware of how your practice's salaries and benefits compare with your peers and the local industry standards.

Questions you should ask include:

• Have you evaluated your compensation plan during the past 18 months to ensure that it is still equitable to all physicians?
• Does your retirement plan design achieve your goals?
• Do you participate in year-end tax and cash planning to minimize taxes, ensure compliance with tax entity requirements and support the practice's financial goals?

Advisers

Surround yourself with advisers who understand the health care industry, the needs of your practice, and your individual needs. Evaluate the effectiveness of your advisers. For example:

• Do you speak or meet with your advisers on a regular basis?
• Is your entity structure achieving your business and economic goals?
• Have the advisers helped you develop and implement an equitable buy/sell agreement that addresses the needs of new doctors and existing partners at the time of buy-in, and minimizes the repercussions when a partner/physician leaves the practice?

This list is not all-inclusive. However, by having an understanding of these topics, you are on your way to staying on top of the pulse of your practice and accurately marketing it to other doctors for future growth.

Practice Pointers is provided by the St. Louis-based accounting and management consulting firm Stone Carlie & Co. LLC. The author and publisher are not rendering professional advice and assume no liability in connection with its use. Consult with professional advisers regarding your specific situation. Readers are invited to submit questions to the Business Editor (bob.cook@ama-assn.org).

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