The arrival of the COVID-19 pandemic earlier this year disrupted the American healthcare industry as few events before ever have. Practices were forced to close and elective procedures were temporarily suspended, leaving many in private practice in difficult financial positions. According to a McKinsey & Company survey conducted just six weeks into the pandemic, 53 percent of all independent physicians reported they were worried about their practices’ ability to survive the financial challenges of COVID-19.
A study conducted in June by Health Affairs found the average practice suffered financial losses of $57,190 per full-time physician due to lost patient volume from COVID-19 in February through May of 2020, assuming no furloughs; for practices that did implement furloughs, the losses were reduced by roughly half to $28,265 in the same period. An analysis from the American Hospital Association estimated that, from March 1, 2020 to June 30, 2020, the American healthcare system lost a total of $202.6 billion (an average of $50.7 billion per month), mostly due to the pandemic.
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“Assessing Financial Health & Managing Risk in Your Practice”
As cases of COVID-19 continue to rise once again in the United States, it is possible that private practices are facing another round of shutdowns and/or further temporary suspensions of elective procedures. In order to make sure you are ready to weather the coming storm, now is a great time to assess the current financial health of your practice. In this blog, we will show you how.
Assessing the Financial Health of Your Practice
Building a cohesive picture of your practice’s financial health means first gathering the necessary data for the proper metrics. The following information should be gathered:
- Days/Hours Worked – This metric is important to track first, because it may be directly tied to other metrics in this list (i.e. a decrease in weekly hours worked may explain a decrease in charges).
- Total Revenue by Charge Category – This allows the practice to understand various segments, and it will allow users to view shifts in revenue from the previous year. For example, it may be that surgery charges have increased or decreased since the year before. Tracking this metric is also important because it may be tied to changes in other metrics on this list (i.e. billing/collection delays, declines in patient volume, etc.).
- Collections – Any successful practice should already be tracking how much money is being collected each month. Looking at this metric by payer can help identify payer issues that may be delaying collection of outstanding revenue.
- Adjustments – When assessing the financial health of a practice, take special notice of adjustments made to charges as these may reveal serious underlying problems. Close examination of adjustments may help to identify potential embezzlement, changes in billing patterns, recurring data entry errors, etc.
- Accounts Receivable (AR) – A healthy practice should have an AR ration that is 100 percent or more of the monthly charges, and half of that should be 30 to 40 days old. An unusually high AR ratio (over 150 percent) may be a clue to other problems, such as claims submission delays, excessive fee schedules, etc. This metric may also help you identify staffing issues such as shortages or inefficiencies that need to be addressed.
- Patient Counts – This is another metric that all practices should already be tracking. New patients, established patients and inpatient counts can give insight into other metrics. For example, fees for new patient visits tend to be higher than those for established patients because new patients often require more tests and other services than established ones. This metric may also expose the need for you to consider hiring another provider.
- Average Visits per Day – This metric will offer insight into how productivity effects revenue. For example, are more visits per day translating into more revenue per day? If not, why is that?
- Expenses – For tracking of expenses, which is rather broad, it may be easiest to split these into three categories—staffing expenses, total supplies and total expenses. Expense increases should be proportionate to the practice’s growth. If expenses are increasing without correlating practice growth, further review may be needed to identify the cause.
- Net Income & Physician Compensation – When measuring this metric, remember that it should include more than just net income. It should also include other compensations, such as health insurance, retirement contributions (401k), travel reimbursements, etc.
As we move into the final months of 2020, many in healthcare still face an uncertain financial future. By taking the time to compile the above metrics into a weekly or monthly report, you will be better equipped to identify trends, shifts and new financial changes or potential problem areas in your practice. This will allow you to enact fixes to problem areas, ensuring your practice is in the best shape possible no matter what comes.
To learn more about how Nextech can help your practice monitor and manage financial performance, fill out this form and a member of our team will be in touch soon!