Accounting expertise is the Rx for a healthy practice

Medical schools don’t usually teach accounting and bookkeeping skills, even though financial proficiency is essential to running a thriving medical practice.

Today’s patient billings continue to rise due to growth in healthcare spending. But profits are being driven down by other factors, such as increased operating costs, reduced Medicare and Medicaid reimbursements, and pressure from insurers for patients to seek low-cost alternatives. Here’s how professional accounting and bookkeeping services can help support your practice’s financial health.

Bookkeeping vs. accounting

Managing the books and records for a doctor’s office requires a different skill set than caring for patients. Key bookkeeping tasks include handling:

• Billings and collections
• Payroll and operating expenses
• Equipment purchases
• Account reconciliations

A key accounting task is the preparation of monthly and year-end financial statements, including balance sheets, income statements and statements of cash flows. These reports tell physician-owners, lenders and other stakeholders how the practice has performed. They’re especially handy when filing taxes, applying for loans or merging with another practice.

Accounting challenges

Managing these kinds of administrative chores are a leading reason doctors experience burnout, according to workforce data compiled by the Advisory Board. The shortage of skilled accountants doesn’t help matters, because it may be hard for doctors to find qualified workers to help them with these tasks.

Some turn to external specialists for financial guidance. Outside accounting firms can advise a medical practice on how to maximize profits, manage patient and third-party billings, distribute profits among its physician-owners, and make informed investment decisions to help it grow and adapt to changes in the healthcare industry. The use of an outsourced accounting service allows physician-owners to dial up or down the level of service as their needs change. It also gives them confidence that transactions will be recorded in the appropriate accounts with detailed, accurate descriptions.

Smaller practices may use the same system of accounting for book and tax purposes to simplify recordkeeping. However, as a practice grows, it may issue financial statements that comply with U.S. Generally Accepted Accounting Principles. Your accountant can help figure out what’s appropriate for your practice.

Interim reporting

Financial statements provide insight into historical results. However, if you want real-time data to regularly monitor performance, you should consider using weekly or monthly “flash” reports to keep your finger on the pulse of your practice’s performance. Flash reports are typically no longer than one page and highlight key metrics, such as:

• Composition of patient billings (including office visits and medical services, lab fees, medical supplies and equipment, medications and immunizations, and medical records requests)
• Patient billings by physician
• Collections and write-offs
• Average time spent with patients by physician/practitioner
• Average wait time for scheduled patient visits
• Available cash balances

Flash reports can be customized based on what matters most to your practice. Some even present data in easy-to-read graphs, rather than just providing numerical figures.

Monitoring key metrics on a regular basis can help you control costs and identify operating inefficiencies. It can also alert you when there’s a need to tap into a line of credit to temporarily cover operating expenses while you’re waiting to receive payments from patients and third-party payors.

Long-term planning

Thriving practices continuously search for ways to add long-term value. For instance, buying new equipment or technology can help expand the treatments your practice offers, improve efficiency, and increase patient volume. Likewise, investing in updated accounting software can improve the ease and accuracy of financial reporting and the timeliness of billing and reimbursements. Updated systems also may offer more sophisticated security measures to protect sensitive patient personal and billing information against cyberattacks.

However, these types of investments can be costly, so it’s important to carefully evaluate the costs and benefits (including any potential tax breaks), rather than rely on gut instinct. In some cases, it might make sense to lease certain items instead of buying them — or to partner with a third-party provider.

Forecasting is another way accountants can help your practice prepare for the future. Forward-looking financial reports address whether you’ll have the space, equipment, and staffing to meet expected demand. They can also help you identify competitive threats and growth opportunities based on the needs of your patient population.

It’s also important for physician-owners to plan for retirement and other departures from the practice. Buy-sell agreements can facilitate buyouts if a physician retires, dies, or otherwise leaves the practice. Well-thought-out plans can help maximize the return on investment for the departing owner, reduce disputes between physician-owners, and facilitate business continuity for those who continue to operate the practice.

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