MLR

How strong is your practice’s cash management?

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Revenues are up, expenses are under control and you have a healthy bottom line. You’re all set, right?

cash wrapped with measuring tape

Not quite. Professionals with their own practices often forget that cash flow is essential. It is entirely possible to be profitable on an annual basis but have to scramble to meet payroll every week.

Cash management is the key. A cash crunch is caused by timing issues, especially in medical practices where you might have to wait months for reimbursements – not to mention further delays caused by denials or problems with coding.

You outlay the labor and expense in good faith and then have to wait to be paid. Co-pays at times of visits can help mitigate this problem but won’t entirely solve it.

The first step is to identify the cash gap. Looking at the past year, how much of a revenue timing lag was there? How reliably were accounts receivable collected?

Using past history and this year’s budget, you can create a spreadsheet that lays out cash in and cash out. Start with zero cash so you can see the real gap. Most practices are playing catch-up, paying today’s expenses with yesterday’s revenues.

At the same time, analyze your services to be sure that, at the minimum, costs are covered by fees and reimbursements. Putting everything into the same revenue pot can mask services that are unprofitable and cost you money. Sometimes the situation is unavoidable, but thoughtful awareness of loss leaders is better than ignoring them.

Perhaps you have enough of a cushion to cover the ongoing cash gap. But if you don’t, consider a small line of credit to ease financial pressures. Repayment of that line will need to be built into future projections, so hands-on cash management is also key.

In addition to being sure your charges cover costs with a healthy margin left over, collecting more money faster should be the focus. This begins with how payments are processed at the front desk. Remote capture technology allows you to process checks immediately. Use of debit and credit cards has become routine but stay up to date with processing technology rather than batching, which often has a multi-day lag time.

Checking that insurance coverage is still in force up front will reduce collection problems later. If you allow patients to carry a balance, then regular communication and follow-up is important. Perhaps you can set up automatic payments to take care of balances. Some care providers offer special credit packages via third parties to help patients with unexpectedly high expenses.

Maximize the money in your account by using your bank’s sweep service. Each day, all funds over a set amount for operating expenses are transferred to an interest-bearing account. In addition, take advantage of online bill paying to time payments as late as possible or, conversely, take advantage of discounts.

Medical practice financial management is a complex prospect in today’s rapidly changing environment. Understanding and maximizing your cash flow is more critical than ever.