The looming economic uncertainty of the Affordable Care Act (ACA) should force physicians to keep a close eye on expenses and income. A practical budget is still one of the most important management tools for a practice owner.
The budget offers insight on how revenue is generated and what expenses you can actually control.
Here are five basic steps to get ready to prepare a budget:
Find your revenue sources
Obtain an understanding of how you are generating revenue in your practice by reviewing the codes you most commonly bill for.
Your practice management software should be able to produce a report by CPT code, including how much revenue was generated by each code. Reviewing this report will give you the opportunity to identify where your time is most profitable and which activities can be delegated to physician assistants or nurse practitioners.
Compare your activity with benchmarks available from MGMA or professional specialty associations.
Determine who is paying you by reviewing a billing report by payer.
What is your payer mix? Is a large percentage of your revenue coming from one or two payers? What is the reimbursement rate for those payers?
Consider working to reallocate the payer mix within your active patient base to avoid a heavy concentration with any one payer, working toward a more balanced mix.revenue in your practice by reviewing the codes you most commonly bill for.
Review your payer contracts for possible renegotiation of reimbursement rates.
Do your reimburse-ments and contractual adjustments for each payer match the terms of the contract? Are your collection percentages in line with industry averages for your specialty?
Analyze your office schedule
How far out are you booking appointments? Are you full? Does your template allow for a long and short appointments?
Often times, minor adjustments to the template can improve patient wait times and increase the number of patients who can be seen in a day, reducing the lead time for call-in appointments.
Review your fee schedule
Review your fee schedule for necessary adjustments. If your reimbursements are at or near 100%, it’s likely that your fee is too low.
Now build your budget
Now you can begin to construct a revenue budget or you can make adjustments to last year’s revenue number that will potentially be above the 5 percent annual automatic budget increase.
On the expense side, budgeting is more than finding ways to save money on pencils. Benchmarks are available to reflect each expense category as a percentage of practice revenue.
This is a good starting point to determine if your practice’s expenses are in line and to establish a budget for the coming year based on your budgeted revenue. Adjustments can then be made for specific line items as necessary
While many think that preparing a budget means copying last year’s numbers, increasing revenue by 5% and decreasing expenses by 10%, the reality should be much different. And so will the results.
Jill Franks, CPA, CGMA, is a principal in Rehmann’s Healthcare Advisors Group. She works with medical and dental practices, providing practice management and financial analysis consulting services. For more information, visit Rehmann.com.
Send your practice management questions to [email protected].
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