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Improve Your Practice's Cash Flow


One of the most important metrics to start strengthening your practice's cash flow is days in accounts receivable. By improving ways for patients to pay, or keeping track of who hasn't, you can free up your money.

When you put together a budget for your household, you total up all the monthly expenses — both fixed and variable — and determine how much income is required to meet those expenditures. It makes sense to do the same with your medical practice, according to Taylor Moorehead, partner, western region, with Zotec Partners, a billing services and solutions firm.

“It’s basic Business 101,” Moorehead explains. “You put together your business plan and projections for the coming year, as well as your expenses, and determine how far apart those two items are.”

And if there’s not enough breathing room between expenses and earnings, it’s time to take steps to improve your practice’s cash flow.

How do you stack up?

Examining the practice’s current operating metrics is the best place to start to strengthen your practice’s cash flow, says Allen Sugerman, a partner with national professional services firm Tatum. He suggests that you then compare those metrics to available metrics within the health care industry.

Days in accounts receivable is very important, because you don’t want your money tied up there. The less money trapped in accounts receivable, the more you can increase cash flow, according to Sugerman.

Moorehead echoes those thoughts.

“You need to get paid for every service that you render, and what I mean by that is there are a lot of holes,” he says. “Chances are you’re chasing patients for money, particularly in the beginning of the year when deductibles are so high and reset.”

He says that most patients don’t carry checkbooks, so giving them the ability to pay online might be helpful.

“Do you just send [the patient] a regular paper statement in the mail and hope that they pay?” Moorehead asks. “Or do you make phone calls, which take a lot of time and effort?”

Where to begin

Sugerman says to start with a coherent, operational, tactical plan to execute improvements. As you look to reduce days in accounts receivable, you don’t want to generate unintended consequences in other parts of the practice, such as increasing billing or collection costs. And above all else, give the plan time without trying to do it all at once.

“For example, you want to identify a piece within your billing system that is dramatically impacting your days in accounts receivable,” Sugerman explains. “It might be patient registration, and that would make a significant improvement, so you go after that first. You lay out a classic project plan and timeline to move in a systematic way to improve things.”

Sugerman explains that it’s absolutely vital that the physicians in the practice, and particularly the physician leadership, understand the plan and why it’s being executed. And that there is buy in at all levels to help execute the plan, especially where a staff member is a vital cog in the system.

The amount of time it will take to see results is going to depend on how large the practice is. Sugerman estimates that a medium-sized practice might have to wait six months from the time the plan is designed and executed until you see improvement

It’s also vital that you continue to report on improvements and monitor those improvements that you’ve implemented through metrics and classic reporting. Then, share those results with your team so they can feel good about what the practice has accomplished.

Manage internally as well

Moorehead says that where increasing cash flow is concerned, it’s also extremely important for a medical practice to manage its internal expenses, denials, and contracted rate. On the billing side, for example, make certain that 100% of all the services that have been rendered are accounted for.

“With all the complexities of billing and revenue, there are a lot of moving parts, and it’s a complex process,” Sugerman says, adding that it’s important to be patient.

It took a month and a half for one practice Sugerman is working with just to figure out what was causing its reimbursements to decline. Then they still had to figure out where and how they wanted to implement improvements to have the most effect.

“There are a lot of moving parts that impact a complex revenue cycle, particularly if it’s a larger practice, or a multi-specialty practice,” Sugerman says. “You have to know what the problem is before you start fixing it.”

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