In today's healthcare environment it has become increasingly difficult to manage finances due to rising costs and declining reimbursement for services. Yet, many practices do not have a sound system of financial management. What does this consist of?

1. Detailed Financial Statements

• Prepare statements based on practice needs, and at the level of detail necessary to draw appropriate conclusions. For example, do not lump all insurance expenses into one category on your chart of accounts. The type of insurance expense should be easily identified as health, general liability, or medical malpractice premiums.
• Be consistent when classifying expense items. For example, if pension administration fees are classified as "employee benefits," do not classify them as "other miscellaneous office expenses" in subsequent reports. This makes trending very difficult.
• Avoid using "miscellaneous" expense captions. Often, this is used as a "catch-all" for significant items, which should be reported separately.
• Differentiate physician expenses from operating, or overhead costs. This includes physician salaries and benefits as well as discretionary items such as automobile, conferences, and seminars.

2. Budgeting — A Necessary Step

A budget is only useful if it is used periodically to assess actual results to expectations. This analysis should be performed on a monthly or, at a minimum, a quarterly basis.

3. Benchmarking

• Revenue and expenses
• Charges, payments, and adjustments
• Gross and net collection rates
• Days in accounts receivable
• Staff salaries
• Physician compensation
• Productivity based on RVUs
• Overhead ratios

In summary, take control of your finances — the future of your practice depends on it!