Good financial practices are the cornerstone of any successful business, but this is especially true in the case of a medical practice, where compliance with healthcare regulations is equally critical. Balancing the practice's financial needs with the ability to provide the best patient care can be challenging.[1] This article aims to guide you through best practices in the financial management of medical practices while ensuring regulatory compliance.
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9 Effective Financial Management Tips for Medical Practices
There are many things to consider to manage the financial health of your medical practice. Here are nine effective financial management tips for medical practices.
#1. Develop a Robust Financial Policy
A carefully created financial policy can help your practice's financial health and patient relations. A well-written financial policy can prevent misunderstandings and ensure compliance with regulations, such as the No Surprises Act, which requires healthcare providers to give patients good-faith estimates of care costs. [2] A well-written policy generally covers:
- When payment for services rendered is due. Most practices make this the time of service.
- Who is the responsible party for payment (usually, the patient or their parent is responsible for the entire amount or the amount due after insurance payment).
- How are copays and deductible payments handled (most practices require copay at the time of service)
- What types of payment the practice will accept (credit cards, debit cards, cash, checks, care credit, etc.)
- Practice policy regarding failure to pay (at what point will you employ a collections agency or take additional measures to collect payment). Ensure that your collections processes comply with federal and state regulations, such as the Fair Debt Collection Practices Act (FDCPA).
- Payment policy for missed appointments
Patient payment policies should be signed, dated, and included in the patient's account for documentation. This way, if a patient says that they didn't know they were responsible for the payment, you have documentation that they were aware and acknowledged the responsibility.
Having strong financial policies reduces the likelihood of financial misunderstandings with patients.
#2. Implement Strong Bookkeeping Practices
Strong bookkeeping practices are essential in any practice. Bookkeeping practices allow you to keep track of the health of your practice over time. To plan for the future of your practice, you need to track your expenses and income.[3,4] Accurate bookkeeping is not only important for tracking income and expenses but also essential for meeting tax and regulatory requirements. Be sure to maintain accurate records for audits and tax filings to avoid legal issues.
Strong bookkeeping practices include ensuring that your business has a series of checks and balances regarding money. Ideally, the person writing the checks is not the one making deposits. Additional best practices include:[4,5]
- Regularly review deposits and expenses
- Record all expenses
- Use double entries to provide additional checks and balances (each transaction is recorded in at least two places)
- Track the depreciation of the business assets
- Automate your billing processes to ensure efficient billing
- If your practice has different locations, track them all separately
There are many software systems available to help with efficient bookkeeping. A software system will allow you to run reports regularly and efficiently, aiding in the accuracy of your bookkeeping. It will also enable your bookkeeper to communicate well with your accountant.
#3. Enhance Billing Processes
Timely billing is vital to the financial health of any medical practice. Medical coding and billing require accuracy and billing because these tools have legal compliance implications as well as financial ones.[6]
The process of billing and receiving payment for services rendered is known as revenue cycle management. The American Medical Association recommends several best practices for efficient revenue cycle management[7]:
- Choose a practice management system that will meet your needs.[8]
- Verify every patient's insurance eligibility before every appointment[9]
- Use electronic systems for prior authorizations.
- Submit your claims electronically.
- Verify that the claim has been accepted.
- Use Electronic Remittance Advice (receive explanation of benefits forms electronically).
- Use electronic payment options.
- Maximize patient payment collection (estimate payment for procedures such as surgery ahead of time, collect payments at or before the time of service, and be proactive about collecting payments after the time of service).
Ensure that your coding is accurate to reduce the possibility of payment denials. Regular communication with your billing department can help you recognize consistently denied codes and find ways to ensure accurate and effective billing. Ensure that your billing processes comply with healthcare regulations, such as the False Claims Act (FCA), which prohibits submitting false claims to government programs. Accurate billing and coding are crucial to avoid legal penalties and ensure timely reimbursements.
#4. Communicate Patient Billing Effectively
Medical care can be expensive, and patients may be concerned about the expense. However, a medical practice is a business; if it doesn't receive payment, it cannot continue caring for patients.
Whenever possible, try to estimate the costs of care before rendering services. The No Surprises Act, which was passed in 2022, was designed to protect patients against surprise medical bills. Under the No Surprises Act, practices must provide good-faith estimates of expected costs before services are rendered. Failing to comply with these requirements could result in penalties and disputes with patients. Clear communication with patients about the cost of care and financial responsibility is essential.[10]
Providing patients with upfront cost estimates can help them prepare for expenses and lessen conflict and patient dissatisfaction with the cost of their care.
There are many ways to communicate with patients regarding care costs and payment for services rendered. One way to ensure good communication is to provide a good faith estimate upfront and offer the patient the opportunity to meet with billing or a financial consultant in the practice.
Physicians' practice also offers additional insight into talking to patients about payment.[11]
- Be direct; explain to patients (in a friendly tone) that you are a business and must collect payments to provide patient care.
- Educate the staff about how to address patient concerns about billing proactively.
- Give patients a chance to pay their bills in a timely manner.
Giving patients a realistic explanation of what to expect regarding the cost of their care in a clear and concise manner can improve your revenue cycle management by ensuring timely payment.
#5. Control Operational Costs
Income is one side of a practice's financial balance sheet, but expenses also play a role. Operational costs and overhead are necessary, but they should be regularly reviewed for opportunities to reduce and control costs.
The first step to controlling overhead costs is to analyze them regularly. Costs should be categorized for regular review.[12] Implementing lean practices to improve efficiencies and eliminate waste of supplies and time can streamline your business' bottom line.
Some suppliers may offer discounts for bulk purchasing. Negotiating the costs with your suppliers may also help decrease costs. If your suppliers aren't able or willing to negotiate, it is reasonable to look at other suppliers if deals and better costs are available.
Regular preventative maintenance on the supplies and equipment you have may help prevent you from having to replace equipment to save costs.
Personnel are a significant cost for most medical practices. Regularly reviewing staffing levels and adjusting staffing based on demand can help streamline costs. Several flexible staffing levels are available. When reviewing staffing levels, ensure that you comply with labor laws, including wage and hour regulations. This includes paying overtime where applicable and adhering to employment contracts.
Implementation of energy efficiency in your practice may also improve costs. This may mean installing energy-efficient lighting, promoting energy conservation in your staff, and optimizing your HVAC systems may help reduce your energy costs.
Regularly reviewing your costs and evaluating where you spend your money can help you improve your bottom line without compromising patient care.
#6. Invest in Technology
Technology is an essential tool for your practice's financial health. We've discussed how technology and software can help with your billing practices.
Electronic health records (EHR), telemedicine platforms, and automated billing through your practice management software can all help with accurate and efficient billing.[13] This can reduce the overall paperwork you must deal with, decrease administrative costs, and improve your revenue cycle management. When investing in technology, it’s critical to ensure that all systems, such as electronic health records (EHR) and telemedicine platforms, comply with HIPAA regulations to protect patient data. Secure software and encryption are necessary to avoid costly breaches.
Technology may have a substantial initial cost, but it has long-term benefits, such as reducing costs and improving patient care.[14] Artificial Intelligence is another tool that many healthcare companies are starting to evaluate as possibly enhancing efficiency and accuracy to reduce overhead costs.[15,16]
#7. Stay Compliant with Healthcare Regulations
Noncompliance with healthcare regulations can lead to significant costs to healthcare companies. HIPAA violations start as low as $137 per violation but can be as high as $2,067,813 per violation per year.[17] Even minor breaches of HIPAA can cost hundreds of thousands of dollars.
The General Data Protection Regulation (GDPR) is a European legal regulation that protects the privacy and security of personal data. Being out of compliance with this regulation can cost the higher of 4% of the company's global annual revenue or 20 million euros.[18]
Regular staff training and periodic audits are essential to ensure compliance with HIPAA, GDPR, OSHA, and other healthcare regulations. Implementing these practices can help prevent costly violations and ensure patient data protection.
#8. Manage Financial Risks
Financial risk management should regularly be assessed in a healthcare practice. This allows you to maintain high clinical quality while continuously analyzing the impact of that care on the financial health of the practice.[19]
Risk management includes making sure that you are identifying potential places where your practice could lose money, as well as tracking compliance and identifying potential failures in your systems.[20]
There are many tools for evaluating risk in healthcare. Risk management Information Systems (RMIS) are one tool for tracking and reporting risk, benchmarking data points, and comparing your practice to others in the industry. Developing a system for investigating and reporting sentinel events, near misses, and adverse events is also important.[20]
Effective financial risk management also involves identifying and mitigating potential legal risks, such as malpractice claims or regulatory violations. Implementing systems to track compliance with healthcare laws is critical to managing both financial and legal risks.
#9. Do Long-term Financial Planning
The long-term success of any organization requires long-term financial planning, and medical practices are no different. A practice must grow and adapt to change, especially because the reimbursement landscape for medical practices is changing. There are many things to consider when considering long-term financial planning.[21]
- Future investments and growth
- Economic downturns
- Retirement or attrition of a partner
Developing a long-term financial plan that aligns with your practice's growth objectives and projected market changes can help your practice stay solvent into the future and put you in a good position to respond to expected and unexpected changes.
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Key Takeaways
- Provide clear communication and good-faith estimates of expected costs to patients in writing, and stay compliant with healthcare regulations to avoid costly penalties.
- Be compassionate and direct when communicating financial expectations to patients.
- Use checks and balances and software for bookkeeping.
- Code accurately and bill for services in a timely manner.
- Review your operational costs regularly and trim where you can.
- Invest in technology that will improve efficiency and patient care.
- Stay compliant with local, state, and federal regulations.
- Perform financial risk assessment regularly and develop an action plan to address financial risk.
- Plan for the long-term financial success of your business with a financial plan.
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