Medical groups are continually challenged by the need to maintain quality patient care amid staffing costs, the cost of new technology, changing provider reimbursement requirements and daily operating costs. As the practice expands, financial decisions become more complex and planning needs significant time and effort when financial data is partial or old.
When financial reports are accurate, all financial data of a medical group are presented clearly. Directors of the practice can observe the revenue movements, keep track of the expenditure, realize problems in cash flow and make proper decisions for the growth.
This is when healthcare accounting services come into play. With the proper accounting systems implemented, medical groups can make financial data into usable information for planning growth.
Why Accurate Financial Reporting Matters for Medical Groups
Financial reports are not just filed in submissive folders; they are also tools to aid medical groups to better know the organization.
Common reports like:
- Income statements
- Balance sheets
- Movements in cash flow
- And how these are monitored
- Expense reports
- Budget versus actual reports
May help to give management a picture of the way the practice is performing financially.
For example, an increase in revenue does not, by itself, mean that the group is getting more profitable. There are a number of ways in which a medical group's cash flow can decrease as revenue goes up.
With accurate reporting, leadership can notice these variations before they snowball into bigger operational issues.
Financial Reporting Creates a Foundation for Growth Planning
Growth decisions are dependent on solid numbers. Whether a medical group is considering a new practice location, hiring additional physicians, adding new services, or purchasing new equipment, it must determine if the current financials will sustain the planning.
Accurate reports can help answer questions like:
- Are operating expenses growing at a rate higher than income?
- How and in what amounts can I use the available cash to invest?
- What is the average age of receivables? (ie how long have they been outstanding)
- Is there capacity for more employees/or additional providers?
These also make the financial planning more structured and less dependent on assumptions.
Understanding Cash Flow Before Expanding
A profitable medical group can experience cash flow squeeze.
The practice may have excess cash due to accounts receivable from lack of payment from insurance companies for claims and patient balances. However payroll rent, equipment payments, and vendors' invoices can't be held up.
Regular financial reporting can help management monitor:
- Accounts receivable aging (providing information on the age of receivable)
- Trends of collecting of publications
- Cash received and paid out on a regular (monthly) basis.
- Debts overdue for settlement.
- Expenses of working.
- Working capital.
This information will help leaders understand whether a project is worth it, and whether expansion is something in which they should pursue financing or not.
Identifying Cost Trends and Operational Inefficiencies
Revenue growth is good. But growth doesn't only refer to increased revenue. Growth also refers to managing cost of delivery.
Spending patterns can sometimes be identified by financial reports that may escape notice otherwise. A practice might find that the cost of administrative labor has decreased noting that patient numbers have not increased.
Other areas worth monitoring include:
- Staffing and payroll
- Medical supplies
- Rent and facilities costs.
- Technological innovation
- Costs of the billing and collection process
- Repairing the equipment
- Professional and management services
Once these trends are available, managers can explore the reasons behind the statistical thing and begin the process of changing if necessary.
Using Financial Data to Evaluate New Locations
Opening another medical office involves significant investment. Before committing to a new location, a medical group needs to estimate both the costs and potential revenue.
Financial reporting can provide historical information that supports these projections.
Management can analyze existing locations to understand:
- Average revenue per provider
- Patient volume
- Staffing costs
- Facility expenses
- Operating margins
- Collection patterns
This information can then be incorporated into a financial model for a proposed location.
The goal is not simply to predict revenue. It is to understand the complete financial impact of expansion.
How Healthcare and Medical Accounting Services Support Growth
As providers expand in size, their bookkeeping needs may also become more complex due to the spread of providers' locations, departments, payers, and sources of revenue that need to be tracked. Healthcare and Medical accounting services can support practices with areas such as:
- Present financial information in an accessible monthly financial report
- Accounts payable and receivable
- Bank & Account Reconciliation
- Cost monitoring
- Making financial statements.
- Monitoring the budget.
- Cash flow reporting
Standardized accounting procedures can also prevent the leadership from having to make decisions based on a fraction of the financial information available.
When Should a Medical Group Hire an Accountant?
Any time a practice gets larger, giving the physician or administrative staff to shoulder growing financial burdens on their shoulders may be unreasonable.
A medical group may benefit from deciding to Hire an Accountant when:
- Financial statements are always late.
- Reconciliations not keeping pace.
- Cash flow is hard to control.
- The practice is looking to expand.
- Our internal personnel do not have sufficient time or skills.
Role models can be different. One company may have their own in-house accountant while another may provide an in-house accounting function plus outsourced or off-shored accounting.
Turning Financial Reports Into Growth Decisions
The true benefit of financial reporting is derived from the application to planning.
A medical group can establish a regular review process covering:
- 1. Revenue: Compare current revenue with historical performance and budgets.
- Expenses: Identify major increases and recurring cost trends.
- Cash flow: Review expected inflows and upcoming obligations.
- Accounts receivable: Monitor outstanding balances and collection patterns.
- Profitability: Evaluate performance by location, provider, or service where appropriate.
- Forecasting: Update financial projections based on current results.
Because of this, the inter-relationship between accounting and management will generate a circular process of drawbacks.
Building a Scalable Financial Reporting Process
The medical group grows, so should the financial reporting. Something that may be adequate when a physician is in a small office may not be effective when they own several locations and providers.
A scalable approach should include:
- Accounting procedures that are formally established
- Uniform Sub-Account classifications.
- Daily reconciliations
- Prompt month-end closes
- Established reporting timeframes
- A transparent allocation of responsibility for financial activities.
- Good financial controls
- Frequent management review
Integrating both of these procedures plus Healthcare and Medical accounting services/Specific Financial Accounting Services can help growing medical groups to have more comprehensive financial visibility.
Financial reporting gives an essential tool for medical groups to identify and predict their growth more effectively. Regular and consistent tracking of all facets of the group's financial performance like revenue expenses, cash flow, accounts receivable, and profitability enables management to better plan staffing technology, new services, and expansion.
Regardless of developing an internal accounting department, selecting to Hire an Accountant, or using offshore accounting and other types of outsourced support. The goal is always the same: to establish credible financial information upon which to base effective business planning.
If you are a medical group who needs to improve your accounting systems and position yourself for long-term growth, contact The Fino Partners today to discuss accounting assistance tailored to your organization.
