These days it’s not enough for your medical practice to generate a profit, but you must also safeguard it once it comes into your practice. Many issues can affect the financial health and stability of your practice including business cash flow, risk management, and practice growth and development.
“You love healthcare, you love medicine and taking care of your patients, but do not forget you are running a business with revenue, overhead, and market segments,” says Rebecca Busch, CEO of Medical Business Associates, Inc. in Westmont, IL. “Know your business, understand your margins, understand your customer base. Do not take this for granted.”
Below are the five biggest mistakes that your medical practice should avoid in order to run a more profitable business.
Spending too much on card processing fees
Fees for card processing services are generally among the three highest expenses a business incurs—oftentimes, it is the second-highest cost after labor. However, unlike overhead costs, medical practices may not always know what they are paying when it comes to processing card transactions.
“Just as consumers are advised to check their bank and credit card statements for accuracy, medical practice managers should also know what exactly is in their processing statements, says William Collins, executive director vertical market strategy for Heartland Payment Systems. “Most business owners want and need to offer their customers the convenience of paying with a credit or debit card in order to remain competitive and capture their share of consumers’ dollars. However, some payments processors will try to take advantage of that need for their own gain.”
Collins says to reduce your card processing expenses and realize cost savings:
- Choose ethical, trustworthy payments processors who will work with you, disclose all fees and explain in detail each line item in your statements. You can also educate yourself about card processing, and you can do so by familiarizing yourself with the Merchant Bill of Rights (MerchantBillofRights.org), a public advocacy initiative that can help you better understand the costs and complexities of card processing.
- Carefully review your statements to differentiate between legitimate charges and junk fees. Statements are often confusing and hard to decipher, but it’s important that you examine yours to ensure the fees you’re charged are valid and not hidden fees. Don’t hesitate to ask your processor to review your statements more closely with you to explain the various fees.
- Determine your true effective rate. You may have been promised a great rate for processing your card payments, but when you take a closer look, you are likely paying much more. These extra charges add up significantly over time, stealing from your bottom line.
Not having control of the billing and receivables
Medical practices are prone to embezzlement issues, so be sure to maintain some level of control over who’s managing your money.
“It is a little disheartening to find out about it when a police officer shows up to arrest an employee for cashing a patient check,” says Busch.
Jerry Rackley with SNB Bank, based out of Stillwater, OK, recommends implementing some controls and being vigilant about monitoring cash and controls.
“Any practice that deals with cash payments, has an inadequately supervised staff, has integrity issues with any employees, neglects checks only issue checks for invoices and randomly verify vendors,” he says. “Segregate cash-related functions, like opening, posting and preparing deposit slips. Rotate duties so one employee doesn’t have control over a function for an extended period and require employees to take vacation.”
Also, when employees leave, Rackley says to immediately terminate their access to your online banking system and have the practice’s signature cards updated at your bank.
Even though many payers remit funds electronically, there are still a lot of paper checks being sent to practices.
“There are also patient payments,” says Rackley. “These funds need to be deposited daily, certainly for security reasons, but also because it improves the practice’s cash availability.”
Failure to use cash management tools
Rackley notes that there are cash management tools available to help better manage your cash and prevent fraud.
“Almost every bank now offers solutions like Positive Pay, a check-matching service that is effective for detecting bogus checks,” he says. “Other solutions like Remote Deposit Capture allows practices to deposit checks electronically from their office.”
More sophisticated solutions such as Digital Lockbox offerings and services that convert paper EOBs to electronic and provide Denial Management are also available from many banks and software vendors.
“These solutions improve productivity, enhance security, provide convenience, improve cash flow and create savings,” he says. “While there is a cost to them, even the smallest practices can gain benefits in excess of the costs.”
Lack of a comprehensive financial plan
Another mistake that medical practices should avoid is that there is no comprehensive personal or business financial plan to achieve personal and business goals. The old saying—If you don’t stand for something, you will fall for anything—is true with physicians, says Don Kemp, a financial representative with Espey Financial Group in Johns Creek, GA.
“In many cases, physicians are subject to every high return gimmick that comes down the road because they do not have a comprehensive financial plan,” Kemp says. “Because there is no plan, they must seek more risk to achieve objectives to make up for their losses. Too often, the tax tail wags the income dog rather than the other way around.”
Misspending on day-to-day operations
There are several operational mistakes a practice should avoid as well, says Trevor Hoppers, chief operation office with WeightWise Bariatric Program, a two-surgeon bariatric surgery clinic located in Edmond, OK.
“Misspending on marketing is a pretty common thing to do,” he says. “New clinics want to make a splash so they spend large amounts on marketing and advertising without doing the proper analysis before hand. Luckily, the company that previously owned the clinic made that mistake and we have been much more frugal and focused with our advertising.”
Expanding too quickly is another operational problem that Hoppers says can have a big financial impact as well.
“Going forward, I will not even look at an expansion opportunity until one of my staff can demonstrate some level of demand from either our current patient population or some research indicating there is an outside market for the service willing to utilize us if we offered it,” he says.
Finally, closely examine your hiring practices and procedures. Hiring someone is very expensive and time-intensive.
“You want to get this right every time,” says Hoppers. “Not only do you need someone with the skills to do the particular job, but you need someone who meshes well personality-wise with current staff.”