A Guide to Healthcare Accounting

Effective financial management lays the groundwork for the success and sustainability of your healthcare practice. 

This section explores key strategies to manage and optimize your practice’s financial health.

Revenue Cycle Management

Revenue cycle management (RCM) is the process of creating and improving your financial processes to boost your ability to generate revenue. It encompasses all financial processes related to patient care, from appointment scheduling to final payment collection. 

While the specifics vary by situation, here’s a breakdown of what it typically looks like for healthcare practices.

Streamlining Patient Registration and Scheduling

Efficient patient registration and scheduling processes set the foundation for a smooth revenue cycle. By optimizing them, you can streamline administration, improve patient satisfaction and set the stage for timely reimbursements.

Here’s how:

• Implement an online scheduling system: Allow patients to book appointments through your website or a patient portal. This not only reduces phone traffic but also gives patients the convenience of scheduling the time that suits best for them, potentially reducing no-shows.
• Use pre-registration forms: Send electronic forms to patients before their appointment. This allows them to fill out their information at home, which reduces wait times and ensures more accurate data collection. Make sure you use secure, HIPAA-compliant platforms for this process.
• Verify insurance information in advance: Use automated systems to verify insurance eligibility before the patient’s appointment. This helps prevent claim denials due to coverage issues and allows you to inform patients of their financial responsibility up front.
• Implement appointment reminders: Use automated text, email or phone reminders to reduce no-shows and last-minute cancellations. Consider a tiered approach, sending reminders at different intervals (e.g., one week, two days and day of appointment).
• Train front desk staff: Invest in comprehensive training for your front desk staff. They should be proficient in customer service, data entry, insurance verification, and basic financial counseling. Regular refresher courses can help maintain high standards.

Done effectively, revenue cycle enhancement can help you reduce or eliminate lost revenue opportunities. And by boosting your practice’s revenue, you improve your ability to assist more patients, improving the overall effectiveness of your practice.

Optimizing Charge Capture

Accurate and timely charge capture involves ensuring that all services provided are properly documented and billed, preventing revenue leakage.

Here’s what it entails:

• Use EHR with integrated charge capture: Implement an electronic health record (EHR) system that seamlessly integrates with your billing system. This allows providers to document services and automatically generate corresponding charges, reducing the risk of missed billing opportunities.
• Implement point-of-service collections: Train staff to collect copays and outstanding balances at the time of service. Provide them with scripts and training on how to have these sometimes difficult conversations with patients.
• Conduct regular audits: Periodically review a sample of patient encounters to ensure all services are being properly documented and billed. This can help identify patterns of coding errors that may need to be addressed.
• Provide ongoing education: Keep providers and staff updated on coding changes and documentation requirements. Consider monthly coding tip sheets or brief training sessions to keep everyone informed.
• Use charge capture software: Consider specialized software that can flag potential missed charges based on typical treatment patterns. These systems can serve as a safety net to catch services that might otherwise go unbilled.

It may seem obvious, but making sure all of your practice’s billable activities are accurately documented and submitted can make an enormous difference in your overall profitability. By prioritizing charge capture, you reduce the risk that revenue opportunities are falling through the cracks. 

Improve Claims Management

Efficient claims management is crucial for maintaining a healthy cash flow. The claims process is often where practices encounter significant challenges, leading to delayed payments and increased administrative costs.

To improve this process:

• Implement a claims scrubbing system: Use software that checks claims for errors before submission. This can significantly reduce the number of denied claims due to simple errors like missing information or incorrect codes.
• Monitor claim status regularly: Set up a system to track the status of submitted claims and follow up promptly on any that are delayed or denied. Consider using automated tracking systems that can alert staff to claims that need attention.
• Analyze denial patterns: Regularly review denied claims to identify common issues. Use this information to improve your processes and prevent future denials. Create a dashboard to track denial reasons and trends over time.
• Establish a timely filing process: Submit claims as quickly as possible after service delivery. Implement a process to ensure all claims are submitted within payer-specific timely filing deadlines. Consider setting internal deadlines that are shorter than payer requirements to allow for any unforeseen delays.
• Train staff on payer-specific requirements: Ensure your billing staff is familiar with each insurance payer's unique requirements. Create payer-specific cheat sheets or guides they can easily reference when preparing claims.

By implementing these strategies, you can minimize errors, streamline operations and ensure timely reimbursements. Additionally, fostering a culture of continuous improvement and open communication within the billing team can lead to innovative solutions and a more proactive approach to managing claims.

Enhance Patient Collections

With the rise in high-deductible health plans, collecting revenue from patients as well as insurers has become increasingly important. A well-defined patient collections process not only improves cash flow but also enhances patient satisfaction by providing clarity and transparency.

To improve your patient collections process:

• Communicate financial policies clearly: Provide patients with a clear, written explanation of your financial policies at the time of registration. Consider creating a patient-friendly brochure that outlines your policies in simple terms.
• Offer price transparency: Give patients cost estimates for services before they are rendered. Use estimation tools that take into account the patient's specific insurance plan to provide accurate estimates.
• Implement multiple payment options: Offer various payment methods including cash, credit cards, online payments and mobile payment options. Consider partnering with third-party financing companies to offer additional options for larger balances.
• Set up payment plans: For larger balances, consider offering payment plans. Develop clear guidelines for eligibility and terms, and use automated systems to manage these plans efficiently.
• Use automated payment reminders: Set up a system to send automated reminders for upcoming or overdue payments. Use a combination of methods (e.g., email, text, phone calls) to increase the likelihood of reaching patients.
• Train staff on financial conversations: Ensure your staff is comfortable discussing financial matters with patients in a professional and empathetic manner. Provide scripts and practice role-playing exercises to help staff navigate these sensitive conversations.

In short, with a transparent and patient-friendly collections process, you can improve your medical practice’s cash flow while also fostering trust and satisfaction among patients.

Cost Control and Financial Planning

While maximizing revenue is crucial, controlling costs and planning for the future are equally important if you want your practice to remain profitable long term. Effective financial planning allows you to make informed decisions about investments, expansions and day-to-day operations while also planning for potential challenges down the road.

Conduct Regular Financial Analysis

Regularly reviewing your practice's financial statements helps you understand your financial position and make data-driven decisions.

• Analyze profit and loss statements: Regularly reviewing this document can help you identify trends in revenue and expenses. Look for areas where costs are increasing unexpectedly or where revenue is declining.
• Review balance sheets: Monitor your assets and liabilities to maintain a healthy financial position. Pay particular attention to accounts receivable aging and any growing liabilities.
• Monitor cash flow statements: Ensure you have sufficient cash flow to meet your practice's needs. Use cash flow projections to anticipate and prepare for periods of lower cash flow.

Financial analysis may not be the most enticing thing to a physician who opened their practice to serve patients. But it is nevertheless an important aspect of running your business. Regular financial analysis empowers you to make strategic, data-backed decisions that position you for long-term success.

Implement Budgeting and Forecasting

Developing a comprehensive budget for your practice enables you to set realistic revenue and expense targets and plan more accurately for the future.

To do so:

• Create a structured budget: Develop an annual budget that accounts for seasonal fluctuations in patient volume and plans for major expenses or investments. Break this down into monthly targets for easier tracking.
• Regularly forecast financial performance: Use historical data and industry trends to anticipate future financial performance. Update your forecasts quarterly to reflect changing conditions.

If you’re not sure where to start, outsourced healthcare accounting firms like James Moore can assist in setting up robust budgeting and forecasting systems for your practice, and can provide training to do so more effectively. This can help you plan for your practice’s future with confidence.

Optimize Supply Chain Management

Healthcare supplies can be a significant expense for practices. Take the following steps to address this issue:

• Regularly review and negotiate contracts: Continuously assess your supplier contracts to ensure you are getting the best prices and terms. Don’t hesitate to negotiate for better deals.
• Consider joining group purchasing organizations (GPOs): Leverage collective buying power by joining GPOs, which can provide access to better pricing on medical supplies and equipment.
• Implement inventory management systems: Utilize software to track inventory levels, automate reordering and identify slow-moving items. This helps avoid overstocking and reduces waste.
• Analyze supply utilization: Regularly review usage trends to identify opportunities for cost savings. Understanding which supplies are used most frequently can help streamline purchasing decisions.
• Foster supplier relationships: Build strong relationships with suppliers to improve communication and negotiate better terms. A collaborative approach can lead to more favorable pricing and service agreements.

By adopting these strategies, healthcare practices can optimize their supply chain management, ensuring they maintain quality care while controlling costs. 

Invest in Technology Wisely

While technology can improve efficiency, it's important to carefully evaluate potential investments. Considering cybersecurity and internal controls is also crucial, especially with privacy regulations like HIPAA.

• Assess return on investment (ROI): Before investing in new technology, calculate the potential ROI. Consider both tangible benefits (e.g., time savings, increased revenue) and intangible benefits (e.g., improved patient satisfaction).
• Ensure integration: New systems should integrate well with your existing infrastructure. Prioritize solutions that can communicate with your EHR and practice management software.
• Implement cybersecurity measures: Invest in robust cybersecurity solutions to protect patient data and comply with HIPAA regulations. This includes firewalls, encryption and regular security audits.
• Establish internal controls: Implement access controls to limit who can view and edit sensitive financial information. Use audit trails to monitor changes and identify potential security breaches.
• Provide staff training: Regularly train staff on healthcare cybersecurity best practices and the importance of maintaining patient confidentiality. Conduct periodic drills to ensure staff are prepared for potential security incidents.

James Moore’s Technology Services professionals can assist in evaluating technology investments, supporting integration, and implementing necessary cybersecurity measures and internal controls to protect your practice.

Monitor Key Performance Indicators (KPIs)

Establishing and tracking key performance indicators (KPIs) is essential for understanding your practice's financial health and operational efficiency. KPIs provide valuable insights that can guide decision-making and help identify areas for improvement. 

For example, here are key financial KPIs for healthcare practices to monitor:

• Days in accounts receivable (DAR): This metric measures how long it takes to collect payments. Aim for 30-40 days or less to maintain healthy cash flow.
• Net collection rate: The percentage of potential reimbursement actually collected. A target of 95% or higher indicates effective collections.
• Claim denial rate: The percentage of claims denied by payers. Strive for a denial rate of less than 5% to minimize revenue loss.

You don’t need to limit your metrics to your finances. You may also track KPIs related to your operational and clinical performance.

To make the most of your KPIs, start by setting benchmarks to compare your metrics against industry standards and your historical data. Regularly review the data to spot trends and identify areas for improvement. Create action plans to address any underperforming metrics, and keep your staff informed about KPI performance to encourage accountability and continuous improvement. 

James Moore’s experienced healthcare CPAs can support this effort by establishing effective KPI tracking systems, helping you set benchmarks to compare your performance against industry standards. 

Compensation and Reimbursement Models

High-quality compensation and reimbursement models should be a cornerstone of your practice’s growth. Why? Together, they enable you to attract and retain top talent for your practice without compromising your financial security. This in turn improves your patient care and makes your practice more attractive to potential buyers when you’re ready to move on. 

Compensation Structures

Implementing fair, transparent compensation structures helps you maintain harmony within your practice, ensure financial stability and retain your talent. 

Here are a few best practices to keep in mind: 

• Develop clear agreements: Outline compensation structures, including base salary, productivity bonuses, and profit-sharing arrangements. Ensure these agreements are in writing and reviewed by legal counsel.
• Conduct annual reviews: Ensure compensation structures remain fair and aligned with practice goals. Use this time to discuss performance and set new targets.
• Use objective metrics: Incorporate measurable performance indicators, such as RVUs (relative value units) or quality metrics, into compensation calculations. Be transparent about how these metrics are calculated and used.
• Seek professional guidance: Consult with healthcare-specific financial advisors or attorneys to develop and review compensation models. They can provide insights into industry standards and legal considerations.
• Maintain transparency: Ensure all practitioners understand how compensation is calculated and have access to relevant financial information. Regular financial meetings can help maintain trust and alignment.

At James Moore, our HR consulting team can assist in developing and reviewing compensation structures, ensuring they are fair, transparent and aligned with practice goals.

Reimbursement Models

Effectively navigating reimbursement models ensures your practice’s financial stability and helps you deliver high-quality patient care. With the landscape of healthcare payments continually evolving — particularly in light of high-deductible insurance plans — practices must be proactive in adapting to these changes.

• Stay informed: Regularly educate yourself and your staff on current and upcoming changes in reimbursement models and healthcare policies. Attend industry conferences and webinars to stay up to date.
• Invest in technology: Utilize advanced practice management and EHR systems that can handle multiple reimbursement models and provide detailed financial analytics. Look for systems that can easily adapt to new payment models.
• Optimize coding practices: Provide ongoing training for staff on proper coding techniques and consider periodic audits to ensure accuracy. Use coding software that integrates with your EHR for more efficient and accurate coding.
• Diversify payer mix: Analyze your payer mix regularly and consider strategies to optimize it based on reimbursement rates and patient demographics. Be cautious about over-reliance on any single payer.
• Implement patient financial counseling: Educate patients about their financial responsibilities and offer transparent pricing and payment options. If you operate a larger practice, consider hiring a dedicated financial counselor.
• Consider alternative payment models: Explore opportunities to participate in accountable care organizations (ACOs) or other value-based care initiatives. Carefully evaluate the potential risks and benefits before committing to new models.

James Moore can guide your practice in understanding and adapting to complex reimbursement models, optimizing coding practices. They’ll also help identify and implement more effective payment models to ensure financial stability.