News & Insights
Managing Healthcare Practice Cash Flow
September 17th, 2021
By Jessica Fleet |
Outsourced Accounting Solutions
Today, more than ever, it is important to have insight and strong management over how cash is flowing through healthcare practice. According to the Association of Certified Fraud Examiners 2020 Report to the Nations, the median loss due to fraud in healthcare practice is $200,00. Preventing a similar loss is critical to a practice. Cash Flow managed effectively can help deter fraud and is one of the most significant areas of impact to a thriving business. In this article, we focus on managing cash flow in a healthcare practice and the essential information for the daily and strategic cash flow decisions.
Understanding the cash flow cycle and identifying patterns is a critical step in cash flow management. Many factors determine receivables from patient care. The unpredictability is high in determining payment and write-off amounts. By monitoring cash regularly, if not daily patterns and predictability emerge, answering the following questions will help forecast cash flow. What is the timing delay of collections? What is the average write-off percentage? When are weekly or monthly payables due? When are specific annual or quarterly payments due, such as insurance and property taxes? Wages are, of course, one of the largest expenses in any practice, so understanding the pay cycle is necessary. Plan ahead for any annual bonuses and capital improvements.
One of the biggest impact areas of cash flow is receivables and collections. The inflow of cash is affected by timing delay between a patient visit and when the visit is billed. It is essential to understand the process to determine how much will be collected and when the collection is expected. Work closely with an internal department or third-party billing company to ensure that all services are billed promptly, and any outstanding receivables are reviewed for collection. An option to shorten the time between billing and receipt of cash is to accept ACH (Automated Clearing House) payments for all insurance companies or health plans. In addition, requesting that patients keep a credit card on file for an auto charge of co-pays, deductibles, and other out-of-pocket services will increase cash flow and shorten the collections cycle. In some cases, it may make sense to sell receivables or Accounts Receivable Factoring to a third party who purchases the practice’s receivables for a percentage of the total. The practice may receive a small percentage after the collection, depending on the contract.
Identifying where expenses can be trimmed is another way to increase cash flow. Controlling expenses may include maintaining a lower inventory of medical supplies and drugs on hand without keeping a large surplus. Negotiate terms and prices with vendors for discounts and early payment terms. It may not be best for the practices cash flow to pay with cash when considering new equipment purchases. Determine if a lease, buy on loan, or buy outright is the most strategic method to gain the new equipment. In general, a good business practice is to have a line of credit with your bank and draw on it when needed.
Managing cash flow is an essential strategy for any healthcare practice, large or small. The ability to respond to cash flow challenges helps achieve cost control and impacts the practice’s success. Utilizing technology effectively can improve efficiency by having data readily available to allow quick response to changing needs of the practice. Sophisticated accounting systems have a dashboard and analytic capabilities that supply real-time cash, banking, and expense disbursement information.
Planning is the key to the management of cash. Seek out the experts, work with an advisor or accountant to create projections, and update them as circumstances change. Maner Costerisan’s specialized experts provide a one-stop shop for a medical practice’s range of accounting and financial management needs. From CFO-level solutions to part-time bookkeeping needs, our advisors can eliminate headaches and pain points in the financial sector of the business while supplying critical information on a timely basis to help leaders make decisions.