Menu
Our client portal will be unavailable from 9PM MST, April 26 until 9PM MST April 28th due to a scheduled maintenance.
Office alert – Friday March 15th, 2024.
Due to the road conditions, majority of our staff will be working remotely today.
We want you to be safe, we have a drop off at COS on 3rd floor. If you are planning to come by the Denver and Springs office please make contact with your SKR contact first.
Our client portal will be unavailable from 9PM MST, April 26 until 9PM MST April 28th due to a scheduled maintenance.
Office alert – Friday March 15th, 2024.
Due to the road conditions, majority of our staff will be working remotely today.
We want you to be safe, we have a drop off at COS on 3rd floor. If you are planning to come by the Denver and Springs office please make contact with your SKR contact first.
We’ve previously published several articles in our blog, Practice Elevations, related to the need for adequate internal controls to prevent theft in medical and dental practices. Because of evidence that theft is increasingly common in small businesses, including professional practices, with the amount of losses also on the rise, we are returning to this subject again this month.
The 2016 report of the Association of Certified Fraud Examiners (ACPE) share reveals some sobering statistics:
Medical and dental practices are particularly susceptible to fraud and theft. It is estimated that fraud and theft account for three to 10 percent of total health care costs in the United States. Why are medical and dental practices particularly susceptible? In many cases, the practice, due to limited staffing resources and the existence of long-term employees and centralized accounting functions, has not implemented or deemed internal controls to be necessary in the past.
What practice and business circumstances lead most frequently to employee theft? Here are three elements that are usually present when employees commit theft:
What are some financial red flags that could indicate possible fraud or theft in your medical or dental practice?
What basic internal controls are a must for every medical and dental practice?
Where are the potential weak spots in your practice that need internal controls and extra attention from practice management?
Below are basic internal controls for each of the areas that need controls and extra attention from management:
Front desk internal controls:
Billing and collections internal controls:
Accounts payable internal controls:
Payroll internal controls
Stockman Kast Ryan + CO can help you take fraud prevention a step further by conducting an external review of internal controls. In addition, an operational audit may be commissioned to help ensure that the practice is enjoying efficient operations while minimizing the risk of fraud loss.
Contact our office today to learn more.
Collections are the lifeblood of any medical or dental practice. But do you really know if you’re doing a good job of collecting receivables? Find out for sure by monitoring these three collections performance indicators:
To find out how long it takes to collect a day's worth of gross charges, add up the charges posted for a specific period of time and divide by the total number of days in that period. Then divide the total accounts receivable by the average daily charges.
For instance, if you have charged $640,000 in the past 12 months, or 365 days, your average daily revenue is $1,753. Then, if your total accounts receivable today are $80,000, the days in accounts receivable is 45.6. That means it is taking an average of 45.6 days to collect your payments. Note that if this number is consistently high — or you notice a jump in the number of days outstanding from one month to the next — it could be sign of problems caused by anything from coding errors and incomplete documentation to claims rejections caused by patient registration errors.
Recommendation: We recommend that you use a rolling average of 12 months of charges for this computation. The results will vary by specialty and payer mix, but a typical goal for days in accounts receivable is 35 to 40 days.
Action: Determine how your practice’s days in accounts receivable compares with other practices using a source such as the Medical Group Management Association (MGMA) annual Cost Survey Report or Performance and Practices of Successful Medical Groups Report.
The practice’s aging report, based on date of entry and NOT ”re-aged,” should be reviewed monthly. Obviously, the longer an account remains unpaid the higher the risk of it becoming uncollectable. So, it’s critical to measure the percent of your accounts receivable in each “aging bucket.”
Recommendation: We recommend that you review a separate aging report for both insurance and patient receivables monthly, paying particular attention to outlier payers in the insurance aging report to spot any developing trends. Credit balances in accounts receivable should be investigated and manually added back to each aging “bucket” to get a clear picture of accounts receivable aging. An acceptable performance indicator would be to have no more than 15 to 20 percent total accounts receivable in the greater than 90 days category. Yet, the MGMA reports that better-performing practices show much lower percentages, typically in the range of 5 percent to 8 percent, depending on the specialty.
Action: Consider establishing a target AR range for your practice. For example, you might shoot for having 60 percent of receivables fall into the 0-30 days bucket, 20 percent in 31-60 days, 5 percent each at 61-90 days and 91-120 days, and 10 percent falling over 120 days.
This is the bottom-line number that reveals how successful you were in collecting the money you are entitled to collect. Add up your total collections and divide by adjusted charges (charges less contractual adjustments) to determine how much you have actually collected. For example, if your practice only collected $50 on a procedure contracted for $75, your net collection rate would be 67 percent (50 divided by 100 minus 25).
Recommendation: We recommend that you use a rolling average of 12 months of net charges and receipts for this calculation. In general, a net collection percentage of 97 percent or higher will help ensure a healthy bottom line for the practice.
Action: If your net collection rate is lower than this, drill down and calculate the net collection rate by each of your payers to determine if the problem is coming from a particular source. If net collection percentage is consistently down across all of your payers, you’ll know that the problem is internal (e.g. your front-end billing process is resulting in rejected claims).
Contact our office today for help in monitoring your practice’s collection performance.
Did you know that you face a much higher probability of becoming disabled than of dying during your working years?
Considering that the average long-term disability absence lasts 2.5 years, your family’s finances — and your practice — could take a hit if you are disabled and have not prepared.
The Council for Disability Awareness’ most recent Long-Term Disability Claims Review shows that the following conditions are the leading causes of new disability claims:
You can use the calculator developed by the Council for Disability Awareness to calculate your own “disability quotient.” Access the calculator here.
You may have heard this before: Your health is your wealth. Your most important asset, as a medical or dental professional, is your intellectual capital and your ability to work. Even with basic disability insurance, you will probably be able to replace only 50 to 60 percent of current income, and monthly benefits will probably be capped.
To mitigate the risk of that loss, consider how a disability of any duration would impact your finances — and what you can do to prepare.
1. Review your current income and monthly expenses.
Start with an honest appraisal of your lifestyle. If your income stream was disrupted, would you be able to maintain financial commitments such as private schools for the kids, philanthropic undertakings and planning for a comfortable retirement? What about any lingering educational debt? Then, factor in the normal costs of living (mortgages, healthcare, etc.) and ask yourself if your assets and income will cover expenses.
Action: Determine how expenses could be adjusted to eliminate unnecessary spending in the event of disability. Review potential sources of income to replace your current paycheck and help weather the disability crisis.
2. Consider the long-term impact of a disability.
A disability can potentially rob you of the ability to earn a living. In the case of a permanent disability, the potential loss of income can run into the millions of dollars for a physician or dentist whose career spans 20-30 years. At the same time your earning potential dries up, medical and other bills related to the disability only increase. For example, there may be costs for specialized transportation, ongoing care and alterations to accommodate your disability.
Action: Determine the income you would need to replace and the potential expenses that would need to be covered in the event of your disability. Then figure out if you have the personal savings, investments or other financial resources to cover them.
3. Consider the impact on your practice.
What about the income of the practice? For example, if you are a sole practitioner and a disability keeps you from generating revenue for any length of time, you might not have a practice to return to.
Action: Think through what would happen if you needed to use personal assets to keep the practice open. Last-resort options might include using credit cards to pay expenses, obtaining a second mortgage, using a home-equity line of credit or withdrawing money from a retirement plan.
4. Salt away some savings.
Long-term disability insurance typically kicks in only after 90 or 180 days, so it is important to be able to cover expenses until the elimination period has been completed and benefits start flowing.
Action: If you haven’t already, make sure you have access to enough liquid funds to cover anywhere from three to nine months of living expenses. This could be CDs, Treasury Bills or even a line of credit.
After you’ve reviewed the impact of disability and your current disability coverage, determine what additional disability coverage and overhead continuation insurance you might need.
The threat of disability is real. Let our experienced accounting professionals help you run the numbers to see if you are prepared to weather a disruption in income.
It’s a fact of life that physicians and dental professionals operate under an increased level of scrutiny. Increasingly, compliance checks are digging in to more than charts and coding. The IRS is paying particular attention to these hot-button compliance areas:
Is your practice classifying hired physicians as independent contractors? The IRS may come knocking for a look at your payroll records. Violations can result in practice owners and officers being held individually liable for back payroll taxes (including withholding taxes) plus penalties and interest.
Generally, for professionals, the IRS looks at three important factors to make the legal distinction between the employee vs. contractor status of a physician/dentist:
Experts in employment law say that, against this backdrop, most hired physicians/dentists legally fall under the category of employee. Obvious exceptions include physicians and dentists who do locum tenens or who have their own professional medical entities and bring their own ancillary personnel to the job.
Action: To avoid sending up an audit red flag, don’t convert an existing physician employee to contractor status unless he or she has a significant change in job duties. And if you have workers doing the same job, don’t classify some as employees and others as contractors. Consult your attorney regarding appropriate classification and contracts.
Read More: To learn more about this important issue, see our January, 2016, article here.
Physicians who own their medical building are facing increased IRS scrutiny. In particular, auditors are looking for the cozy transactions that can occur when the medical practice is both the tenant and the landlord.
Action: Experts say the best approach is to treat it as if you were renting office space from someone you didn't know. Have a formal lease in place and make payments by physically writing a check or transferring money from your practice account into a separate medical building account.
Most states impose a “use tax” on certain personal property that was purchased from a seller outside of the state for use in that state. Essentially, it taxes the use of goods on which no sales tax has been paid. Unlike sales taxes, which are charged and collected by the vendor, the use tax is self-reported by the purchaser.
Action: If you purchase supplies or equipment from out-of-state vendors, determine whether state and local sales tax applies to these items. Then report any taxable sales on your monthly or quarterly sales tax report. Ask your CPA for guidance in this critical area.
Managing the typical 401(k) plan can be incredibly challenging, and the IRS (and Department of Labor) cuts offenders no slack. Penalties for noncompliance — even unintentional errors — may be severe, and can even result in the loss of a plan’s tax-deferred status.
One of the most common compliance errors involves failing to follow the terms of your original plan document — either taking actions that aren’t covered or allowed, or making changes to the plan document and then not following them in day-to-day practice. For example, maybe you’ve begun allowing participants to take out loans and hardship distributions, even though these weren’t included in your original written plan.
Action: Make sure you understand how to detect — and correct — errors in plan administration. Start by downloading the IRS’ comprehensive 401(k) Fix-It Guide at http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf.
Head off an audit before it occurs by taking steps now to identify potential compliance problem areas. Contact our office for guidance in ensuring that your practice remains compliant in all areas of operation.
Reviewing end-of-quarter financials is one thing, but there are certain financial reports that practice owners should be reviewing at least on a monthly basis. These include:
Your P&L includes a treasure trove of core financial indicators. A monthly review can help you spot any troubling trends in revenue, overhead and net profit.
Action: Create a Profit & Loss statement that displays each revenue and expense line item in dollar amounts as well as percentages. Provide comparisons to previous periods and budget amounts. As an added step, use data from your state medical society or organizations such as the Medical Group Management Association to benchmark your revenue and expenses against similar practices.
Monitor how well you are turning cash over and getting it into the practice each month by reviewing an Aging Report, which measures the percent of your accounts receivable in each “aging bucket.” In an ideal AR scenario, your receivables would fall roughly into the following buckets: 0-30 days = 60 percent, 31-60 days = 20 percent, 61-90 days = 5 percent, 91-120 days = 5 percent, and over 120 days = 10 percent.
Action: If the indicators signal a problem, you’ll want to dig deeper. For instance, if you’re seeing a steady increase in receivables over 90 days, review A/R by individual payer. Try to identify the reasons for the delay by analyzing EOBs for denial patterns.
Write-offs can run the gamut from denials and contractual adjustments to discounts for multiple procedures. Substantial variations to your normal adjustment rate can be a sign of anything from a change in billing patterns to embezzlement.
Action: Depending on your billing cycles and productivity, adjustments can follow charges by two to eight weeks. To accommodate for this, compare the current month’s adjustments to charges and collections from the prior month or even the month before.
Just as important as what insurance companies owe you is what patients owe you. This has taken on added significance as patients foot more of their healthcare bills.
Action: Skip the alphabetic listing and generate a report by patient account in descending balance order — so that the largest balances will be front and center. Ask for an update from your billing department and/or practice manager on the status of the top 10 or so accounts. Next, review the payment status of patients who are on payment plans. Finally, determine which patient accounts should be sent to collections or written off as bad debt.
Just as you monitor the vital signs of your patients, you will also need to monitor the signs that reveal your practice's financial health. Have your practice administrator, physician manager or independent advisor conduct monthly monitoring of these key reports. Then, schedule a regular monthly meeting to review and discuss the information with all stakeholders in the practice.
Contact our office to learn more about monitoring your practice’s financial indicators —or for help in understanding what your current indicators are saying.
Collections are the lifeblood of any medical or dental practice. But do you really know if you’re doing a good job of collecting receivables? Find out for sure by monitoring these three collections performance indicators:
To find out how long it takes to collect a day's worth of gross charges, add up the charges posted for a specific period of time and divide by the total number of days in that period. Then divide the total accounts receivable by the average daily charges.
For instance, if you have charged $640,000 in the past 12 months, or 365 days, your average daily revenue is $1,753. Then, if your total accounts receivable today are $80,000, the days in accounts receivable is 45.6. That means it is taking an average of 45.6 days to collect your payments. Note that if this number is consistently high — or you notice a jump in the number of days outstanding from one month to the next — it could be sign of problems caused by anything from coding errors and incomplete documentation to claims rejections caused by patient registration errors.
Recommendation: We recommend that you use a rolling average of 12 months of charges for this computation. The results will vary by specialty and payer mix, but a typical goal for days in accounts receivable is 35 to 40 days.
Action: Determine how your practice’s days in accounts receivable compares with other practices using a source such as the Medical Group Management Association (MGMA) annual Cost Survey Report or Performance and Practices of Successful Medical Groups Report.
The practice’s aging report, based on date of entry and NOT ”re-aged,” should be reviewed monthly. Obviously, the longer an account remains unpaid the higher the risk of it becoming uncollectable. So, it’s critical to measure the percent of your accounts receivable in each “aging bucket.”
Recommendation: We recommend that you review a separate aging report for both insurance and patient receivables monthly, paying particular attention to outlier payers in the insurance aging report to spot any developing trends. Credit balances in accounts receivable should be investigated and manually added back to each aging “bucket” to get a clear picture of accounts receivable aging. An acceptable performance indicator would be to have no more than 15 to 20 percent total accounts receivable in the greater than 90 days category. Yet, the MGMA reports that better-performing practices show much lower percentages, typically in the range of 5 percent to 8 percent, depending on the specialty.
Action: Consider establishing a target AR range for your practice. For example, you might shoot for having 60 percent of receivables fall into the 0-30 days bucket, 20 percent in 31-60 days, 5 percent each at 61-90 days and 91-120 days, and 10 percent falling over 120 days.
This is the bottom-line number that reveals how successful you were in collecting the money you are entitled to collect. Add up your total collections and divide by adjusted charges (charges less contractual adjustments) to determine how much you have actually collected. For example, if your practice only collected $50 on a procedure contracted for $75, your net collection rate would be 67 percent (50 divided by 100 minus 25).
Recommendation: We recommend that you use a rolling average of 12 months of net charges and receipts for this calculation. In general, a net collection percentage of 97 percent or higher will help ensure a healthy bottom line for the practice.
Action: If your net collection rate is lower than this, drill down and calculate the net collection rate by each of your payers to determine if the problem is coming from a particular source. If net collection percentage is consistently down across all of your payers, you’ll know that the problem is internal (e.g. your front-end billing process is resulting in rejected claims).
Contact our office today for help in monitoring your practice’s collection performance.
Lenders say that physicians have shown more interest in owning real estate lately than in the past. Why?
You build equity. Plain and simple, when you sell your building, you get something. Over the long term, the property can be worth more than the actual practice itself.
You lock in your cost of occupancy. Rents will always go up, but your mortgage payment won’t. This may result in higher profits in years to come when you’re likely paying less than market rental rates to occupy your facilities.
You enjoy flexibility when selling your practice. When it comes time to retire, you can include the property as part of the practice’s assets or keep the property and lease it to the new owner. These rent payments can then provide a steady retirement income.
You can replace some salary with rent payments and pay less payroll tax. Because rent is considered to be non-earned income, you can reduce your salary by the amount of rent you collect and save on payroll taxes.
Although most financial experts agree that it makes more sense to buy a home than rent an apartment, the pros and cons of office ownership aren’t quite so clear-cut. Physicians and dentists need to weigh a variety of factors when making this important decision, including:
Once you buy the property, you’ve obviously lost some flexibility if you need to move later. For this reason, purchasing may not be the best option for fast-growth practices or practices that have a hard time forecasting their space needs.
But if yours is a mature practice and you’re confident that you can take a long-term perspective, then purchasing your business facilities could be a beneficial move. And with interest rates still at lows not seen in over a generation, this could be a truly unique opportunity to lock in a low cost of occupancy for years to come.
Who better to discuss your long-term financial goals with than your accountant? Our experienced professionals can “run the numbers” and help you decide whether purchasing or leasing makes the most sense for your practice.