With the instability of the economy, coding and billing rule changes, and fluctuation of contract negotiations, staying fully engaged managing a practice makes it difficult to keep the practice at optimum financial performance. In order to have an effective business, it is necessary to understand the financial circumstances and environment in which your practice operates.
Having a basic understanding of accounting, and the impact proper accounting has on the bottom line of your practice, can help you improve productivity and operating efficiencies. Controlling assets, collecting revenue, arranging the practice’s funding, and reconciling financial obligations are important functions to understand. The financial system of your practice will contribute to every other system in the practice.
Your financial systems are set to record and report transactions that influence your practice’s worth; assist processes; achieve cost and revenue enhancements; protects assets and resources from theft, waste, or loss; assist short-term and long-term planning; and arrange capital funding to implement important management decisions.
Even if there is an accountant in your practice, as the practice owner you need to understand all of the in-house finance systems and functions, including reading—and understanding—all financial statements, summaries of benefits, explanations of benefits, and accounts receivable flowcharts. The major accounting and financial functions that you will need to implement and execute in your practice include:
Cash collections and payments: Cash collections and payments are the money coming into the practice. This includes co-insurance and deductibles. Payments are important to the vitality of the practice and therefore collected at the time of service.
Accounts receivable: Accounts receivable is money that is owed for services delivered. Your accounts receivable is based on your patients’ balances and can be collected at the time of service. Otherwise, receivables are usually due within 90–180 days, depending on your billing and collections policies and procedures and the payer.
Accounts payable: Accounts payable is money owed to a vendor for various products and services acquired. Normally, bills for these items require payment within 30 or 60 days from the date of purchase. Best practice is to pay invoices when due—usually within 10 or 15 days of receipt—especially if a cash discount is offered for prompt payment.
Summary and Explanation of Benefits: The summary of benefits (SOB) and explanation of benefits (EOB) are two other important documents that are vital to understand when it comes to the financial management of your practice. The SOB describes in detail which medical conditions and services will be covered, the percentage that will be covered, and the patient’s financial responsibility. Verifying covered services under the patient’s plan is necessary to avoid denials. Once benefits are verified you can collect payment at the time of service to prevent outstanding balances on financial records.