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Business Basics for PhysiciansCrystal ZuzekContributing authors Ginger Douglas, Jim Rice, CPA, and Michael Z. Stern, JD, CPA

Empowering PhysiciansImproving Healthcare

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B u s i n e s s B a s i c s f o r P h y s i c i a n s

Dear Doctor,

Physicians face more regulatory and administrative burdens than ever before, and with those challenges comes the need to better understand the intricacies of the business side of medical practice. The Physicians Foundation is dedicated to advancing the work of practicing physicians and to strengthening the patient-physician relationship by developing practical education and tools that empower physicians and help them maintain a successful practice while focusing on their passion: caring for patients.

In the current atmosphere, it is imperative that physicians are able to identify and utilize key performance indicators in order to assess and manage the financial health of their practice. This is particularly true for solo and small practices, which often must implement cost control measures, master payer and regulatory hassles, and continuously increase revenues while relying on limited business training or support staff.

Business Basics for Physicians helps physicians make strategic business decisions about the future of their practice to ensure the practice’s financial viability. In addition to this publication, The Physicians Foundation is proud to support related initiatives including seminars and webinars that teach physicians how to make practice improvements based on those measures.

We hope that you find the publication and other resources useful in navigating the business side of the ever-changing health care environment.

Sincerely,

Louis J. Goodman, PhD

Member, Board of Directors The Physicians Foundation

The Texas Medical Association gratefully acknowledges the Texas Medical Association Special Funds Foundation for its generous support of this publication

through funds awarded by The Physicians Foundation.

Louis J. Goodman, PhD

© 2017 Texas Medical Association

X I I

C o n t e n t s

INTRODUCTION .............................................................................................................................1

ONE Establishing the Medical Practice .........................................................................3

Selecting a Corporate Structure ................................................................................. 3

Tax Registration and Identification ............................................................................. 6

TWO Accounting Basics .................................................................................................... 9

Cash Versus Accrual Methods of Accounting ........................................................ 10

Traditional Financial Statements ............................................................................... 11

Financial Analysis ...................................................................................................... 12

THREE Billing and Collections Basics ...............................................................................15

Revenue Cycle Overview ..........................................................................................15

Traditional Billing Reports ......................................................................................... 17

Key Metrics ............................................................................................................... 17

Collections and Accounts Receivable .......................................................................19

Contractual Adjustments ..........................................................................................20

Shifts in Payer Mix ................................................................................................... 21

Outsourcing Versus In-House Billing ...................................................................... 21

Identifying Collection Problems .............................................................................. 24

FOUR Managing Expenses and Projecting Cash Flow ...............................................25

Operating Overhead ..................................................................................................25

Personnel and Payroll .................................................................................................27

Inventory Control ........................................................................................................29

The Budget Process ..................................................................................................29

Assessing Capital Needs and Expenditures ............................................................32

Banking, Lines of Credit, and Loans .........................................................................33

© 2017 Texas Medical Association

FIVE Payer Mix Management .........................................................................................37

Payment Models ........................................................................................................38

Accountable Care Organizations ...............................................................................39

Concierge Medicine ...................................................................................................39

Direct Primary Care ....................................................................................................39

Health Savings Accounts ...........................................................................................40

Negotiating Payer Contracts ......................................................................................40

Individual Versus Group Contracts ............................................................................46

Working With Government Payers .......................................................................... 47

Pay for Performance ..................................................................................................49

Fee Schedules ............................................................................................................50

SIX Financial Managers’ Roles and Responsibilities ............................................. 51

Financial Management Competencies .....................................................................52

SEVEN Embezzlement Prevention and Internal Controls ............................................55

EIGHT Strategic Planning ...................................................................................................59

Long- and Short-Term Planning .................................................................................59

Developing Action Plans ............................................................................................61

Marketing and Public Relations .................................................................................62

Market and Employment Trends ...............................................................................65

NINE New Technologies ...................................................................................................67

Practice Management Systems................................................................................67

EHR Systems ............................................................................................................ 71

Transitioning to an EHR .............................................................................................73

Selection and Implementation .................................................................................74

Health Information Exchange ....................................................................................80

Incentives and Upcoming Penalties ..........................................................................83

APPENDICES .................................................................................................................................87

A. FAQs: Physician Prices, Fee Schedules, and Managed Care ............................87 Contract Offer and Acceptance

B. Business Entity Checklist ......................................................................................95

C. Prompt Payment Discounts for Patients ...........................................................101

INDEX ...................................................................................................................................107

© 2017 Texas Medical Association

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2017

Business B

asics for Physicians Crystal Z

uzek

, Ginger D

ouglas, Jim

Rice, C

PA, an

d Mich

ael Z. Stern

, JD, C

PA TMA

Your passion as a physician is caring for patients, but to realize your calling,

you need solid business skills. For practices to remain viable in today’s

ever-changing payer and regulatory atmosphere, physicians need to have

a grasp of fundamental business principles and how to control costs and

increase revenue for their business.

Business skills like hiring and managing staff, developing and adhering

to a budget, crafting administrative policies and procedures, monitoring

expenses, and promoting the practice are vital but often elude physicians.

Read this book to equip yourself with the knowledge and skills you need to

ensure your practice’s longevity.

Business Basics for Physicians restores the idea that a physician can move from a large organization or from a training program into solo or small group practice. This

publication provides a comprehensive and comprehensible overview of the business side of medicine. It should also be read and studied by the providers who are secure

in their current practice arrangement.

Susan K. Blue, MD Fort Worth, TX