 Some doctors are using high-tech to reclaim an older, leaner style of medical practice. Supporters think it's a recipe for better outcomes and lower costs
For five years before opening her innovative solo practice in Woodland Park, CO, FP Michelle Eads worked in a very traditional, very busy primary care group. Located in Colorado Springs, it employed lots of doctors, operated with an enormous overhead, and processed scores of patients each day.
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 How often do you consider the need for a review of your personal finances?
Nearly everyone has heard their doctor preach, at one time or another,
about the need for routine check-ups. Yet, how often do you consider
the need for a review of your personal finances? Finances are one of
the biggest triggers of stress for both individuals and families,
causing lost production at home and work. The time for a financial
check-up is now!
Do you have financial goals? If so, are they in writing and do they
include deadlines? Goals, both short and long term, are the road map to
achieving good financial health. Your goals must address your saving
and spending patterns. Your goals should include a retirement age goal,
and a time frame for achieving financial security. They may include,
among others, goals for education, large purchases, vacations, wealth
transfer and charitable giving. These goals serve as a reminder of what
you need and want and each goal should be measurable.
Is your debt under control? Do you pay off your credit cards each
month? If you are among the 30 percent who pay off all their purchases
every month, you probably have your spending under control. Look at
your credit card statements. Can you remember what you bought with each
charge? If you can’t remember what you bought, there is a good chance
that you did not need it. Did you buy things that you really needed? Or
was it for something that you just wanted at the time? Have you used
all those things since you purchased them? Look at it this way: for
every $1,000 you owe on your account, you could be paying $200 each
year in interest payments. Do your math to see how much is flying out
the window every month in interest.
Have you started a retirement fund yet? If so will your current rate of
savings provide an adequate fund to meet your future retirement needs?
Tax laws allow and encourage personal savings for retirement in various
tax-favored accounts. They allow you to invest a considerable amount of
money each year, which starting early and saving on a regular basis,
will allow you to accumulate several million dollars in benefits.
Review your needs, determine the amount you can put away and then
determine which type of plan(s) will best suit your needs and goals.
Have you started a savings program to meet the cost requirements of
your children’s college education? If so, will your current savings
rate be adequate given the effects of inflation and rising tuition
costs? College education costs, similar to health care costs, tend to
rise much faster than the traditional consumer price index. In fact,
the average increase in college education costs runs close to six
percent while the long term average increase in the consumer price
index is roughly three percent. What this means for parents who plan to
support their children’s college education costs is that plans need to
be made as early as conceivably possible in order to achieve this vital
task.
By way of example, let’s assume, in today’s dollars, the cost of a
private college, room, board and books currently cost $30,000 per year.
With this cost, a rate of return of eight percent, after tax, and a
regimented plan of savings which begins the year of the child’s birth,
$6,800 would need to be saved and invested for college education each
and every year, including the years while in college. These savings
would yield, based on the hypothetical, a college fund of approximately
$305,000, to support four years of education. (This is a hypothetical
illustration and is not intended to reflect the actual performance of
any particular security). If you consider a state university rather
than a private college the needs and savings might be half of the
foregoing example. Still a sizable annual savings goal, college savings
is quite a challenge and one that requires early thought and
consideration.
In today’s world, one of the most efficient ways to save for college
education costs is to establish a Section 529 College Savings Plan for
your child or grandchild. These plans, under current tax laws, enable
earnings to grow un-taxed for both federal and state purposes and
withdrawals utilized for qualified college expenses to be removed from
the 529 College Savings Plan without federal tax consequences. Without
making use of the tax efficient program such as this, the task becomes
more daunting as any tax burden simply increases the amount which must
be saved. In order to plan for this most important expense, parents or
grandparents should develop a game plan and approach to funding these
costs immediately, before the challenge becomes insurmountable. As with
other investments, there are generally fees and expenses associated
with participation in a Coverdell ESA or a 529 savings plan. There is
also risk that these plans may lose money or not perform well enough to
cover college costs as anticipated. Most states offer their own 529
programs, which may provide advantages and benefits exclusively for
their residents. The tax implications can vary significantly from state
to state. Note that 529 savings plan withdrawals are free of federal
tax only through December 31, 2010, unless Congress acts to extend the
current tax law.
Have you reviewed your life insurance and disability coverage recently?
In the event of an untimely death or incapacitation, will your current
policies provide adequately for your spouse and/or children? Are you
one of the many individuals who have purchased a life insurance policy
or disability policy years ago and never reviewed the policy or your
needs again? In the case of life insurance, with increasing income and
obligations for children, including their future education, insurance
needs typically follow a pattern of increasing through most of your
working life then possibly leveling off or decreasing as you approach
and enter retirement. The reason is that, during this period of time,
many individuals create adequate retirement savings, which eliminates
the need for life insurance to provide financial resources to a
surviving spouse and family. Where large taxable estates are created,
the need usually continues to rise with time. Besides changes in needs,
advances in medical science have prolonged typical life spans and
generally made life insurance less expensive today than in the past.
In addition, a variety of life insurance policy design innovations have
changed the landscape from a world of annual renewal term policies and
whole life policies to a world of level term policies and guaranteed
universal life policies, to name a few. If you have a variable
universal life policy where the longevity and performance of the policy
is directly impacted by the underlying investments, like mutual funds,
which you selected, it is absolutely critical to review those policies,
especially in light of the several difficult years in the stock market,
to make certain the policies will provide the protection that was
originally anticipated.
In the case of disability income policies, regular changes in income
and frightening statistics which identify the likelihood of a
disability event make it critical to regularly review your needs. It is
not uncommon for older policies to be maintained and additional
coverage added to them, if available, or new policies layered on top in
order to provide for increased needs.
Other considerations as a result of a review of insurance could be
structural in nature where policy ownership or beneficiary designations
should be modified based on circumstances. As well, if the need for
life insurance has dissipated, in past years it was common to stop
paying the policy and cash it in if there was a cash value available.
In today’s environment it is possible to sell insurance policies to an
investor who may place a much greater value on the policy based on age
and circumstances. For all of these reasons, it is critical for a
periodic review of your policies to take place.
How do you make investment decisions: based on your personal interest
and hunches or do you have one or several advisors? Are you comfortable
with the level of risk associated with your current investments? Unless
you are a sophisticated investor or someone regularly assists you with
asset allocation decisions, it is likely an investment portfolio review
will prove of value. All too often, investments are made on hot tips or
selecting investments with the highest return last year. These
strategies often fail on several fronts. First, in advance of coming up
with a long-term investment strategy, it is crucial to identify the
investment time horizon, individual investor risk parameters and goals
for investment returns. Many factors weigh into the results, including:
the purpose of the investment – which could be buying a car, a home,
funding college education or retirement, the length of time to achieve
that goal; the investor’s risk preference, be it conservative,
aggressive or somewhere in between; the investors age; and total
financial resources.
As a result of carefully considering these items, an asset allocation
strategy should be developed making use of diversified asset classes.
Over time the best performing and worst performing asset classes will
constantly change and studies have shown that asset allocation is the
largest contributing factor to successful portfolio performance.
Contrasting an appropriately allocated portfolio to the hot stock
selection method, what is typically found is that a well-allocated
portfolio is much less volatile in overall performance than the
performance just before a hot stock was purchased, followed by abysmal
performance once the stock or asset class falls from favor. Going with
the hot tip or looking the rear view mirror is certainly not the tried
and true way to create serious wealth over time. It could prove to be
more like a wild roller coaster ride than an investment plan.
For these reasons it is important to seek out appropriate advice if you do not consider yourself a sophisticated investor.
Larry Simon, CPA, is a Managing Director with Margolis Financial
Services, LLC and a Financial Advisor with Raymond James Financial
Services, in Bala Cynwyd |
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You need to understand how each expense area impacts the operation of
your office and your overall efficiency to earn a living from your
professional practice
Accountants are always looking for an appropriate time of the year for
their clients to work on specific issues. During the preparation of tax
returns and financial statements, it is always an appropriate time to
look back at the previous year and determine whether there is
information in your financial statements and tax return data that can
help you understand your business better, and determine whether changes
need to be made going forward. Understanding how changes in the costs
of operating your office area is generally of high concern for
physicians.
In general, physician expenditures on office-related expenses can be
anywhere from 35 to 60 percent of their gross revenue. These obviously
include a couple of individual big items, like medical malpractice
insurance. Each area of expense in running your office can be analyzed.
The fact that an expense went up is not necessarily bad. Likewise, the
fact that an expense went down is not necessarily good. You need to
understand how each of the expense areas impacts the operation of your
office and your overall efficiency to earn a living from your
professional practice.
One additional area for analysis of the changes in operating expenses
is from month-to- month, quarter-to-quarter, as well as from
year-to-year. The two main areas for analysis, separate from an
individual review of payments out of each account, are benchmarking
your practice against other similar practices, and looking at your
practice over an extended period of time.
Benchmarking can often be done by utilizing your financial information
and converting it into a format similar to formats utilized by other
organizations. Groups like the American Medical Association and the
Medical Group Management Association often will publish information
with regard to statistical analyses of practice expenses. Understanding
how your practice compares to similar practices on a doctor-for-doctor
and/or dollar-for-dollar basis can often be enlightening and provide
guidance on those areas that you might want to further investigate.
Further investigation will then uncover whether your practice needs a
"tune up" with regard to operating efficiency. In addition, these
analyses will often show you where expenditures on your financial
statements may effectively overstate or understate your real operating
costs and operating profit. An example of this might be auto expenses,
where general statistics may show relatively small numbers, and your
group has opted for relatively luxurious automobiles, and you may have
multiple offices and hospital locations requiring a higher level of
business use of automobile expense as a deduction.
In analyzing the changes in your expenses, one thing that always needs
to be examined is the relative percentage of an expense to your total
fee income from one year to the next, as well as on a
quarter-by-quarter basis. Certainly individual expenditures, such as
meetings and seminars and malpractice insurance can be dramatically
affected from one month to the next or from one quarter to the next by
virtue of a particularly large payment. For these items, annual
analysis is usually best. For most other expenditures, trends will
develop early in the year with regard to increases or decreases based
on either management decisions and/or outside influences. Employee
benefits will normally change based on the number of employees who are
being employed, usually on a full-time basis, together with any changes
that have occurred in the Employee Benefit programs.
Over the past several years, employee benefits costs have generally
gone up at rates that exceed inflation. However, an analysis of the
employee benefits may lead to more efficient buying, a decision to
modify the employee benefits being provided, and/or requiring the
employees to participate in the cost increases. As an example, one
client of ours had a 4.2 percent ratio of employee benefits to revenue
for December 31, 2003 and the same client had approximately 3.4 percent
cost for the same category for the year ended December 31, 2004. The
majority of the decrease was due to a change in the employee benefit
program, and the selection of a new insurance carrier for the employees
early in the year ended December 31, 2004. Total revenue for this group
increased by about six percent and the total payroll for the office
(non-physician) employees increased by slightly less than one percent.
During this period of time, the office administrator utilized a
slightly greater mix of part-time employees, which allowed for a higher
collection on the accounts receivable (the part-time employees were
working in the evenings when collection calls could be made), as well
as reducing by one the number of employees for whom full benefits were
being paid.
In the same way, equipment rental expenses and related repair expenses
may be analyzed to show whether or not optimal use of rental contracts,
as well as maintenance contracts being compared to paying for
maintenance on a "pay as you go" basis, may give you information that
is useful in future decisions.
At the same time, reducing expenses may not necessarily be a benefit to
the practice. One of our clients reduced their telephone bills
significantly from 2003 to 2004, but simultaneously had a small
decrease in the collection percentage on their billings. It was
determined that they had elected to cease making all long-distance
phone calls from the office. Because of this, a significant number of
insurance companies were not called (they did not have toll-free, ‘800’
phone numbers available) and many of the patient accounts which were
using these carriers were falling substantially behind. This is what
Benjamin Franklin referred to as: "Penny wise; pound foolish" and this
phrase still resonates today in medical practices.
At the same time, a different client made a change in the telephone
service by shopping around, utilizing long-distance service buying
groups within their medical association, and were able to reduce their
total telephone costs from $36,000 in 2003 to $25,000 in 2004, with no
decrease in actual telephone utilization and no decrease in efficiency
in the accounts receivable department. In each of these areas, only a
combination of comparison to industry (specialty) statistics, as well
as your own specific statistics, can lead you to the correct questions
to be asked.
In many cases, all one needs to do is ask for certain discounts with
regard to certain expenses in order to obtain them. As was described in
an article in Medical Economics (December 19, 2003), if you don’t look
for discounts from any of your routine expenses, you simply won’t get
them. "A medical practice is a business," says Paul Angotti, a
consultant in Monument, Colorado. "The physician or office manager
should review contracts periodically to insure that they benefit the
business, and rework them as necessary." (From Medical Economics,
December 19, 2003.) This is still true with almost every type of
expenditure.
While we may not be able to walk into an office supply store andmake a
specific deal for a relatively modest purchase, we might be able to
deal with a medical supplies vendor, agree to buy 100 percent of our
needs from them for the forthcoming year and, in exchange, receive a 10
percent discount from the prices that we would otherwise be paying.
This can only be done by knowing where you are spending dollars and
what vendors you are currently using.
Even in the areas of insurance, for the most part other than
malpractice insurance, a full understanding of your expenses and your
coverage is important in order to optimize your payments. In some
cases, buying the cheapest insurance policy could wind up being costly.
In other cases, you might find upon analysis that you are actually
overpaying on your insurance and receiving coverage that you either do
not need or can not use. Finding a good insurance agent and, in some
cases, even having a comparison made by two different agents of your
insurance needs will optimize your costs.
One of the few things that can dramatically change the way your office
expenses pile up is the layout of an office. One opportunity, when a
new office is being designed or redesigned, is to make certain that
costs for on-going maintenance and related costs in patient flow,
office staff utilization, etc., can be minimized consistent with your
desired practice mode. The number of waiting areas that are needed will
impact on the furniture that is purchased, which will ultimately impact
on replacing the furniture and on the maintenance cost for routine
pick-up of trash, vacuuming, etc., as well as the number of staff that
may be needed to move patients from one area to another within your
office. Working with an architect, together with your office
administrator and accounting information, can assist you in these
areas.
One area that frequently gets inadequate attention with regard to the
cost issues is the information technology (IT) systems in the office.
Billing computers have traditionally been thought of as simply the cost
of the computer, as well as the cost of the staff. In fact, the
relative billing efficiency of one computer system versus another can
dramatically impact your staffing levels as well as your collection
realization. In addition, with the obvious change in information
technology for electronic medical records (EMR), the use of EMR,
together with billing and collection systems will dramatically change
many of the cost structures going forward.
A complete analysis of your office, understanding the need for staff
changes with the advent of EMR as well as how that impacts on billing
and collection, can dramatically alter the cost structure over the next
few years. Some practices will certainly make very efficient use of EMR
and computerized systems, and will actually become more cost efficient.
Others will most likely make inefficient and inappropriate decisions,
and will end up replacing systems prematurely, finding that their
operation is not conducted efficiently, leading to increased costs,
decreased collection and ultimately the need to replace the system
prematurely.
In summary, all of the pieces of the financial "pie" (information that
comes to a practice) can be analyzed, and many of them are more within
the control of the practice and the practice managers than you might
think.
David H. Glusman. David H. Glusman, CPA is a principal at Margolis
& Company P.C. and is co-chair of the firm’s Healthcare Services
Group. |
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 No matter how well run the practice, there inevitably will come a
day when you have to terminate one of your employees. For medical
practices, many of which tend to be small businesses, this step may
seem like severing ties with a family member. There are many
reasons and circumstances that may necessitate this action, but your
response must be professional regardless. In today's litigious society,
many employees may be tempted to sue if they feel they have been
unfairly terminated. The explosion in employment-related lawsuits over
the past decade has left many employers wondering under what
circumstances they can safely discipline or discharge an employee
without legal action. There are, however, policies and procedures you
can implement to ensure your practice is not on the receiving end of a
law suit.
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Studies' findings show polar-opposite conclusions