Building Value into a Medical Practice

by John Peiser, MBA, CPA, CVA Partner, Goldin Peiser & Peiser, LLP

For a medical practice to be successful, its physician-owner must do more than simply produce satisfied patient-customers. The doctor must operate the practice as a business—an entity that generates revenues, assesses risks, and sets long-term financial strategies and goals.

Most physicians, although incredibly knowledgeable about the human body, are not trained in the analytical methodologies required to scrutinize and evaluate the overall business functions of their practice. Even those physicians with the time and skills necessary to manage the day-to-day business operations of their practice cannot deny that their energy is better spent on the more critical role of treating patients.

Often, outside financial consultants versed in handling issues facing physicians can be valuable business partners, allowing the physician to concentrate on medicine, while the business adviser provides personal attention and customized solutions that meet immediate and future business needs.

The financial consultant can help the physician focus on the business side of medicine, with the goal of building financial value, which requires concentration on two primary elements:
• Enhancing revenues and profits, and
• Reducing risks.

A savvy financial consultant can help a physician answer questions such as:
• How much money is my practice generating?
• What are my sources of revenue?
• What is my billing rate? Is it comparable to others in the marketplace?
• Who are my patients, where do they live, and how often do I see them?
• Is my practice offering a full array of services, comparable to those available in similar practices?
• What types of billing procedures is my practice using?

On the risk side of the equation, physicians should be able to respond to questions such as:
• What risks are associated with revenues?
• Is my practice dependent on one physician, or is it a multiphysician practice?
• How many insurance companies serve as providers?
• Is my goal to grow the practice or to retire in a few years?
• What is my cash flow?
• Is my practice based on high volume, but low revenue-generating services, or fewer procedures producing higher revenues?

Evaluating answers to these types of questions can provide a plan for minimizing risk, while optimizing revenues. Applying measurement tools and statistical data can give greater insight into how well (or how poorly) a practice is operating. These include looking at a physician’s financial reports.

Particularly in smaller practices, physicians often use cash-based financial statements, which do not provide as meaningful a picture of revenue collection, income generation, or billing details as other methods do. They also can hide billing oversights and errors. An accrual-based system typically offers a more discerning glimpse at how funds are collected and distributed within the practice.

A good business adviser also can help physicians obtain a more strategic overview of their medical specialty, including encouraging them to explore cutting-edge technologies—both medical and financial—that could improve productivity and/or lower bottom-line costs. These could include reviewing new medical procedures, more sophisticated office equipment, ways to cut patient waiting times, and marketplace trends.

Administrative expenses within a medical practice consume a major portion of monthly budgets. And with overall medical costs continuing to rise across the nation, physicians are being forced to better track expenses and search for cost-cutting measures and improved efficiencies.

In summary, a savvy physician not only must stay abreast of medical breakthroughs, but also must operate a financially driven and marketing-oriented practice. He must think of his practice as a business, and view himself as wearing multiple hats—that of a shareholder, a business manager, and an employee/worker.

Financial consultants can bridge the gap between the medical and business sides of a medical practice, offering practical knowledge and skills that can help the physician optimize value at an acceptable level of risk. They also can help with asset protection, portfolio investment, contract negotiations, employment issues, practice valuation, and tax strategies.