To avoid a cash-flow crunch, ensure that your revenue is adequate for your practice
Physicians who run their own clinics have many responsibilities: patients, employees, facilities, and their own income. Carefully tracking revenue and expenses must be a top priority, however, because a clinic cannot survive without adequate funding.
“Financial review is a must for any business. In addition to stimulating growth, a review enables you to identify problems that need to be addressed.”
—Pragnesh M.Vachharajani, MD, family physician with a special interest in obesity and lifestyle-related disorders in Ahmedabad, Gujarat, India and a member of mdCurrent-India’s Editorial Advisory Board.
Although controlling and monitoring cash flow is important, these activities do not need to dominate your professional life. Here are some pointers on how to keep your practice financially healthy:
mdCurrent Pearl: Monitoring revenue requires only a little extra time, but will be very beneficial for the long-term health of your clinic.
- Forecast your revenue and productivity.
- Compare your data to targets.
- Ensure that your staff collects monies owed for your services promptly and in full.
- Conduct short, frequent financial reviews to spot problems sooner.
Revenue and productivity forecasts
All businesses—including clinics—must estimate how much revenue they will collect and determine if that amount will cover their operating expenses. Usually these forecasts are based on historical data. But even owners of new clinics can predict earnings.
New clinics should base revenue forecasts on market research and information about clinics that mirror theirs in size and specialty. For example, your research might show that several similar clinics have closed, meaning that more patients will gravitate toward your clinic and boost your practice’s revenue.
Your research can also help you determine what to charge for your services. In the mdCurrent.in article,Calculating physician fees requires market knowledge and flexibility, physicians told us that asking colleagues what they and area hospitals charge is a proven method for setting fees.
After the data is collected, you need to determine what your expenses will be in the coming months. New physicians should limit their expenses as they build their practices. Start with minimum staff, clinic space, and supplies. Once you arrive at an expense projection, establish the revenue target for the month, quarter, and year. After a target is set, calculate how many patient visits and/or procedures will be required to achieve your revenue goal.
Review collections often and, if necessary, revise charges
Once a practice is operational, physicians must diligently track revenue and expenses to determine how actual performance compares to targets.
This process can be simple, Vachharajani says. Input data—such as revenue from patient visits and procedures—on a Microsoft Excel spreadsheet and compare that to data for similar time periods.
“Convert the figures to a graphical form,” says Vachharajani, who performs monthly, quarterly, and annual analyses. “Visualization makes a good impact.”
If collections are not meeting expectations, first ensure that your practice’s productivity is sufficient to generate the required revenue. If not, then you will need to identify the obstacles that are interfering with productivity goals.
If productivity is meeting expectations, look at your practice’s collection rate. Are patients paying in full? If not, how much is still outstanding? What is preventing employees from collecting monies owed? Addressing collections issues will help your clinic overcome cash-flow crunches.
If it’s not a collection issue, then perhaps you will need to increase your prices to meet your revenue goals.
Your expertise is in medicine, not financial management, so if you can afford it, hire an accountant to oversee your practice’s financial well-being. But for physicians who need to monitor finances on their own, it just requires a little extra time. In the end, you will be better able to assess your clinic’s monetary condition and its future.
“Reviewing finances helps you explore weak areas,” Vachharajani says. “When you do this on a regular basis, you can anticipate problems in advance and plan properly.”
Physicians who run their own clinics have many responsibilities: patients, employees, facilities, and their own income. Carefully tracking revenue and expenses must be a top priority, however, because a clinic cannot survive without adequate funding.“Financial review is a must for any business. In addition to stimulating growth, a review enables you to identify problems that need to be addressed.” —Pragnesh M.Vachharajani, MD, family physician with a special interest in obesity and lifestyle-related disorders in Ahmedabad, Gujarat, India and a member of mdCurrent-India’s Editorial Advisory Board.
Although controlling and monitoring cash flow is important, these activities do not need to dominate your professional life. Here are some pointers on how to keep your practice financially healthy:
mdCurrent Pearl: Monitoring revenue requires only a little extra time, but will be very beneficial for the long-term health of your clinic.
- Forecast your revenue and productivity.
- Compare your data to targets.
- Ensure that your staff collects monies owed for your services promptly and in full.
- Conduct short, frequent financial reviews to spot problems sooner.
Revenue and productivity forecasts
All businesses—including clinics—must estimate how much revenue they will collect and determine if that amount will cover their operating expenses. Usually these forecasts are based on historical data. But even owners of new clinics can predict earnings.
New clinics should base revenue forecasts on market research and information about clinics that mirror theirs in size and specialty. For example, your research might show that several similar clinics have closed, meaning that more patients will gravitate toward your clinic and boost your practice’s revenue.
Your research can also help you determine what to charge for your services. In the mdCurrent.in article,Calculating physician fees requires market knowledge and flexibility, physicians told us that asking colleagues what they and area hospitals charge is a proven method for setting fees.
After the data is collected, you need to determine what your expenses will be in the coming months. New physicians should limit their expenses as they build their practices. Start with minimum staff, clinic space, and supplies. Once you arrive at an expense projection, establish the revenue target for the month, quarter, and year. After a target is set, calculate how many patient visits and/or procedures will be required to achieve your revenue goal.
Review collections often and, if necessary, revise charges
Once a practice is operational, physicians must diligently track revenue and expenses to determine how actual performance compares to targets.
This process can be simple, Vachharajani says. Input data—such as revenue from patient visits and procedures—on a Microsoft Excel spreadsheet and compare that to data for similar time periods.
“Convert the figures to a graphical form,” says Vachharajani, who performs monthly, quarterly, and annual analyses. “Visualization makes a good impact.”
If collections are not meeting expectations, first ensure that your practice’s productivity is sufficient to generate the required revenue. If not, then you will need to identify the obstacles that are interfering with productivity goals.
If productivity is meeting expectations, look at your practice’s collection rate. Are patients paying in full? If not, how much is still outstanding? What is preventing employees from collecting monies owed? Addressing collections issues will help your clinic overcome cash-flow crunches.
If it’s not a collection issue, then perhaps you will need to increase your prices to meet your revenue goals.
Your expertise is in medicine, not financial management, so if you can afford it, hire an accountant to oversee your practice’s financial well-being. But for physicians who need to monitor finances on their own, it just requires a little extra time. In the end, you will be better able to assess your clinic’s monetary condition and its future.
“Reviewing finances helps you explore weak areas,” Vachharajani says. “When you do this on a regular basis, you can anticipate problems in advance and plan properly.”
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Calculating physician fees requires market knowledge and flexibility
Physicians just starting out may not be certain of how to calculate fees for their medical services. While it is tempting to charge large fees in order to resolve debts and build a savings quickly, new physicians probably will not attract enough patients to sustain a clinic if their rates are too high. Conversely, setting your fees too low puts your clinic at risk of not covering expenses and going into further debt.
“I was the first subspecialist in my community and pegged my fees at 150 percent of what the internists were charging,” says Sanjay Kalra, MD, DM, consultant and head of the Bharti Research Institute of Diabetes and Endocrinology at Bharti Hospital. “Given another chance, I would begin at a higher rate.”
mdCurrent Pearl: Calculating your fees requires a careful consideration of your personal financial goals, competitors’ rates, and your patients’ resources.
When calculating fees for your clinic, consider the following recommendations from experienced physicians:
- Study what other clinics or private hospitals are charging in your area for comparable services and base your fees accordingly.
- Do not overcharge, but setting fees too low may affect patients’ perception of your quality.
- Patient feedback regarding fees can be helpful, but do not let it compromise your clinic’s financial health.
- Reassess fees every year or two, then adjust for inflation and changes in the market.
“A 10 to 20 percent increase once in two years is not a huge increase when you look at the starting point and inflation in India, which is 6 to 8 percent per year.”
—Thomas Alexander, MD, DM, FACC, FICC, FCSI, interventional cardiologist and head of the Division of Cardiology at Kovai Medical Center and Hospital in Coimbatore and a member of mdCurrent-India’sEditorial Advisory Board.
Study the market
What other clinics and private hospitals are charging is not protected information or difficult to discover, says Thomas Alexander, MD, DM, FACC, FICC, FCSI, an interventional cardiologist and head of the Division of Cardiology at Kovai Medical Center and Hospital in Coimbatore.
Every couple of years, the hospital revises its charges—including consultation and procedure fees—usually based on input from the consultants and fees from other local hospitals. Fees can increase 10 to 20 percent between revisions.
“A 10 to 20 percent increase once in two years is not a huge hike when you look at the starting point and inflation in India, which is 6 to 8 percent per year,” Alexander says. For example, outpatient consultation fees at Alexander’s hospital were Rs.100 in 1993 when he joined and have only climbed to Rs.200. “However,” Alexander warns, “those doing private practice outside a hospital setting can and do charge consultation fees between Rs.300 and Rs.500.”
Consider patient financial situations
Physicians say they do not formally survey patients about what they are able to afford for medical services, or recall any objections when fees have been raised. Regardless, affordability should be a consideration, says Raghavendra D. Kulkarni, MD, professor and head of the Department of Microbiology, SDM College of Medical Sciences and Hospital, Dharwad, Karnataka.
“We want to offer services at a minimum possible cost to patients without incurring losses,” says Kulkarni, whose department typically charges 30 percent more than the actual material expenses for each of its tests. “It is always successful,” he continues. “Patients can compare the charges with those of other service providers. They are happy with what we are charging.”
New physicians, especially, should be aware of what patients expect to pay for services. But be careful not to charge too little, says Pragnesh M. Vachharajani, MBBS, PGDMCH, a family physician in Ahmedabad, Gujarat, with a special interest in obesity and lifestyle-related disorders. “Patients underestimate physicians who undercharge,” he says. “When you are new, you do not want to take risks.”
Like most physicians and private hospitals, Vachharajani re-examines his fees every year or two, and typically raises them based on rates in his market.
“Now, after 10 years, depending upon patient feedback and following some leaders in the practice, I can afford to take risks and charge more for some services than my colleagues in the area,” he says. “It all depends on one’s growth and satisfaction.”
Find a balance
In the end, regardless of the method chosen to calculate your fees, experienced doctors recommend finding a balance between your personal financial goals, the market, and your patients’ financial resources.
“Try to minimize the profit margin,” says Kulkarni. “Do not expect too fat returns for the service component. We are doctors, not businesspeople.”
Physicians just starting out may not be certain of how to calculate fees for their medical services. While it is tempting to charge large fees in order to resolve debts and build a savings quickly, new physicians probably will not attract enough patients to sustain a clinic if their rates are too high. Conversely, setting your fees too low puts your clinic at risk of not covering expenses and going into further debt.
“I was the first subspecialist in my community and pegged my fees at 150 percent of what the internists were charging,” says Sanjay Kalra, MD, DM, consultant and head of the Bharti Research Institute of Diabetes and Endocrinology at Bharti Hospital. “Given another chance, I would begin at a higher rate.”
mdCurrent Pearl: Calculating your fees requires a careful consideration of your personal financial goals, competitors’ rates, and your patients’ resources.
When calculating fees for your clinic, consider the following recommendations from experienced physicians:
- Study what other clinics or private hospitals are charging in your area for comparable services and base your fees accordingly.
- Do not overcharge, but setting fees too low may affect patients’ perception of your quality.
- Patient feedback regarding fees can be helpful, but do not let it compromise your clinic’s financial health.
- Reassess fees every year or two, then adjust for inflation and changes in the market.
“A 10 to 20 percent increase once in two years is not a huge increase when you look at the starting point and inflation in India, which is 6 to 8 percent per year.”
—Thomas Alexander, MD, DM, FACC, FICC, FCSI, interventional cardiologist and head of the Division of Cardiology at Kovai Medical Center and Hospital in Coimbatore and a member of mdCurrent-India’sEditorial Advisory Board.
Study the market
What other clinics and private hospitals are charging is not protected information or difficult to discover, says Thomas Alexander, MD, DM, FACC, FICC, FCSI, an interventional cardiologist and head of the Division of Cardiology at Kovai Medical Center and Hospital in Coimbatore.
Every couple of years, the hospital revises its charges—including consultation and procedure fees—usually based on input from the consultants and fees from other local hospitals. Fees can increase 10 to 20 percent between revisions.
“A 10 to 20 percent increase once in two years is not a huge hike when you look at the starting point and inflation in India, which is 6 to 8 percent per year,” Alexander says. For example, outpatient consultation fees at Alexander’s hospital were Rs.100 in 1993 when he joined and have only climbed to Rs.200. “However,” Alexander warns, “those doing private practice outside a hospital setting can and do charge consultation fees between Rs.300 and Rs.500.”
Consider patient financial situations
Physicians say they do not formally survey patients about what they are able to afford for medical services, or recall any objections when fees have been raised. Regardless, affordability should be a consideration, says Raghavendra D. Kulkarni, MD, professor and head of the Department of Microbiology, SDM College of Medical Sciences and Hospital, Dharwad, Karnataka.
“We want to offer services at a minimum possible cost to patients without incurring losses,” says Kulkarni, whose department typically charges 30 percent more than the actual material expenses for each of its tests. “It is always successful,” he continues. “Patients can compare the charges with those of other service providers. They are happy with what we are charging.”
New physicians, especially, should be aware of what patients expect to pay for services. But be careful not to charge too little, says Pragnesh M. Vachharajani, MBBS, PGDMCH, a family physician in Ahmedabad, Gujarat, with a special interest in obesity and lifestyle-related disorders. “Patients underestimate physicians who undercharge,” he says. “When you are new, you do not want to take risks.”
Like most physicians and private hospitals, Vachharajani re-examines his fees every year or two, and typically raises them based on rates in his market.
“Now, after 10 years, depending upon patient feedback and following some leaders in the practice, I can afford to take risks and charge more for some services than my colleagues in the area,” he says. “It all depends on one’s growth and satisfaction.”
Find a balance
In the end, regardless of the method chosen to calculate your fees, experienced doctors recommend finding a balance between your personal financial goals, the market, and your patients’ financial resources.
“Try to minimize the profit margin,” says Kulkarni. “Do not expect too fat returns for the service component. We are doctors, not businesspeople.”
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Controlling expenses requires prudence, monitoring, and teamwork
Many physicians see productivity as the sole measure of a healthy clinic. While it is true that a nonproductive clinic cannot stay open (see “To maximize productivity, use benchmarks, delegate tasks, and download free web-based tools”), no amount of productivity can save a clinic from wasteful spending or poor investments.
“In the initial years of setting up a practice, expenses are always high. However, you should opt for the best possible equipment. In the long run, top-notch equipment carries low maintenance fees.” —Pragnesh M. Vachharajani, MD, a family physician with a special interest in obesity and lifestyle-related disorders in Ahmedabad, Gujarat, India, and a member of mdCurrent-India’sEditorial Advisory Board
“Do not spend on things that you feel are unnecessary,” says Raghavendra D. Kulkarni, MD, professor and head of the Department of Microbiology, SDM College of Medical Sciences and Hospital, Dharwad, Karnataka. “Resist peer pressure. A posh clinic may impress patients, but ultimately professionalism, your rapport with patients, and your attention to patients’ medical problems are the most effective practice-builders.”
Kulkarni, other doctors we spoke with, and clinic management experts offer the following tips for controlling clinic costs:
mdCurrent Pearl: Control expenses by making prudent purchasing decisions and carefully monitoring revenue and costs.
- Spend prudently.
- Focus primarily—but not totally—on productivity.
- Purchase quality equipment.
- Monitor expenses as well as revenue.
- Ask employees for help.
Prudence and good judgment are paramount
New physicians who have limited or borrowed funds should think carefully before making purchases. For example, is buying your own clinic building the most prudent course, or would partnering with other physicians be a financially safer decision?
“Opting for a group practice gives you an edge,” says Pragnesh M. Vachharajani, MD, a family physician with a special interest in obesity and lifestyle-related disorders in Ahmedabad, Gujarat, India, and a member of mdCurrent-India’s Editorial Advisory Board. “You can buy a larger space and offer more services if you share expenses.”
Likewise, because real estate in major cities is quite costly, if you establish your clinic in a less populated area you can secure a better building at a lower price. Another option, according to Vachharajani: corporate hospitals offer leasing arrangements to consulting physicians, provided that they refer to the hospital for procedures.
“The idea is to strike balance,” Vachharajani adds. “If you have the best possible facilities in place and income is still stagnant, then productivity should be targeted.”
Productivity and quality equipment guard against losses
Consistent productivity is how Kulkarni guards against rising expenses.
“Money saved is money earned,” he says. “But if you focus only on saving, you will be out of business quickly.”
New physicians, especially those in procedure-oriented specialties, may be tempted to cut costs by purchasing less expensive equipment. The lower price, however, typically indicates inferior quality. In the end, that physician will spend more on equipment repairs and replacements, Vachharajani says.
“In the initial years of setting up a practice, expenses are always high,” he says. “However, you should opt for the best possible equipment. In the long run, top-notch equipment carries lower maintenance fees.”
Diligent monitoring
Once you have purchased real estate and equipment, controlling expenses such as wages, supplies, and utilities is just a matter of careful monitoring and teamwork.
“A regular audit of clinic expenses is required,” Vachharajani says. “This helps you identify bleeding areas so you can fix them. Regular maintenance brings down operating costs and makes machines more productive.”
Vachharajani reviews his clinic’s revenues and expenses monthly, quarterly, and yearly and he adjusts his fees to offset rising wages and other costs. This type of monitoring will help prevent surprises, such as an unexpectedly small bank account balance.
“Every practice needs to review finances and facilities regularly,” Vachharajani says. “Controlling expenses is a team effort that requires constant support from every team member.”
Prudent cost management is important for a healthy, long-lasting practice, but do not let it distract you from concentrating on your top priority: patients. Your productivity will ultimately dictate how strictly you need to control expenses.
“If I spend only on necessary things then I do not need to worry about costs spiraling out of control,” Kulkarni says. “If we cannot spend on things necessary to run our business, then better to close it down.”
Clinical cost management checklist:
- Focus on value—and quality—when purchasing real estate and equipment.
- Consider less expensive alternatives, such as partnering with another physician.
- High productivity offsets high expenses.
- Conduct regular financial audits.
- Remember that patient care is your top priority.
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