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Prescription for an ailing practice

Prescription for an ailing practice

By Kevin Warneke, CPA, Partner of Assurance Services

Managed care, Medicare and Medicaid reimbursements, and the Affordable Care Act (ACA) all present challenges for a medical practice. However, many problems are self-inflicted. Is your medical practice not performing as well as expected? Is revenue dropping? Are you having problems covering costs? Take a hard look at your practice and diagnose the problem. To help put you on the road to recovery, follow these steps.

 

1. Improve cash flow

First, make sure you’re collecting outstanding accounts receivable. Second, prioritize your disbursements, with mandatory expenses first, such as payroll and payroll taxes. Third, ensure your cash reimbursement projections are realistic.

 

2. Cut costs and control expenses

It’s time to be tough. Are there unreasonable overhead expenses or unnecessary luxuries? Can you renegotiate leases?

 

3. Discharge unprofitable patients

Review your pricing strategy. Do you have an unusual number of unprofitable, nonpaying, or pro bono patients? It might be time to let them go.

 

4. Turn around debt/cash flow

Make sure your practice has the necessary cash to finance a turnaround. This can be a combination of turnaround debt and equity capital. Clearly define requests for turnaround funding in terms of amount, what it will be used for and the repayment plan.

 

5. Work with creditors

If you’re bleeding cash, stop it as quickly as possible. If you have unpaid debts to creditors that will hurt the practice, deal with it. Work with creditors — they want customers to be solvent rather than declare bankruptcy. Share a comprehensive turnaround plan and reschedule payments.

 

6. Find partners

You might need to hire a turnaround professional, who will be able to unemotionally assess the problems and spot issues that you may not see.

 

7. Measure the turnaround

Early turnaround is usually about correcting problems. The later stages are about profitability and restoring equity. It’s imperative that you evaluate each of these steps to determine how well it worked, or is working.

 

8. Rebuild credit

Pay bills promptly. Make sure creditors consistently report your practice’s payment history to the credit bureaus. Contribute to your practice’s credit profile.

 

9. Work with your local bank

Your local bank — the one that receives your deposits from patients and insurance companies — is a good resource. It wants to help.

 

10. Develop a new plan

The definition of insanity is doing the same thing over and over again and expecting a different result. The best prescription for an ailing practice is to look at your business plan, identify the processes that got you into trouble in the first place and try something new.

 

Seek the services of a legal or tax adviser before implementing any ideas contained in this blog. To reach a financial advisor at Lane Gorman Trubitt LLC, call (214) 871-7500 or email askus@lgt-cpa.com.

Kevin WarnekeKevin joined LGT in 2000. He has excess of 10 years’ experience in public accounting. His experience includes the audits of a broad range of financial statements. He has audited various industries, clients from less than $1 million to more than $700 million in revenue, local to international, privately held companies and SEC Registrants, stand alone and consolidated, reporting under PCAOB, GAAP, IFRS and OCBOA. He has been responsible for all aspects of the audit from planning engagements, assessing risk, supervising staff, reviewing audit work and financial statements, and presentation of deliverables to the client. Kevin also provides advisory services and comments relating to internal control over financial reporting.