Let’s begin by talking about internal control… this is a process which is set up to provide reasonable assurance that effective and efficient operations are in place for reliability and compliance with laws and regulations with regards to your financial operations.  Internal control consists of five components derived from the way management operates a business.  The five components are: control environment, risk assessment, control activities, information and communication and monitoring. 

These five components form an integrated system capable of reacting dynamically to changing conditions. When looking at any one area, all five components must be present and functioning effectively to ensure proper performance of internal control. Accounting systems and procedures –many potential trouble spots arise with handling cash, inventory control, supply rooms and tampering with the accounting system. Here are some samples of poor procedures:

The same person handles cash receipts and has access to accounts receivable records.  In some cases, the individual also deposits checks at the bank.  The individual who writes checks for payments also reconciles the bank statements.

Poor physical safeguards and no limitations on persons who can access drugs and medical supplies.

 Let’s review some Financial Indicators of Practice Performance. 

Total gross charges per FTE physician= gross fee for service charges divided by total FTE physicians.  This equation provides an overall picture of the financial productivity of the group.

Total gross revenue per FTE physician= total medical revenue/ total FTE physicians. This equation provides an important measure of the financial stability of the group. It is a way to compare relative productivity and profitability between practices.

Gross collection ratio = Net fee for service or collections over gross fee for service charges.  This calculation provides the collection margin for the group or the amount of work that needs to be done relative to the actual revenue collected.

The total operating cost as a percent of medical revenue= total operating costs/ total medical revenue x 100.  Identifies the group’s overhead ratio or the percentage of revenue that is spent to cover operating costs.

Subtracted from 100 it represents the amount of money available for physician compensation or reinvestment in the practice.

Accounts receivable per FTE physician = accounts receivable divided by total FTE physicians.  This provides an average measure of the group’s charges that are outstanding per FTE physician and can help identify potential problem areas in the billing and collection procedures.

Questions? Feedback? 

Have a great weekend!