COPM Financial

Mon, 28 Jul 2014 17:31:20 GMT

Happy Monday!!!

Finance is an important piece of a practice manager's position. We need to know about so many different facets of finance from accounting, cost of goods sold, different financial statements, cash vs accrual.

Let's get started -

First and foremost we all must know what GAAP means and who governs these principals.

Generally Accepted Accounting Principles (GAAP) are the rules and

standards utilized by accountants when preparing financial statements.

The federal government grants the Securities and Exchange Commission

(SEC) the power to set accounting principles.

For the most part, the rules outlined by the GAAP for determining the profits of a

business coincide with methods used to calculate taxable income. The rules also specify what

needs to be disclosed. They are the recognized standards used in preparing financial statements.

They are meant to be used consistently and uniformly in all businesses. The overall intent of the

GAAP is the establishment of uniform methods and vocabulary and full disclosure in financial

reports.

Here is a finance question for you to try.

In accrual accounting, all of the following are true EXCEPT that:
a - items are expensed when the liability is incurred.
b- equipment must be totally expensed at the time of payment
c-revenue is reported when earned
d-future liabilities must be expensed.
^
^
^
^
Answer is....

B - Equipment is not expensed totally at the time of payment. Depreciation entries are completed.

How'd you do?

Tue, 29 Jul 2014 04:33:32 GMT

So many areas could fall under the financial umbrella, budget, financial statements, accural and cash basis accounting, accounts receivable, internal controls, etc.
Do you have any questions regarding anything you have studied so far in the financial section?
Do you do the financials in your practice or do you have an accountant?
Do you do a yearly budget? Capital or operations?

Tue, 29 Jul 2014 13:16:13 GMT

Hi All --Hope you had a great Monday. Only 3 more wake ups until the weekend!! :)

Financial statements is the subject today.
The financial statements tell an important story. They help to accomplish the following:
 Demonstrate the amount of income or loss available for the owners/business.
 Provide information to make sound business decisions as they represent the financial
status of a practice at a particular point in time.
 Demonstrate the practice’s earnings, owners’ capital, cash flow, and operational
performance.
There are four basic types of financial statements:
 Balance Sheet
 Income Statement
 Cash Flow Statement
 Retained Earnings
Do you know what each are used for in your practice? How do you use them? Whats the importance of each?

Tue, 29 Jul 2014 21:05:59 GMT

I love this stuff - Here are a few of my favorite key formulas...
Do you use these in your practice?

Total Gross Charges per FTE Physician =
Gross fee for service Charges /Total FTE Physicians
-provides an overall picture of the financial productivity of the group

Total Net Revenue per FTE Physician =
Total Medical Revenue / Total FTE Physicians
-provides important measure of the financial stability of the group of a way to compare relative productivity and profitability between practices.

Total Operating Costs per FTE Physician =
Total Operating Costs / Total FTE Physicians
-provides indicator of the operating expenses incurred to provide patient care per FTE physician. Used to monitor efficiency and cost effectiveness of operations

Net Fee for service or Collections
Gross Fee for service Charges
-provides the collection margin for the group or the amount of work that needs to be
done relative to the actual revenue collected

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.

Total Support Salary Expense per FTE Physician =
Total Support Staff Salary Expenses/ Total FTE Physician
-Identifies the average support staff salary expense per physician. Indicates cost
effectiveness

Total General and Administrative Expense per FTE Physician=
Total General and Administrative Expenses/ Total FTE Physician
-Identifies the average general and administrative expense allocated to each
physician.

Thu, 31 Jul 2014 18:02:35 GMT

A lot to digest! I know.

Let’s see how you are doing

Which of the following is a fixed cost:

A. Nurse Staff Wages
B. Rent Expense
C. Medical Supplies
D. Equipment depreciation

And the answer is……

B – Rent is a fixed expense. All of the others are considered variable expenses.

Here is some additional information regarding budgeting expenses.

Budgeting Expenses
The four patterns of cost behavior are variable, fixed, mixed or semi-variable and step-fixed.
Variable costs change in proportion to changes in activity; while fixed costs do not change as activity changes. Some costs exhibit both characteristics (mixed), while other costs increase in stair-step fashion (step-fixed). A useful concept in estimating specific expenses in the budgeting process is to identify the flexible budgeting formula for each expense and to apply it in making expense projections.
Creating the Expense Budget
Labor is the largest expense of the physician practice. The total non-physician labor budget may represent 60 percent of operating costs. Most of the labor expense takes the form of salaries and benefits for medical and administrative personnel. Physician compensation may consist of a base salary and benefits as well as an incentive or bonus component. Other
medical personnel as well as administrative personnel will typically be compensated with base salary plus benefits.
General operating costs typically consist of information technology costs, medical and surgical supply costs, building and occupancy costs, professional liability costs, depreciationon furniture and equipment, interest on debt outstanding, administrative supply costs, and promotion and marketing costs. The budget for general operating costs is determined by examining each line item of the prior year’s budget and adjusted for changes expected in the upcoming year.

Compare Budget to Actual
It is the practice manager’s responsibility to
 establish targets for the financial performance of the practice
 communicate the targets to and obtain agreement from the physicians.
 monitor the performance of the practice.
 report any variances from the targets to the physicians, using a simple and consistent method.

Thu, 31 Jul 2014 18:03:22 GMT

Please let me know what you would like further in depth discussion about - I am open to suggestions!

One more wake up until the weekend!! :)

Fri, 1 Aug 2014 19:43:04 GMT

TGIF -
Return on Investment
Return on investment (ROI), also referred to as rate of return (ROR), is the ratio of money earned or lost on a given investment relative to the amount of money invested. Determining the ROI is a very important part of any investment review. Whether you’re investing in capital upgrades or new business ventures, estimating a return on investment will help you choose among investment options. In order to calculate ROI, you must:
1) Calculate all costs associated with a given investment. This would include all up-front
costs, maintenance costs, time costs, etc.
2) Estimate returns on the investment. How much will you gain from the investment
(revenue) and when do you expect the gains.
3) Establish a timeline for costs and returns
4) Calculate annualized ROI.

What would you use an ROI for in your practice?

Perhaps when a physician is interested in a new videostroboscopy or laser for facial plastics.

Cost Benefit Analysis
Cost-benefit analysis (CBA), also called benefit-cost analysis, is a process for calculating and comparing benefits and associated costs of a given project or decision. The reasons for performing a cost-benefit analysis are to: determine if the project/decision is a sound investment – meaning is it justifiable, feasible – and to provide a means for comparing projects to one another by comparing the cost of each option against the benefits of each to see whether benefits outweigh costs and by how much. Performing a CBA is more comprehensive than an ROI as it takes into account both hard and soft (tangible/intangible) costs and benefits including effects on people (stakeholders, non-stakeholders) and the environment.

When would you use a CBA?

New services? New Projects?

Both of these resources are critical when making substantial financial decisions for products or services.

Enjoy your weekend!!! Study, Study, Study!!! :)

Mon, 4 Aug 2014 18:21:52 GMT

Happy Monday!

This week we continue to work on Finance. Please be sure to let me know if you have any questions on any of the topics covered so far OR if you have any ideas/suggests, etc. for topics to go more in depth with this week.

Let’s take a look at some finance terminology.

Direct Cost - a cost that can be traced to or caused by a particular service, product, segment or activity of the practice.

Example: There are direct costs of performing a particular procedure, making a product, or managing a department or an office. Direct costs in a practice include salaries of the

physician and other medical personnel involved in delivering care, supplies used and in some cases outside referral costs.

Indirect Cost - a cost that cannot be traced to a particular cost object – a service, product, segment or activity. They are costs necessary to support the practice but can not be directly traceable to a single cost object.

Examples include salaries of employees in the business office, malpractice insurance,

maintenance expenses, occupancy costs i.e. rent or building expenses. Also referred to as overhead.

Depreciation is a non-cash expense that reduces the value of a tangible asset (such as real property, vehicles, or equipment) over time as a result of wear and tear, age, or

obsolescence. Most tangible assets depreciate and eventually must be replaced.

Depreciation is an accounting mechanism for recognizing the declining value of such assets over time that lowers a company’s gross profit, thereby reducing its taxable income.

Accounts receivable in a medical practice primarily consist of the charges owed to the

practice by insurance companies, patients or third-party payers. Most private practices

are on the cash basis of reporting for income tax purposes, which means income is

recorded when cash is received, and expenses are recorded when cash is paid out.

Tue, 5 Aug 2014 19:40:59 GMT

Yesterday we defined depreciation. Today, I wanted to review the different methods of calculating depreciation.

The straight-line method provides for equal periodic charges to expense over the life of the asset. This method is widely used. It provides a reasonable allocation of costs to periodic revenue when usage is relatively uniform from period to period.

The declining-balance method provides a steadily declining periodic depreciation over the estimated life of the assets. This method is most appropriate when the decline in productivity is proportionately greater in the early years of an asset’s use than in the later years.

Does anyone have any questions? Financial or otherwise? How is your study prep going? We are here to help, so if there is anything you are looking for or wanting us to focus on, please feel free to comment here OR if you are more comfortable, you can email me at joanne.gauthier@jefferson.edu.

Hope you are having a great day!

Wed, 6 Aug 2014 20:24:44 GMT

It is Wednesday already! Hope your week is going well.

To continue on our finance topics, let’s talk about the possible corporate structures of medical practices.

Sole Proprietor: This is the simplest business structure under which to operate. This makes it easy as you do not have to prepare or file legal documents; however, as a sole proprietor there is always the risk of liability exposure. If you are sued, all of your personal assets could be at risk.

Corporation: A business corporation is a legal, stand-alone entity. The primary benefit of establishing a corporation is that you, as the owner, are separated from the business itself. This means that if the business is sued, any claims made are generally limited to the corporation’s assets. It is important to remember that this does not apply to malpractice. If a patient is harmed by a doctor, it is not legally possible to claim that the “corporation” is at fault in order to absolve the provider of blame.

There are multiple ways in which one can structure a corporation, such as:

C Corporation (C corp): C corps are stand-alone entities which file their own tax returns and pay federal taxes directly at the income rate. As a provider of professional health services, however, the IRS will classify your corporation as a “personal service corporation” subject to a flat tax rate of 35%.

Opting to be an S corporation may give you a tax break.

S Corporation: An S corp provides all the protections of a C corp but while it must file tax returns for the entity, it does not pay taxes directly. Money passes through the shareholders and is reported and taxed at their individual, personal tax rates.

LLCs and LLPs are essentially simplified versions of an S corp.

Limited Liability Corporation (LLC) and Limited Liability Partnership (LLP):: LLCs and LLPs offer the same liability protection as S corps. The owners are typically not liable for debts of the LLC/P, though still liable for personal wrongdoing or malpractice. Tax treatment is comparable to S corps as well. Record keeping is very simple for LLCs and LLPs.

It is important to keep in mind that in all of these business structures, if the legal requirements are not met, the veil of liability may be pierced, meaning that the creditor can attack personal assets.

In summary, the 3 major components to consider when structuring your practice are:
1. Liability exposure
2. Tax exposure
3. The complexity and stringency of legal reporting requirements

Questions?