Physician Practice Manager in Medical Accounting

Managing the financial matters of a medical practice for a physician practice manager (PPM) requires general understanding of medical accounting and business as well as knowledge of insurance reimbursements, claims processing issues and government rules and regulations. A Physician Practice Manager (PPM) must show strengths in these areas since it is complete understanding of a practice’s cash flow that keeps the business, (and yes, it is a business!) remaining profitable as well as compliant.

Roles Of A Physician Practice Manager in Medical Accounting

Depending on the size of the practice, a PPM may assume many roles, such as functioning as an accounting manager. If reporting to a large governing organization, responsibilities may be more wide spread but the ability to communicate to Chief Financial Officers and Controllers is an important factor to consider; thus, the understanding of all financial processes is still a mandatory part of the PPM’s job description.
In some medical practices, the PPM may focus on the more day to day operations, using strategic methods to improve patient flow as well as cash flow. However, the understanding of billing and collections would be a significant aspect of the job.

Often times, a physician practice manager monitors all billing processes, review accounts receivable reports and query the billing department for additional information on reimbursements and payer concerns. Payroll, bookkeeping, and preparation of other practice reports may be reported to the practice owner or a business administrator, such as the practice’s CPA.

Beyond basic fundamentals of accounting, a PPM has the responsibility to keep the owner of the practice up-to-date with changes in health care reform and quality improvement. He or she should also schedule educational training on a regular basis in all areas that help the business financially.

There are basic accounting measures that PPMs should know such as the income statement, balance sheet and cash flow statements which can be presented monthly, quarterly, or as needed. A simple software such as Quicken or QuickBooks can be set up to display all revenue categories such as office service reimbursements, honorarium income, revenue from research or activities outside the office such as interpreting EKGs for a hospital. Expenses would be similar to any business classifications with additional expenses such as malpractice insurance, professional license fees, and medical supplies. Payroll would include all staff salaries, including the physician’s, plus medical and dental coverage, taxes, and contributions to a retirement plan.

There are two types of accounting methods: cash accounting and accrual accounting.

Cash Accounting is simple to understand. When any revenue is received, it is recorded when the money is collected. When an expense is paid out, it is recorded at that time. This simple form of accounting excludes the accounts receivable or payable accounts, accrued expenses or deferred costs, etc. It is a clean method of record keeping. The balance sheet, prepared in a clean cash basis has two items to record: cash as the asset and the owner’s equity.

Accrual Accounting provides a more precise calculation of when patient services are rendered opposed to when reimbursements are received. In other words, focus is on the production numbers prior to payment from the payers. Expenses are recorded when they are incurred and pending for payment.

Activity Based Accounting is a complex method of calculating the variety of tasks a staff person performs in a specific amount of time for each activity. This method of accounting is not used often and would work best within a radiology department.

An Income Statement is a valuable report that demonstrates a practice’s financial condition and is a reliable tool to form a good budget. Income statements can be used for annual projections and modifications based on income and expenses.

Budgeting for a practice is a process which is based on the prior year’s expenses with adjustments to represent any changes that have taken place or will take place based on production or expenses. It is important to figure out what you want as a percentage of total revenue when measured against variable expenses which can fluctuate based on production. Fixed expenses such as rent are easy to calculate into a budget. Creating a budget is time consuming but worth the effort if you want your practice to grow. Be consistent with comparing figures to see if you reach your goals.

A Balance Sheet is a quick view of the medical practice’s financial condition. It will include assets, liabilities, and stockholder’s equity. NOTE: TOTAL ASSETS MUST EQUAL THE SUM OF LIABILITIES AND EQUITY AT ALL TIMES. The balance sheet is a great tool to track trends in accounts payable and receivable.

A Statement of Cash Flow is basically a report that shows how your cash was used during a specific period of time. There are three parts of a cash flow report: (1) cash from production (2) cash from investments and (3) cash from financing. It is vital for a PPM to manage the cash flow of the practice because it reflects the monies available to maintain business operations.

It is vital to be able to account for all money coming in and going out of the practice. Financial controls are necessary and should be dispersed amongst staff in order to discourage mishandling of money or temptations to steal. Internal and external controls should be set up as standard operating procedures and regular audits should take place to let personnel know their tasks are being monitored.

Lastly, a PPM should be able to identify and understand the makeup of a practice. If a physician is a sole proprietor, he has no liability protection and involves minimal paperwork for taxes. A “C” Corporation is a more formal set up and is taxed twice – first at the corporate level and then again at the physician level. An “S” Corporation is similar to a “C” Corporation but has a limited amount of shareholders. Profits can flow to a doctor’s personal tax return and not get a double tax when the business is an “S” Corporation. The Limited Liability Corporation (LLC) offers liability protection of a corporation but is taxed like a sole proprietor. An unlimited number of members can make up an LLC and there are fewer restrictions on ownership of the practice.

Accounting requires organization and planning as well as an understanding of the type of practice being managed. By managing a medical practice properly, financial rewards will be achieved.

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