A health care provider was concerned that cash flow was declining despite the perception that nothing fundamentally had changed in the practice.
In fact, the owner was alarmed when he had to unexpectedly make a capital contribution to the business in order to cover a cash shortfall. As a result, he asked us to perform a thorough analysis to determine the root cause of the declining cash flow. He was concerned that someone might be siphoning off money and/or his staff was not collecting as aggressively as they could be.
As with most business, there were many factors which can affect cash flow, including: sales volume, revenue mix, collections, and expenses.
For medical practices there are the added complexities that:1) payments can significantly lag the date of service due to insurance reimbursement delays, and 2) the amount realized for a given procedure can vary significantly depending upon insurance coverage, such as Medicare, Medicaid or private insurance.
In the case of this client, there were several moving parts:
- Reimbursement rates were changing across insurance payers
- Collection rate was declining
- Insurance mix was changing
- Procedure volume was not measured, but was believed to be unchanged
It was not readily apparent which of these factors was affecting cash flow.
We performed a thorough analysis of the practice's operations and cash flow, isolating the impact of changes due to volume, reimbursements, collections and expenses.
We determined that the underlying cause of the decline in cash flow was a drop in volume. In fact, expenses were trending down. And, an increase in charges per procedure more than offset a decline in collection rates. The fall-off was masked by these variables changing concurrently.
Unfortunately, because there was a 9-12 month lag in payments, we forecasted a continued deterioration in cash for the next six to nine months. Quick action was needed in order to forestall another capital infusion.
We recommended measures to accelerate collections, reduce expenses, and otherwise free up cash. We also suggested several initiatives to increase volume, including cultivation of the referral network as well as additional physician hours.
This practitioner heeded these warnings and was able to avert another cash shortfall. After additional marketing efforts, production increased and cash flow again stabilized.
If you would like to discuss how we can help you better understand your cash flow situation, please give us a call. We would be happy to help.
Until next month, Point Your Business Where it Needs to Go!
Best Wishes,
Kelly
©2016, Soundpoint Consulting, LLC
Sound Consulting. Solid Results
