Medical Group Practice: Enhancing the Basis for Managed Care Planning

By Marino, George V. | The CPA Journal, January 1996 | Go to article overview
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Medical Group Practice: Enhancing the Basis for Managed Care Planning


Marino, George V., The CPA Journal


Medical practices, in the past, have been accustomed to informal management accounting systems and financial reporting. Accounting has centered around the checkbook, payroll records, and tax planing and compliance for the physician owners. This is no longer acceptable.

Today, medical groups and physician networks are being asked to disclose a great deal of financial and operating information. The requests come from potential partners; Federal, state, and local governments; business coalitions; payers and potential payers such as insurance companies, and health maintenance organizations HMOs); patients; and the media. New configurations in health care delivery require improved or advanced accounting systems. Such systems integrate operational and clinical factors into the accounting process, enhancing the basis for managed care business planning and providing relevant information for the practice's financial statements. In an advanced medical accounting and performance measurement system, sufficient financial information is maintained for compliance with GAAP, cost accounting, physician productivity evaluation, and managed care budget analysis. Accounting systems for medical practices, just like integrated health care, cannot leap to the "promised land" without moving through developmental phases.

The process often starts with poor financial and operating data, which forecloses the possibility of the preparation of meaningful financial information and statements, such as a compilation of revenue, expenses, and patient and payor mix data. Many medical practices are past this phase.

The next developmental phase focuses on compiling data for tax compliance, limited financial statements, and planning for physician owners-the checkbook approach. During this phase, the accounting system consists of assembling essential financial accounting data, such as cash receipts, expenses paid, and payroll and business tax payments. The financial accounting data is independent of practice management data such as payor and procedure mix, coding, explanations of medical benefits (EOMBs), and utilization trends. There is a serious limitation on generating information for understanding medical practice business fundamentals

Phase Three

In the third phase of development, key clinical and operational data are incorporated into the accounting and reporting process, including the type and frequency of medical procedures; sources of revenue; trends in collection by major payers; provider practice patterns such as the number and dollar amounts of procedures for a given set of diagnoses; and data such as Federal, state and local health planning laws and regulations. Financial accounting information is maintained for the continuous production of external reports. The third phase includes the following tenpoint managed care assessment program that creates and builds an economic model for costs, productivity, and managed care budgeting.

1. Conduct a comprehensive survey of the medical practice by reviewing financial management and budgeting, billing and collection, administration, personnel, and marketing programs. The exhibit illustrates the key issues to address in each area for medical practice operational improvement and the enhancement of the accountability of the practice to third parties. This survey should highlight both the strengths and weaknesses in the system and form the basis for an analytical review of financial ad operating data.

2. Evaluate practice fees by analyzing them against typical benchmarks. Obtain several EOMBs for major procedures and office visits for each of the major payers and managed care plans and compare payment and utilization trends to the practice budget. Review stop-loss (insurance) limits for capitation (fixed fee) arrangements by scheduling current procedural terminology(CPT) codes by patient to identify revenue and capacity implications. In the fee-evaluation process, schedule major CPT codes and their volume to determine the practice conversion factor, i.

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