Around this time every year, practices should begin looking towards the start of the new year. One step in the preparation is the completion of a budget to estimate revenue, expenses and compensation. Budgeting does not have to be difficult or complex. If you give it a try, I think you will find the benefits outweigh the time it takes to plan your financial success.The practice should focus on the number of patient encounters and the revenue generated per patient encounter.
To effectively assemble a budget, there are 2 important things that must be done before the budget planning process begins. The practice needs to find out how many patient visits they had during the previous 12 months and the total revenue over the same time period. Ideally, this information will be segmented by each provider in the group as well as each payor that you are contracted with. Unless you see an extremely large number of patients in the hospital, I recommend focusing on office visits since most overhead is directly tied to those encounters. Hospital revenue should be considered lagniappe. This is a good way to build in a cushion in the budgeting process. It is a judgment call based on your practice's hospital volume.With these two pieces of information, you can effectively estimate how much revenue your practice should generate for each provider.
From there you can bring in your expense data to determine how much is available for provider compensation and practice profits.
What 2 Things Am I Looking For?
You want a report, by month, showing the number of office visits and revenue generated by each provider.
Where Do I Get This Information?
The easiest thing to do is to get a report showing the frequency of each office visit billed from your practice management system over the past 12 months. Obtain a report containing the revenue amounts, by payor, over the past 12 months and you are ready to begin.
What Do I Do With This Information?
Once you have the information, you want set up a simple spreadsheet. .You want to end up with a spreadsheet that looks similar to this for each provider in the practice:MonthRevenueEncountersRevenue PerEncounterJanuary$ 40,827 375$108.87February$ 48,387 400$120.97March$ 43,011 320$134.41April$ 46,297 310$149.34May$ 49,781 300$165.94June$ 59,000 320$184.38July$ 64,700 370$174.86August$ 68,000 345$197.10September$ 56,765 320$177.39October$ 55,878 350$159.65November$ 51,727 360$143.69December$ 47,848 370$129.32Annualized$ 632,222 4,140$152.71
What Does Revenue Per Encounter Tell Me?
Revenue per encounter is an excellent barometer of your financial health. There are many things that influence the revenue per encounter and consequently allow you to see the impact of things such as:
Are your claims being processed timely?
Are your claims being paid properly?
Are you being paid fairly?
Is your payor mix excellent, fair or poor?
Are you following proper CPT coding guidelines?
You will notice that the example above shows some monthly variation in the revenue per encounter. This is reflected in the fact that during the winter times you are seeing more sick visits with less check-ups and during the summer months less encounters with higher per visit revenue because of vaccines. Also, you will need to keep in mind whether or not the flu season was mild like this past year. A busy or mild flu season will have an obvious impact on patient encounters for the months of January through as late as March depending on when it peaks. By budgeting encounters and revenue on a monthly basis it allows you to predict your revenue stream in an effective manner and plan for cash outlay such as when the vaccine bills are due. PMI recommends avoiding the temptation to simply use one revenue per encounter rate for an entire year.
How Do I Use This Information To Estimate Future Revenue?
Now that you have the revenue per encounter by month, you will estimate the number of days each provider will work along with the number of patients they will see each day for a monthly total. This will calculate the expected revenue per month to be used in your practice budget.For employed physicians, this method can also be used to validate the numbers used during your contract negotiations.
Be sure to tune in next week where I will share with you the steps to complete a budget along with some spreadsheets to get you started. If you would like to see an online video with PaulVanchiere, Chip Hart and Brandon Betancourt talking about budgeting for Pediatric practices, click here.