Prescription for an Ailing Practice– March 28, 2017

Managed care, Medicare and Medicaid reimbursements, and the changing regulations all present challenges for a medical practice. On the other hand, many problems that arise are self-inflicted. Is your medical practice not performing as well as expected? Are revenues dropping? Are you having problems covering costs? Take a hard look at your practice and diagnose the problem. Follow the steps below to help put you on the road to recovery:

  1. Improve cash flow. Follow three basic steps to improve cash flow: First, make sure you’re collecting outstanding accounts receivable. Second, prioritize your disbursements, with mandatory expenses first, such as payroll and payroll taxes. Third, ensure your cash reimbursement projections are realistic.
  2. Cut costs and control expenses. It’s time to be tough. Are there unreasonable overhead expenses or unnecessary luxuries? Can you renegotiate leases?
  3. Discharge unprofitable patients. Review your pricing strategy. Do you have an unusual number of unprofitable, nonpaying or “pro bono” patients? If possible, it might be time to let them go.
  4. Turn around debt/cash flow. Make sure your practice has the necessary cash to finance a turnaround. This can be a combination of “turnaround debt” and equity capital. Clearly define requests for turnaround funding in terms of amount, what it will be used for and the repayment plan.
  5. Work with creditors. If you’re bleeding cash, stop it as quickly as possible. If you have unpaid debts to creditors that will hurt the practice, deal with it. Work with creditors — they also want customers to be solvent rather than declare bankruptcy. Share a comprehensive turnaround plan and reschedule payments.
  6. Find partners. You might need to hire a turnaround professional. He or she will be able to unemotionally assess the problems and spot issues that you may not see.
  7. Measure the turnaround. Early turnaround is usually about correcting problems. The later stages are about profitability and restoring equity. It’s imperative that you evaluate each of these steps to determine how well it worked, or is working.
  8. Rebuild credit. Pay bills promptly. Make sure creditors consistently report your practice’s payment history to the credit bureaus. Contribute to your practice’s credit profile.
  9. Work with your local bank. Your local bank — the one that receives your deposits from patients and insurance companies — is a good resource. They want to help.
  10. Develop a new plan. Think about the old saying: The definition of insanity is doing the same thing over and over again and expecting a different result. The best prescription for an ailing practice is to take a look at your business plan, identify the processes that got you into trouble in the first place and try something new. 

Contact Kathy Walsh at kwalsh@cohencpa.com or Paul Gregory at pgregory@cohencpa.com for more information.

Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.