How Medical Practices Can Manage Cash Flow

Managing cash flow has its challenges in any industry that relies on billing its customers. Medical practices have the unique issues of having to take insurance companies into account as well as consumers' ability (or lack thereof) to afford expensive medical procedures.

According to Melanie Reed1, an accounts receivable (A/R) consultant for healthcare clients, delinquent accounts depreciate at a rate of 0.5% every day, with 15% of A/R value disappearing each month that passes.

She says that healthcare collections practices are more heavily scrutinized compared to other commercial businesses and that consumers tend to put off paying medical debts more than the payment of other bills. Meanwhile, an increasing amount of payment responsibility is falling on patients as deductibles climb and insurance reimbursements decline.

The following graph from The Kaiser Family Foundation shows how deductibles have climbed at a dramatically higher rate than workers' wages over the past decade, making it tough for many patients to pay their medical bills on time.

Premiums and Deductibles Rise Faster than Worker's Wages Over Past Decade

Graph showing increases from 2009 to 2019. Worker's earnings: 26%. Overall inflation: 20%. Family Premiums: 54%. Deductibles: 162%
Image via KFF.org

As medical practices face the challenges associated with cash flow, it is critical to make the most of technology and best practices to ensure the maximization of timely payment collection.

Forecast Cash Flow

If you forecast cash flow, you will have a better grasp on what to expect in the future so that you can be better prepared and not become blindsided by too many unpaid bills. Use accounting software to generate a report.

Have a Cash Reserve

Medical practices should utilize business savings accounts to foster cash reserves. This way, if and when cash flow issues do arise, the situation will be less dire.

Take Out a Loan

It may also be worth taking out a business loan or line of credit ahead of any cash flow issues so that you have another well to draw from if need be.

Utilize Technology

Kevin Fleming, CEO of California-based Loyale Healthcare has some ideas2 on how to improve collections on the technology side. These include creating a "living" electronic agreement with the patient, summarizing their financial responsibility and payment plan/progress, as well as incorporating a patient financial assessment into the registration process.

He also suggests using estimated patient share financial tools and creating custom patient-focused communications and payment options. These could provide communication and payment channels accessible via the Internet and mobile devices.

Have Policies in Place

Having concrete policies in place can be an important step in getting in front of potential cash flow issues. Make it clear that patients will be charged a certain amount for an appointment they don't keep, and charge a pre-specified interest on bills that are not paid on time.

Understand Your Relationship with Collection Agencies

Keep an open dialogue with collections agencies you work with to be sure your accounts are getting the attention they need. Ensure that you understand any fees or percentages they expect to collect from you and be careful not to submit too many low balances and old claims because this will likely put you further down their priority list.

Use Your Own Cash

While it's generally a good idea to keep business and personal finances separate, if you run into cash flow problems that become risky to your business, consider using some of your own money to provide a "loan" to the business or just inject some new capital into it.

Many businesses run into cash flow problems, and those who aren't prepared face serious setbacks or even failure. It is vital that you get a handle on cash flow before it's too late.


1. https://blog.evisit.com/top-cash-flow-challenges-medical-practices

2. https://www.forbes.com/sites/allbusiness/2018/09/19/healthcare-providers-can-use-technology-increase-cash-flow-patient-satisfaction/#20e514ed6cf2