Managing cash flow can be particularly tricky for physicians. Medical practices often face unique circumstances that make sustaining positive cash flow more difficult. Maintaining a healthy bottom line in your practice begins with recognizing where the biggest trouble spots lie.

Challenge #1: The Shifting Payment Burden

Rising health insurance deductibles have moved more of the cost of health care away from insurers and onto consumers, creating a potential cash crunch for medical practices.

“As we have higher and higher deductibles, it does pose a huge challenge," says Andrew Laverghetta, chief executive officer at Southeastern Retina Associates in Knoxville, Tennessee. "People who are still working may be more likely to pick an insurance plan that's least expensive for them out of pocket, which usually means the lowest level of coverage, the highest deductible, or both."

That can be problematic if a patient isn't equipped to meet a higher deductible out of pocket or to keep up with ongoing costs that aren't covered by insurance.

"It's difficult to get patients to pay when they haven't planned for unexpected situations," Laverghetta says. Offering payment plans affords patients some flexibility, but, in that scenario, your practice is essentially giving them an interest-free loan.

Third-party financing providers, such as CareCredit, are another option, but they're not a foolproof solution, says Michelle Hardin, senior vice president and manager, medical private banking at First Horizon Bank in Knoxville, Tennessee.

"The patient has to be able to get credit for themselves and, if they can't get approved, that's a dead end for doctors," Hardin says.

She says offering ancillary services is one way to offset rising deductible costs. Branching out to offer cosmetic and elective services that aren't covered by insurance and require cash payment also can be an effective way to drive revenues.

Challenge #2: Late Payments

Even when a patient is able to meet a higher deductible, cash flow can still be compromised if they don't pay their medical bills in a timely manner. Laverghetta says he encountered this issue during his previous tenure at a cardiology practice.

At the beginning of the year, he says, patients would often cancel surgeries or appointments because they had a new higher deductible that they weren't prepared to meet right away. That created a revenue problem, which was compounded when those same patients later required emergency care. If deductibles or upfront costs weren't paid at the time of service, the practice might be waiting three to six months for that money to flow in. And, in the meantime, it still had to manage the accounts payable side of the equation.

"You generally should be collecting balances faster than you pay your bills, so lining up that flow is a very important thing," Laverghetta says.

His current practice is making an effort to shorten its payables window to avoid having too much float. It's also proactive about keeping close track of average days in accounts receivable (AR), which measures the average number of days a bill is outstanding before payment arrives.

Hardin says rewarding patients for prompt payment is one way to potentially avoid delays with receivables. "Instead of charging a fee or interest when a patient is 60 to 90 days past due, many practices offer incentives to pay on time."

She says it's also important to streamline your business practices as much as possible to manage costs and keep receivables efficient. Technology can be helpful in that respect. First Horizon Bank's Medical Private Banking division, for instance, offers practice management services that include claim payment automation and patient collection solutions.

Challenge #3: Rising Operating Costs

In any business, operating costs can easily rise year over year, and even more so for medical practices that need to expand their staff or keep pace with the latest tech developments.

"The cost, in terms of cash flow, comes back to how many statements are you generating and how many people do you have on staff that need to be following up with receivables," Laverghetta says. Higher receivables means you need more people and tools to track collections and payment.

Maintaining compliance with new health care regulations can add to your operating costs, as can updating electronic medical records and practice management systems. "The way to overcome that is volume and efficiency," Laverghetta says, "but at some point, that becomes unsustainable."

Sean McSweeney, founder and president of Apache Health, a Santa Monica, California-based medical billing company, says higher operating costs can have a silver lining."

As operating costs grow, so, too, do business opportunities," McSweeney says. Your practice may be spending more on hiring staff, opening a new location, or expanding your marketing plan, but "more marketing means more services and more employees mean more word-of-mouth."

McSweeney says reevaluating the rates you're billing for services yearly — factoring in inflation and fluctuating reimbursement rates — can help medical practices compensate for increases in operating costs.

Balancing the Non-Financial Side of Cash Flow

Cash flow is a priority for physicians, but that has to be weighed carefully against ethical, legal, and medical obligations.

"Doctors have an ethical responsibility in that they don't want to turn patients away, but how do they make their cash flow with patients who have deductibles of several thousand dollars?" Hardin asks.

A patient who requires ongoing care can become a liability if they're not able to pay, but that in itself isn't grounds for severing the care relationship. And doing so could have legal ramifications down the road if the patient decides to sue because they were refused treatment based solely on an inability to pay.

McSweeney says, in that scenario, your best defense is to make your patients fully aware of their financial obligations before and when you provide services. "Implementing a payment plan or hardship agreement also allows the patient to know the costs up front." That can make it easier to avoid future cash flow issues, without compromising your practice from a legal, ethical or medical perspective.

While all businesses face challenges relating to getting paid for the services they provide, medical practices — in part because of the changing reimbursement environment in which they operate — have to be particularly diligent in managing receivables. There frequently are timing and reimbursement issues that affect the ability of medical practices to predict their cash flow in a reliable way. Ensuring you have the right policies and procedures in place — in advance of providing the services — can help keep both your patients and your practice on track.

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