Costs of Providing Care in PT Practice & Understanding Finances - Week 7 Flashcards
Assets
Property like goods, equipment, buildings, land, investments, and retained earnings
–> provide money
Liabilities
Debts
–> take away money
Net Worth
Net Worth = Assets – Liabilities
want assets higher than liabilities to have positive net worth
Why is it important to determine the “cost of doing business”?
- know cost per patient
- know cost to deliver services
- know how much to charge for services to make a profit
- Reimbursement rate: cover the costs of the treatment sessions to care for patients
Direct Costs:
Expenses for delivering services, salaries, equipment (loans or leases), clinical supplies
–> can change depending on amount of patients you see
Indirect Costs:
Overhead costs: necessary regardless of the number of patients, rent or mortgage payments, utilities, janitorial services, equipment maintenance, office supplies, telephone, internet services, medical records
–> these don’t change depending on the amount of patients seen
Fixed Classifications
The same cost regardless of the number of patients who are treated (rent, loan payments)
Examples: • Clinic Salaries • Staff Salaries • Benefits • Rent • Equipment • Insurance • Depreciation • FICA
Variable Classifications
The cost ↑ as the number of patients ↑ (laundry services, staff, supplies)
Examples: • Clinic Supplies • Advertising & Marketing • Professional Fees • Miscellaneous
Semi-Variable Classifications
fixed cost that may vary (hourly wages: overtime, ↓ work hours, patient census fluctuations)
Examples: • Utilities • Postage & Delivery • Telephone • Laundry & Cleaning • Maintenance & Repairs • Hourly employees
types of Expenditure:
- Routine/Operating
• Expenses needed for day-to-day costs needed to run a business
types of Expenditure:
- Capital
• Major purchases that will be used for >1 year
Define Revenue and give examples of the types of revenue you can have in a PT clinic/facility/department:
Revenue is the total of all monies received for services provided or good sold
Insurance:
• Types of Reimbursement/ Reimbursement Rates
• Contract Negotiation
Cash/Patient Payment:
• Copayments, Deductibles
In/Out of Network:
• Cash Based Clinics set own fees
Additional Revenue:
• Selling goods
• Other providers - Massage Therapy, Yoga, Wellness Programs
What is Expectable Revenue?
The amount that SHOULD be paid for services
• Based on insurance contracts, fee schedules or other known parameters
• Not the same as:
charges
payments
receivables
What is Net Income?
• Measure of a company’s earnings (after accounting for expences)
What is Profit Margin Ratio?
• Comparison of profit to sales, tells how well the company is doing
• Expressed as a percentage
20% = Good
10% = Average
5% = Low
Discuss Productivity Expectations
- Revenue only generated when patients are being treated
- Standard: 75-80% of professional’s time should be engaged in direct patient care that is billable
- Meetings, breaks, documentation, submitting charges, education: non- productive time
Calculate the productivity for a PT that works an 8 hour day with a 30 minute lunch break and sees 7 patients for 60 minutes each:
- 8 hours = 480 minutes
- 480-30 (lunch break) = 450 minutes
- Productivity = 420/450 = 93%
What should you consider in terms of productivity?
- Different setting means different productivity
- Different types of patients means different productivity
- Support systems will have a tremendous impact on productivity
- Therapist attitudes, beliefs (quality, quantity), behaviors (billing choices, treatment choices, interaction with support staff (delegation), and Therapist skills
- Don’t compare across settings
- No magic “gold standards”
stage in the “Lifecycle of a Claim”
Preliminary
• Scheduling, Insurance Verification, Insurance Authorization
stage in the “Lifecycle of a Claim”
Treatment
• Patient Management skills, value of PT, missed visits
stage in the “Lifecycle of a Claim”
Documentation
• Capture all charges, Accurate, Legible, “Skilled”
stage in the “Lifecycle of a Claim”
Coding
• Are charges entered correctly?
stage in the “Lifecycle of a Claim”
Billing
• Charges correct in billing software, clean claim sent to payer, documentation completed and sent properly
stage in the “Lifecycle of a Claim”
Accounts Receivable
• Claim Returned, Claim Denied, Claim Paid
stage in the “Lifecycle of a Claim”
Collections/Management
• Appeals, Explanation of Benefits, Most write offs
stage in the “Lifecycle of a Claim”
Corporate Compliance
• Post payment review, corrective action
What strategies can practices implement to control costs?
- Monitoring indirect expenses
- Eliminating Waste & Inefficiency
- Become a Productive Therapist
- Address Lifecycle of a Claim Issues
How is the value of a PTs work calculated?
What does this translate to in terms of determination of a PTs salary?
Value of Your Worth:
• (# patients seen) x (average reimbursement/visit) = total amount of value produced
Example:
➢ 8 patients/day X $100/visit = $800 of value each day.
➢ With an average of 21 treatment days in any given month, that means you have the potential to generate $800 x 21 = $16,800 in a month for the practice
➢ $16,800 x12 months = $201,600 annually
Salary is taken into account the cost of doing business :
- benifits
- equipment cost
- utilities
- rent
What is the greatest expense for any business and what does that include?
Labot cost
• The major expense for any business
Includes: • Salary • Wages • Benefits • Payroll taxes • Payroll Expenses: Worker’s Comp, Contributions to taxes (2% of total labor cost) • Owner’s Salary
Direct Cost per session:
Total direct costs (labor costs + equipment loans + clinic supplies)/average number of treatment sessions = average direct cost per treatment session
Indirect Cost per session:
Add all the indirect costs (rent, utilities, office supplies, phone, internet)/ estimated total # of treatment sessions = average indirect cost/ treatment session
How does Cost Per Session help you determine profit?
-
How do you determine Net Income?
Net Income = Revenue - Variable Costs - Fixed Costs
How do you determine Profit Margin Ratio?
Profit Margin Ratio = Net Income / Revenue
How do you determine workload based on Net Income per treatment?
- Can determine # of treatments needed to achieve a given level of net income
- Desired Net Income of $100,000
- Per treatment net income: $47.50
- 100,0000 / 47.50 = 2,105.3
What is an FTE?
full-time equivalent
- hours worked by 1 employee on full-time bais
What is the Break-Even Point?
How do you calculate it?
How can it be helpful?
Point at which revenue equals expenses (no profit or loss)
Expenses:
➢ Fixed Costs per month + Variable Costs
➢ $4,500 + $500 = $5,000
Gross Revenue:
➢ Revenue per session x # of sessions ➢ $100 x 50 = $5,000
50 sessions per month would be the Break Even point for this clinic
