Costs of Providing Care in PT Practice & Understanding Finances - Week 7

Question 1

Assets

Answer 1

Property like goods, equipment, buildings, land, investments, and retained earnings

–> provide money

Question 2

Liabilities

Answer 2

Debts

–> take away money

Question 3

Net Worth

Answer 3

Net Worth = Assets – Liabilities

want assets higher than liabilities to have positive net worth

Question 4

Why is it important to determine the “cost of doing business”?

Answer 4

• 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

Question 5

Direct Costs:

Answer 5

Expenses for delivering services, salaries, equipment (loans or leases), clinical supplies

–> can change depending on amount of patients you see

Question 6

Indirect Costs:

Answer 6

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

Question 7

Fixed Classifications

Answer 7

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

Question 8

Variable Classifications

Answer 8

The cost ↑ as the number of patients ↑ (laundry services, staff, supplies)

Examples:
• Clinic Supplies
• Advertising & Marketing
• Professional Fees
• Miscellaneous

Question 9

Semi-Variable Classifications

Answer 9

fixed cost that may vary (hourly wages: overtime, ↓ work hours, patient census fluctuations)

Examples:
• Utilities
• Postage & Delivery
• Telephone
• Laundry & Cleaning
• Maintenance &
Repairs
• Hourly employees

Question 10

types of Expenditure:

- Routine/Operating

Answer 10

• Expenses needed for day-to-day costs needed to run a business


Question 11

types of Expenditure:

- Capital

Answer 11

• Major purchases that will be used for >1 year

Question 12

Define Revenue and give examples of the types of revenue you can have in a PT clinic/facility/department:

Answer 12

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

Question 13

What is Expectable Revenue?

Answer 13

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

Question 14

What is Net Income?

Answer 14

• Measure of a company’s earnings
 (after accounting for expences)

Question 15

What is Profit Margin Ratio?

Answer 15

• Comparison of profit to sales, tells how well the company is doing

• Expressed as a percentage
20% = Good
10% = Average
5% = Low

Question 16

Discuss Productivity Expectations

Answer 16

• 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

Question 17

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:

Answer 17

• 8 hours = 480 minutes
• 480-30 (lunch break) = 450 minutes
• Productivity = 420/450 = 93%

Question 18

What should you consider in terms of productivity?

Answer 18

• 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”

Question 19

stage in the “Lifecycle of a Claim”

Preliminary

Answer 19

• Scheduling, Insurance Verification, Insurance Authorization

Question 20

stage in the “Lifecycle of a Claim”

Treatment

Answer 20

• Patient Management skills, value of PT, missed visits

Question 21

stage in the “Lifecycle of a Claim”

Documentation

Answer 21

• Capture all charges, Accurate, Legible, “Skilled”

Question 22

stage in the “Lifecycle of a Claim”

Coding

Answer 22

• Are charges entered correctly?

Question 23

stage in the “Lifecycle of a Claim”

Billing

Answer 23

• Charges correct in billing software, clean claim sent to payer, documentation completed and sent properly

Question 24

stage in the “Lifecycle of a Claim”

Accounts Receivable

Answer 24

• Claim Returned, Claim Denied, Claim Paid

Question 25

stage in the “Lifecycle of a Claim”

Collections/Management

Answer 25

• Appeals, Explanation of Benefits, Most write offs

Question 26

stage in the “Lifecycle of a Claim”

Corporate Compliance

Answer 26

• Post payment review, corrective action

Question 27

What strategies can practices implement to control costs?

Answer 27

• Monitoring indirect expenses
• Eliminating Waste & Inefficiency
• Become a Productive Therapist
• Address Lifecycle of a Claim Issues

Question 28

How is the value of a PTs work calculated?

What does this translate to in terms of determination of a PTs salary?

Answer 28

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

Question 29

What is the greatest expense for any business and what does that include?

Answer 29

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

Question 30

Direct Cost per session:

Answer 30

Total direct costs (labor costs + equipment loans + clinic supplies)/average number of treatment sessions = average direct cost per treatment session

Question 31

Indirect Cost per session:

Answer 31

Add all the indirect costs (rent, utilities, office supplies, phone, internet)/ estimated total # of treatment sessions = average indirect cost/ treatment session

Question 32

How does Cost Per Session help you determine profit?

Answer 32

-

Question 33

How do you determine Net Income?

Answer 33

Net Income = Revenue - Variable Costs - Fixed Costs

Question 34

How do you determine Profit Margin Ratio?

Answer 34

Profit Margin Ratio = Net Income / Revenue

Question 35

How do you determine workload based on Net Income per treatment?

Answer 35

• 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

Question 36

What is an FTE?

Answer 36

full-time equivalent

- hours worked by 1 employee on full-time bais

Question 37

What is the Break-Even Point?
How do you calculate it?
How can it be helpful?

Answer 37

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