ACMPE Paper, October 2007
By: Timothy E. Krause, CPA, FACMPE
This professional paper manuscript is submitted in partial fulfillment of the requirements
for election to Fellow status in the American College of Medical Practice Executives
This manuscript was prepared as part of meeting various recognition criteria as set forth
and may be changed from time to time by the American College of the Medical Practice
Executives (ACMPE). The experiences, thought, ideas and opinions set forth are solely
those of the author.
They do not reflect any position on the part of ACMPE with respect to their
completeness, correctness or accuracy of the paper’s contents, for example, on points of
law or accountancy in effect at the time of or subsequent to the date of paper completion.
© 2010 Medical Group Management Association. All Rights Reserved.
Meaningful Financial Statements and Reports for the Medical Practice
This exploratory professional paper is submitted in partial fulfillment of the requirements for
election to the Fellow status in the American College of Medical Practice Executives.
Introduction
The basic financial statements as provided by the accounting profession, and used by almost
every medical practice, do not provide a medical practice with the financial information
necessary to make incisive and precise financial management decisions. While basic financial
statements are important, it is critical that these financial statements be prepared in a format
which takes into account the uniqueness of each medical practice. Furthermore, financial
management reports, in addition to basic financial statements, are essential in order to manage
the business of medical group practice effectively. These financial reports include reports on
accounts receivable, collections, physician productivity, budgeting, etc.
The healthcare industry is changing rapidly. Not only are reimbursements decreasing while costs
are increasing, the business of healthcare, specifically with respect to the medical practice,
increases in complexity every day. Physicians and practice administrators require accurate
financial information in order to make data driven decisions.
Objective
This exploratory paper will provide an explanation of the basic financial statements. It will
include illustrations of basic financial statements that are meaningful and relevant to the medical
practice.
This paper will also discuss and illustrate other financial reports that provide financial
information necessary for the successful management of the medical practice. It will include
research and examples of financial reports that provide physicians and practice administrators
with information they want, need and understand.
Included with this paper will be many financial reports, created from templates shared by
administrators, who are currently using them. The creation of this paper has enabled sharing this
information with others, and these illustrations and examples are of equal or greater importance
than the narrative.
The Basic Financial Statements
Basic financial statements for any business are the Balance Sheet, the Income Statement, and the
Statement of Cash Flows. The Balance Sheet can also be referred to as the Statement of
Financial Condition, the Statement of Financial Position, or the Statement of Assets, Liabilities,
and Owners’ Equity. The Income Statement is often referred to as the Statement of Operations,
1
the Statement of Profit and Loss (P & L), or the Statement of Revenues Collected and Expenses
Paid.
Balance Sheet (Exhibit 1)
The Balance Sheet is often described as a snapshot of the company’s financial position at a point
in time. Balance Sheets list the company’s assets, liabilities, and equity. Assets are anything of
value that are owned by the company. Included in the category of assets are cash, accounts
receivable, investments, furniture and fixtures, computers, equipment, deposits, etc. Liabilities
are obligations to pay, or debts of the company, and are comprised of accounts payable, notes
payable, lines of credit, payroll taxes due, retirement plan contributions due, etc.
Equity is equal to invested capital plus accumulated earnings. In a corporation, invested capital
is represented by common stock. In a partnership, invested capital is generally referred to as
partners’ capital. Accumulated earnings are income of the company which have been retained in
the practice and not distributed to owners. Equity is always equal to the company's assets less
the company's liabilities and is the net worth of the company.
The Balance Sheet is so named because it represents the following equation: 1
Assets
=
(Resources of
The business)
Liabilities
+
(Amounts owed to
outside creditors)
Owners’ Equity
(Capital provided
by owners)
Income Statement (Exhibits 2 and 3)
The Income Statement shows the income and expense of the company over a period of time, and
shows how profitable the company has been. The Income Statement is usually for one month,
one quarter, or one year, but can be for any period. Unlike the Balance Sheet, it is not a
snapshot; rather it is more like a video. It shows the revenues earned, expenses paid and net
income for a defined time period.
Net income is an important measure of the company’s performance since it represents the
earnings generated (or loss incurred) for a given period of time. It is the all-inclusive “bottom
line” that reflects the economic activity of the company.
Statement of Cash Flows (Exhibit 4)
Understanding a medical practice’s cash flows may be more important than any other aspect of
financial performance. 2
The Statement of Cash Flows reports the sources and uses of cash for a defined period using
three separate major classifications. The first classification is “operations” which includes items
that are on the Income Statement, such as revenue and operating expense. The next
2
classification is “investing activities”, which includes the purchase of property and equipment,
the sale of property and equipment, investing in joint ventures or securities, and other similar
transactions. The third classification is “financing activities” which includes debt borrowings
and repayments, contributions or withdrawals of capital, and the payment of dividends or
distributions to owners.
Cash flow statements help to explain why profit or loss is not equal to the change in Cash
balance. Exhibit 4 is a statement of cash flows prepared using the indirect method. It reconciles
net income to the changes in cash. In this example, the net income for the year is $9,400, while
the increase in cash was only $9,200.
The next example (Exhibit 5) is a statement of cash flows using the direct method. In addition, it
shows the changes in cash compared to the changes in taxable income. This statement of cash
flows is particularly helpful in answering a common question from physicians, "How can we
have taxable income if we don't have any money in the bank?"
The results of the survey conducted indicate that the cash flow statement is a very important
statement for many medical practices. It is important for purposes of explaining financial
matters to physicians, for projecting cash flow requirements, for projecting taxable income, and
for understanding the relationship of cash with other balance sheet items, and with income
statement transactions.
Supplementary Information
The basic financial statements will very often include supplementary information.
Supplementary information is data that supplements the financial information in the Balance
Sheet, Income Statement, and Statement of Cash Flows. For example, the Income Statement
might include a line item for all practice locations or all staff salaries. The supplementary
information included with the financial statements might break down the staff salaries into
categories for MA salaries, nurses’ salaries, front desk salaries, and back-office salaries.
Supplementary information could also be provided to report revenue and expense by location, for
ancillary services, profit centers, etc. Generally, the supplementary information provides
additional detail to support and explain the other basic financial statements.
Basis of Accounting
Financial statements are prepared using a "basis of accounting". Generally, there are three
methods used, which are referred to as the accrual basis, the cash basis, or the income tax basis.
It is important for the creators, readers, and users of the financial statements to understand the
basis (method) of accounting used in preparation of financial statements.
The primary difference between the cash and accrual methods of accounting is when revenues
and expenses are recorded. The Income tax method most resembles cash basis, and adopts some
elements of the accrual method.
3
Practice founders must decide from inception which method to use depending on the legal form
of the business, its volume, whether it extends credit to patients, and the tax requirements set
forth by the Internal Revenue Service (IRS). It is possible to change accounting methods later,
but the process can be complicated. Therefore it is important for small business owners to decide
which method to use up front, based on what will be most suitable for their particular business.
Accrual Basis
Under the accrual basis of accounting, revenue is recorded when it is earned, regardless of when
it is received. Patient revenue is recorded when bills are generated (either directly to the patient,
or to the payer). Revenue for a medical directorship or hospital stipend is recorded for the time
period covered by the corresponding contract, as the periods specified by the contract pass.
Generally, under the accrual basis, revenue is recorded when services are rendered, when
products are delivered, or as a result of the passage of time.
Expenses are recorded when incurred, regardless of when paid. The expense can be incurred as a
result of goods and services received by the company, or as a result of the passage of time. For
example, the expense for office supplies is recorded based on the packing slip or invoice, when
the supplies are received by the company. The expense for rent is recorded in the month to which
the rent applies, i.e. as a result of the passage of time.
Cash Basis
With the cash basis of accounting, revenue is recorded when received. Likewise, expenses are
not recorded until paid. Whether the cash disbursement for an expense is prior to the physical
receipt of goods or services, or whether the disbursement is delinquent when paid, the expense is
not reported until cash leaves the practice. Most small medical practices will prepare financial
statements on the cash basis. 3
Income Tax Basis
The income tax basis of accounting is based on the principles and rules for accounting for
transactions under the Federal income tax laws. 4 In most cases, the income tax basis is very
similar to the cash basis of accounting, but there are several transactions which are reported for
tax purposes which are different than either the cash basis or accrual basis. The income tax basis
departs from the cash basis in the following ways:
•
•
•
The expense for retirement plan contributions is reported on the accrual basis as long
as the contribution is made by the due date of the company's tax return. Even though
the contribution is not made during the time period covered by the income statement,
it can be recorded and shown as an expense.
The expense for federal income taxes can be reported for the time period to which it
applies, even though the taxes are paid in a subsequent period.
Prepaid expenses for periods exceeding 12 months must be capitalized.
4
There are some other minor instances where income tax basis departs from the cash basis, which
can be explained in more detail by a professional tax advisor.
Basis of Accounting - Which is Best?
The accrual basis of accounting provides the most accurate and correct financial information for
an entity, from a professional accounting standpoint. It matches revenue and expense. It records
revenue in the period that revenue is earned, and it records expenses during the period in which
the expenses are incurred, or when goods or services are received. The financial statements
prepared on the accrual basis of accounting properly reflect the financial condition and results of
operation of the entity.
Although the accrual basis of accounting results in the most correct financial statement, the cash
basis of accounting has its place. There isn't necessarily a best method of accounting. Although
the Certified Public Accountant (CPA) might argue that the accrual method is best, many
physicians with small practices might argue that the accrual method is too complex and
cumbersome and provides financial information that is irrelevant to managing a medical practice.
Physicians from large multi-specialty practices might argue otherwise. Cash and income tax
basis accounting is more easily understood for hurried physicians, and is easier to produce.
Reporting revenue is particularly difficult using the accrual method. With medical services
being billed to many insurance companies under many different contracts, or to patients whose
ability pay is unknown, it is difficult to know exactly how much will be collected. For some
payers it is also nearly impossible to know when revenue will be collected.
The real answer is that one size doesn't fit all. The MGMA Cost Surveys for Single Specialty
Practices and Multi-specialty Practices: 2006 Reports Based on 2005 Data reported the following
data:
MGMA Cost Survey: 2006 Reports Based on 2005 Data
Number of Practices Reported
Tax Reporting Accounting Method
Multispecialty
Single Specialty
Cash
187
786
973
76.6%
Accrual
144
153
297
23.4%
331
939
1,270
100.0%
Cash
155
756
911
72.1%
Accrual
174
178
352
27.9%
329
934
1,263
100.0%
Total
Total
Percent
Internal Management Accounting Method
Total
The survey results show that 76.6% of reporting practices use the cash basis for tax reporting and
72.1% of the reporting practices use the cash basis for internal management accounting. These
5
numbers are certainly significant and show that most practices use the cash basis of accounting
to prepare financial statements.
Data included in the survey are not by type of practice or by size of practice. Therefore it is
impossible to conclude from the survey results that very large practices or practices in a
particular specialty use the accrual method rather than the cash method. However, large
practices that need audited financial statements for banking purposes must use the accrual
method. Likewise, large practices that have joint ventures with hospitals may need to use the
accrual method.
This paper will use the cash method of accounting to illustrate financial statements and financial
information. Although the cash method of accounting will be used for discussion purposes, the
concepts and conclusions will be just as meaningful and relevant to those using the income tax or
accrual basis of accounting. Whichever method of accounting is used, designing financial
statements to provide meaningful information requires the same approach.
Accountants’ Reports
When financial statements are prepared by CPA’s, the financial statements must be accompanied
by an Accountants Report. The report indicates the extent of work performed by the CPA in
conjunction with the preparation of the financial statement, and will clearly indicate the level of
attestation of the CPA. The financial statements can be categorized as three primary types:
Audited, Reviewed, or Compiled.
Audited Financial Statements
Audited financial statements have been examined by CPAs following a prescribed set of
standards, referred to as generally accepted auditing standards (GAAS). These standards have
been determined by the Auditing Standards Board of the American Institute of Certified Public
Accountants (AICPA). A copy of an “Audit Report” is included in Exhibit 17. This is the
highest level of attestation by a CPA. It indicates that the CPA has audited financial statements
and believes that they are relevant, accurate, complete, and fairly represent the financial position
and results of operation of the company. 5
Reviewed Financial Statements
In a reviewed financial statement, the CPA provides limited assurance with respect to the
fairness of the financial statement. A review is significantly less in scope than an audit. It in a
review, the CPA performs two procedures with respect to the financial statements. First, the
CPA makes inquiries of company personnel with respect to the use of accounting principles
practices and procedures, as they relate to the preparation of the financial statements. Secondly,
the CPA performs analytical procedures comparing financial data with prior years, with budgets
and forecasts, and with available benchmarks. A copy of a “Review Report” is included in
Exhibit 17. 6
6
Compiled Financial Statements
When a CPA prepares compiled financial statements, the CPA provides no assurance that the
financial statements are fairly presented. The CPA compiles the financial statements based on
financial information provided by the company. Although the CPA provides no assurance, the
CPA must not report any financial information known to be incorrect. In the copy of a
“Compilation Report” is included in Exhibit 17. 7
Research
MGMA Information Center
Research and exploratory efforts began at the MGMA Information Center. In June 2006, Craig
Wiberg, Information Center Systems Manager, was a terrific resource on the availability of
educational materials on medical practice financial statements and reports within the center. It
was apparent at that time that there were not abundant resources of information available on the
subject, even though information was frequently requested by members. Mr. Wiberg remarked
that a common question has been “How do I accurately present our financial statements and
reports to our physicians so that they can understand them and use them to make important
financial decisions?”
Two resources were utilized for this paper as a result of that investigation: Financial
Management for Medical Groups. Medical Group Management Association, by Ernest Pavlock,
and Financial Reports, Medical Group Management Information Exchange, A networking and
information sharing tool, a product of information contributed by MGMA members, and
compiled by MGMA.
The MGMA website listed several on-line courses available to members:
Key Financial Performance Indicators
Cash Flow in the Practice: Understanding, Managing, Predicting It
Creating Meaningful Reports for Physicians
These courses appeared to have value for members, but neither of these courses directly
addressed the broader subject of comprehensive and meaningful financial statements and reports
for medical practices.
Therefore, it was concluded that there is still room for research and education on this subject.
Internet Search
A search on the Internet revealed a wealth of information on financial statements, but little
specifically for medical practices. One book was found, which did provide some useful
information, but very little in the way of financial statement and report design for medical
practices. The title of that book was Physicians Guide to Financial Statements.
7
Survey of Medical Practices
On July 21, 2006, 162 personal letters with an attached 1-page questionnaire (see Exhibit 18)
were mailed to all Colorado Medical Group Management Association (CMGMA) members who
were identified as practice administrators.
Recipients were asked to return the questionnaire by August 4, 2006, and to include any
examples of financial reports that were particularly useful in their practice.
A total of 64 questionnaires were returned along with 22 examples of financial reports attached.
This represents a 35.2% response rate. Many of these reports have been included as sample
reports in the Exhibit Section of this paper.
ACMPE Case Studies and Professional Papers
A search was conducted on the MGMA website for case studies and professional papers
submitted to the American College of Medical Practice Executives using the key words
“financial statements.” The search on resulted in a list of 312 papers. Further review of those
five papers revealed that while those publications contained excellent content, and mentioned
“financial statements” they did not appear to further the body of knowledge with respect to basic
information.
Because this was a self-selected sample there may be bias in favor of those members who are
more experienced with financial reports, and /or personally acquainted with the author.
However, because the response rate is over one-third of the CMGMA member administrators,
the results can be interpreted as fairly reliable and representative of the membership.
Some respondents opted to provide multiple answers to the questions, so when reviewing the
tables the reader will see more than 64 answers to questions. There was one significant
correlation reported of “Practice size by FTE physicians” with “Physicians review basic practice
financial statements.” For the 64 responding practices, as size of practice increases, the
regularity of physician review of financial statements increases as well.
Practices ranged in size from one to 92 FTE physicians. Over 75% of the practices generate
basic financial statements monthly, with 16% generating them quarterly. Half of the 64 practices
reported that all the physicians review basic financial statements of the practice, while in 26 of
the practices some of the physicians review, and in four practices none of the physicians review
them.
Table 4 shows that 38 percent of respondents rated the physicians as “excellent” in their ability
to understand basic financial statements, while 55 percent were rated as “average,” and eight
percent were rated as “poor.”
Supplemental management reports that are provided regularly to physicians are listed in
frequency order in Table 5. The top two most utilized reports are Production and Accounts
8
Receivable. Also, in Table 6, Reports that Physicians Understand and Value, respondents listed
Production reports even more frequently than basic financial reports as being understood and
valued by physicians, 34 and 30 respectively.
Thirty-four practices reported benchmarking with the MGMA survey reports, while 25 practices
reported never benchmarking with MGMA survey reports. The most frequently listed reason for
not using the MGMA reports was listed as “benchmarking is not available in my specialty.” Of
those 25, seven practices listed their specialty associations as being their best sources of
benchmarking information.
A total of 74 resources were listed as options for learning more about basic financial statements.
Practice CPA was listed most frequently with 40 times, the MGMA (information center) was
listed 22 times. So, even if practices are not able to benchmark directly with MGMA survey
reports, they continue to use the information center for knowledge of financial statements.
Table 1
Size of Practice by Number of FTE Physicians
Frequency
4 or under
25
5 to 10
18
11 to 19
8
20 or more
11
Missing
2
Total
64
Percent
39
28
13
17
3
100
Table 2
Frequency that Practice Generates Basic Financial Statements
Frequency
Percent
49
77
Monthly
10
16
Quarterly
3
5
Annually
1
2
Never
1
2
When requested by physicians
64
100
Total
9
Table 3
Physicians Review Basic Practice Financial Statements by
FTE Physician Practice Size
All Physicians
Some Physicians
No Physicians
16
9
4 or under
9
7
2
5 to 10
3
4
1
11 to 19
4
6
1
20 or more
32
26
4
Total
Table 4
Physicians Review Basic Practice Financial Statements
Frequency
Percent
33
52
All
4
6
No
27
42
Some
64
100
Total
Table 5
Physicians Overall Ability to Understand Basic Financials
Frequency
24
Percent
38
35
55
Poor
5
8
Total
64
100
Excellent
Average
10
Table 6
Management Reports that are Provided to Physicians Regularly
Production
Accounts receivable
Flash
Payer mix
Coding profile by physician
Payer contract performance
Referred patients
Budget compared with actual
Financial ratios with industry standard
New patients
Charges to collection ratio
Total*
*More than one report may have been listed by practices
52
42
11
4
4
3
3
3
2
2
2
128
Table 7
Reports that the Physicians Understand and Value
Production
Basic financials
Flash reports
Accounts receivable
Cash flow
Budget
E & M coding
New patient
Three month comparison
Graphs of financials
Income allocation
Individual income statements,
Not sure
Total*
*More than one report may have been listed by practices
11
34
30
7
5
2
1
1
1
1
1
1
1
1
86
Table 8
Frequency of Benchmarking with MGMA Reports
Frequency
Percent
8
13
Monthly
3
5
Quarterly
3
5
Biannually
19
30
Annually
1
2
Every 2 years
25
39
Never
5
6
Missing
64
100
Total
Table 9
Resources for Learning More about Financial Statements
Practice CPA
MGMA Information Center
Internet
Bookstore
Am already expert
Covered in college education
Not sure
CFO
Professional association conferences
Total*
*More than one resource may have been listed by practices
12
40
22
5
2
2
2
1
1
1
76
Basic Financial Statements for the Medical Practice
Designing a Meaningful Financial Statement
The basic financial statements generated for most medical practices are inadequate unless they
are designed specifically for the particular medical practice. If financial statements simply report
revenue and expense, without being designed to report data relevant to the uniqueness of the
practice, the resulting data can be quantitatively correct but qualitatively deficient.
For example, the Income Statement in Exhibit 6 is accurate and correct in every respect.
However, it tells you very little about the practice.
How much were the physicians’ salaries? Was all the revenue from individual physician
production? Was there any revenue from other sources? Did the practice employ any nonphysician providers? What was the overhead percentage? There are many unanswered
questions inherent in this income statement.
Another sample Income Statement (Exhibit 3) is designed to report the results of operations for
the same practice as in Exhibit 6. This statement was customized through collaboration with the
physicians, administrator and CPA for the practice. This income statement was designed to
report revenue and expense in sufficient detail organized consistent with MGMA benchmarks.
Specifically, it breaks out medical revenue between medical services and vaccinations and
immunizations, it breaks out support staff compensation into logical classifications, it breaks out
non-physician provider cost, it breaks out physician cost, and it reports operating expenses and
total overhead in a meaningful manner.
A well designed income statement will provide financial information that is relevant, significant,
and useful in making management decisions. The financial statement will provide data that is
representative of the medical practice as a whole. In designing a meaningful financial statement
for a medical practice, that is truly useful, a determination must be made as to what financial
information is critical for the management of the practice. If practice decision makers state that
the financial statements are not useful, then it is imperative that they be reformatted in a style
that is useful. The financial statements should be designed to provide relevant, easy to
understand information.
Although the income statement in Exhibit 3 provides useful financial data, it still does not
provide all of the financial information needed to properly manage the practice. Supplementary
financial reports can provide financial data in much greater detail than the basic financial
statements. Revenue can be reported by type of income, (medical services, ancillary income,
medical directorships, hospital stipends, etc.), by office location, by provider, by payer, etc. The
Report of Supplementary Financial Information in Exhibit 7 is an illustration of additional data
that can be reported for the same pediatric practice.
The Supplementary Financial Information shows that this practice has two locations. One of the
locations is doing very well, and one is struggling. However, the practice administrator knows
that one location will struggle since it has been in operation for less than two years.
13
Supplemental Financial Information can be used to drill down into financial information
contained in the Basic Financial Statement. For example, additional detail can be generated to
report the following kinds of information:
•
•
•
•
•
•
Profit or loss by location
Profit or loss by profit center
Profit or loss in from ancillary services
Collections by physician
Collections by type of revenue
And so on . . .
Monthly Financial Statements
Financial statements should be prepared timely on a monthly basis. The word “timely” is the
key concept here. If a financial statement for June 30, 2007 is prepared and available for review
on November 15, 2007, it is of limited value for purposes of making management decisions. It
simply reports what has happened historically. Lack of timeliness will limit its use in being an
effective management tool.
Timely financial statements allow administrators and physicians to make management decisions
which can positively affect the bottom line. For example, if expenses are out of line when
compared to benchmarks, adjustments, and corrective action can be taken immediately.
It is also very helpful to present monthly data side by side on a comparative monthly and yearly
basis. Presenting income statement information in this format is generally referred to as a Trend
Report. Exhibit 6 shows comparative income statement information on a monthly basis.
Seasonal trends, for example, can be established and anticipated. In the example pediatric
practice mentioned previously, revenue is significantly higher January through April, than it is
from May through August.
When expenses are reviewed on a month-to-month basis, it is easy to identify exceptions as they
occur. For example, if medical supplies are unreasonably high for a particular month, a review
can be made of medical supply purchases to determine if there is a problem, or if greater patient
volume increased the supply requirements.
Annual Financial Statements
The preparation of an annual Financial Statement is essential. Normally, an annual financial
statement is more accurate and comprehensive than the monthly financial statements. On an
annual basis, certain accounts are reviewed and adjusted to make sure that the data are accurate
and consistent with information reported on a practice’s income tax returns. For a small to midsize practice, for example, the following adjustments might be made on an annual basis, if they
were not be made on a monthly basis:
14
•
•
•
•
•
Depreciation expense is calculated and posted
Profit-sharing and pension plan expenses are posted
Interest expense for the year is posted
Notes payable are adjusted to actual
Fixed asset purchases are verified
Even though every effort should be made on a monthly basis to prepare and present accurate
financial statements, every account should be diligently reviewed and verified on an annual basis
to ensure accuracy.
When the practice prepares financial statements internally, it is considered “best practices” for
the annual financial statements to be prepared independently by the CPA firm representing the
practice. The annual financial statement may be Audited, Reviewed, or Compiled.
Comparative annual financial statements that include the previous year prove to be valuable in
summarizing financial changes. In the annual compiled financial statement shown in Exhibit 2
the revenues have increased by $362,000 and Net Income has increased a loss of $3,300 to a
profit of $9,400. Other changes on a line item basis can also be observed.
Benchmarking with MGMA Surveys
Annual and monthly financial statements can be compared with outside benchmarks. MGMA is
recognized as the best source for medical practice benchmarks, and the administrator will use
these resources as well as other external sources. The Cost Survey and the Physician
Compensation and Production Survey have stood the test of time. Including other benchmarking
resources such as specialty specific associations (BONES for orthopaedic surgery or MedAxiom
for cardiology) contributes reliability and credibility to the benchmarking process. If the practice
financial statements provide information using the same terminology and definitions,
comparisons can be readily made using external benchmarks.
Because medical practices come in all sizes, specialties, and shapes, the benchmarking data from
MGMA are published many ways — on a percentage basis, a per FTE physician basis, or per
FTE provider basis, and where sufficient data are available, on a specialty basis.
Benchmarking Financial Indicators
Included as Exhibit 8 is an analysis showing various financial indicators from an Anesthesia
Practice compared with benchmarks taken from the MGMA Cost Survey and the Physician
Compensation and Production Survey – 2006 Reports Based on 2005 Data. As can be seen from
this example, the Anesthesia Practice has benchmarked its practice on any per FTE basis (except
for payer mix). By using MGMA benchmarks on a per FTE basis, it is possible to compare
practices of any size with relevant and comparable data.
15
Benchmarking Revenues and Expenses
As seen in Exhibit 9, we can compare revenue, physicians’ compensation, staff expenses, and
overhead. In this example, the expense for support staff seems to be too high when compared
with MGMA benchmarks and warrants further examination. One tactic to determine underlying
reasons would be to investigate individual staff compensation, and benchmark with the statelevel MGMA compensation survey report. The Colorado Medical Group Management
Association (CMGMA) currently publishes an annual report of healthcare staff salaries, as well
as physician salaries that provide state-level information. The administrator in this practice
could also break down staff compensation into the categories used by MGMA - which include
general administrative, receptionists, medical assistance, registered nurses, etc. By
benchmarking at a more detailed level, the administrator could determine if there were one group
of employees where overstaffing or overpayment was occurring.
Benchmarking in Flash Reports
Benchmarking in Flash Reports is also a very powerful tool. In Dashboard Report illustrated in
Exhibit 15, accounts receivable data is compared with MGMA benchmarks. In the Flash Report
illustrated in Exhibit 14, total overhead, as a percentage, is compared with MGMA benchmarks.
Management Reports
Management Reports which contain financial data not detailed in Basic Financial Statements are
necessary and valuable for ongoing monitoring of the practice. These reports supply
comprehensive financial information “behind” the Basic Financial Statements. Included are
reports on clinical activities, accounts receivable and collections, physician productivity,
physician charges, charges for ancillary services, compensation by physician, trend reports,
payer mix reports etc. 8
These reports can be even more important, than the basic financial statements for quick decision
making. If a medical practice is underperforming financially, the basic financial statements will
show only revenue and expense, and assets and liabilities—the symptoms. The practice
administrator can observe that revenue is down compared with prior years. Likewise, the
administrator can observe that expenses are higher. If revenue is down and expenses are higher,
the net income of the practice will obviously be down.
What is not visible in the Basic Financial Statements is, “Why is revenue down?”, or “Why are
expenses up?” The management reports must act as “tests” to discover the real cause of the
disease. MGMA reports that 92.28% of practices surveyed provided physicians with financial
and management reports in addition to Basic Financial Statements. 9
Physician Productivity
Tests run to examine revenue would be physician productivity and charge reports. The
productivity reports might be in terms of patient visits, patient consults, RVUs, or some other
16
indicator. Exhibit 10 shows a management productivity report by FTE physician based on
monthly patient visits for the current year and the prior year This report could be enhanced by
adding other indicators, such as number of cases, RVUs, etc.
By reviewing productivity reports, the administrator can determine if lower net income is the
result of reduced productivity.
Charges and Collections
If overall productivity seems to be consistent with prior years, then there should be further
investigation into why revenue is down. Management Reports for charges and collections could
provide an answer, along with reviewing payer contracts. Exhibit 11 shows charges and
collections for the practice in total. These reports should include data for at least two years. If
there are significant variations from month to month, or year to year, reports can also be prepared
showing the same information on a physician by physician basis.
Accounts Receivable
In the table in Exhibit 12, it is obvious that there is a problem with the billing and collection
cycle. Although charges are higher than in the prior year, collections are down, the collections
rate is down, and accounts receivable are up. At this point, further analysis is needed to
determine why accounts receivable are in an upward trend. Perhaps physicians are submitting
late charges; possibly the billing staff has experienced recent turnover and is not operating as
efficiently as in the past; maybe there is a significant change in payer mix, or lower or incorrect
reimbursement. The appropriate use of management reports will help the administrator answer
the question.
The bottom line in medical practices using cash basis accounting is revenue available after
expenses for physician compensation. Management reports can assist in discovering pitfalls in
advance of the printing of the bottom line. The design of management compensation reports
should be consistent with the physician compensation method used in the practice. If
compensation is divided equally, the management reports can be aligned with the practice as a
whole.
Physician Compensation
A productivity-based compensation report will include data that are an integral part of the
compensation formula. In the example in Exhibit 13 each physician is responsible for his/her
own compensation and fringe benefits. The report shows a four physician practice where each
physician is paid a year-end bonus based on their collections, less their share of the general
overhead, less their salaries and direct physician expenses. 10
Compensation reports can be an effective feedback tool to individual physicians when compared
on a year-to-year basis and also compared to MGMA benchmarks. These comparisons allow the
physician to self evaluate performance.
17
Budgets
Although most practices do not provide budget reports to their physicians regularly (see Table 6
on Page 18), it can be a very powerful and helpful report. Enclosed as Exhibit 16 is a sample
budget report where the practice compares actual year to date and monthly results of operations
to the budget.
By comparing actual to budget, the practice is able to periodically develop a variance analysis,
which is used to investigate significant differences between budget and actual. It allows the
practice to appropriately direct its attention to exceptions and solutions.
The Flash Report
A Flash Report (Dashboard Report) can provide a quick summary of key points in an easy to
understand format. The Flash Report is ideally a single page report presenting summarized
financial data and Top and Bottom Line Indicators.
A Bottom Line Indicator is a key piece of financial data that correlates directly with the financial
success of a practice. For example, Bottom Line Indicators could include patient encounters,
collection ratios, days in accounts receivable, RVU’s, number of procedures or cases, revenue
per unit (RVU or ASA), etc. Bottom Line Indicators are most meaningful when compared with
prior years, or MGMA benchmarks.
The Flash Report often is the favorite report of the physician. The physician can look at a one
page summary and quickly take the pulse of the practice. Depending on what’s contained in the
Flash Report, he may know the amount of cash in the bank, the accounts receivable balance, the
amount owed to the bank, days in Accounts Receivable, number of encounters, net income for
the period, and many other things.
Included as Exhibits 14 and 15 are Flash Reports for a pediatric practice and an anesthesiology
practice. In both cases, the pulse of the practice can be quickly determined by reviewing these
one page reports. Often, the Flash Report includes charts and graphs. For those who are more
visually oriented, these charts and graphs can make financial data clearer.
Flash Report – Pediatric Group
This Flash Report (Exhibit 14) includes information on physician compensation, cash balances,
notes payable, accounts receivable, production, collections, and summarized financial statements
for two years. In addition, it includes Bottom Line indicators which have been determined by the
practice to be the most important indicators of financial success. Those indicators are: 1)
ambulatory encounters and 2) collections per encounter. The financial condition of this practice
is summarized very concisely by this report.
18
Flash Report - Anesthesia Group
The Dashboard Report (Exhibit 15) includes information with respect to physician
compensation, accounts receivable, productivity, and summarized financial information for two
years. It includes Bottom Line indicators which are ASA units and revenue per ASA unit. For
purposes of analyzing productivity, the anesthesiologist looks to ASA units, since that is the
basis on which payment is rendered. For purposes of evaluating revenue, the anesthesiologist
looks to revenue per unit has the key financial indicator.
This report very adequately reports information on ASA units, both for the month and year to
date. It also reports revenue and expense on a per unit basis. In addition, accounts receivable
performance is compared with MGMA benchmarks.
Bottom Line Indicators
Bottom Line Indicators are key financial data that are critical indicators of financial results.
These financial indicators are so critical that by themselves, they can reveal financial success.
There are many different types of data and ratios that can be determined to be Bottom Line
Indicators by physicians in practice administrators. Following are common indicators which
could be Bottom Line Indicators:
•
•
•
•
•
•
•
•
•
•
•
Ambulatory encounters
New patients
New OB patients
Patient encounter hours
Patients per day
RVU’s
Procedures
ASA units
Reimbursement rates
Overhead percentage
Revenue per unit (RVU or ASA)
The OB GYN Physician will use new OB patient count as a critical indicator. The Cardiac
Surgeon will focus on the number of hearts. The Anesthesiologist will be keenly aware of units
and revenue per unit. Each specialty in medical practice will have its own unique and important
Bottom Line Indicators.
Conclusion and Summary
Most medical practices prepare and use Basic Financial Statements on a regular basis. These
financial statements are understood by some, but not all physicians. To adequately take
advantage of the value of financial statements, it is important that physicians and administrators
have an above average understanding of the balance sheet, income statement, and the statement
of cash flows. It is also important to understand the basis of accounting being used, and the type
19
of Accountants’ Report attached to the financial statement (if prepared by a CPA). To be of
maximum value to the practice, Basic Financial Statements should be designed to provide
financial information which is relevant and unique to the practice. The user of the financial
statement should determine what data is necessary to adequately manage the practice and make
sound financial decisions. The Basic Financial Statements should be designed to be meaningful
for the practice.
Often, the Basic Financial Statements will not include all of the financial information necessary.
As a result, additional financial and management reports need to be generated. These reports
include financial data with respect to financial indicators such as collections, charges, and
counters, compensation, accounts receivable, budgets, etc. As in the case of Basic Financial
Statements, these reports should be designed to provide data needed by the physicians and the
practice administrator.
Flash Reports can be used to combine the best of Basic Financial Statements and other financial
and management reports. By summarizing key financial data from the financial statements, and
key financial indicators from the management reports, it is possible to report a tremendous
amount of information on one page. Flash Reports can be used to take the pulse of the practice
and know very quickly how healthy the practice is.
Finally, meaningful financial statements and management reports should be designed in such a
way that the financial data can be compared with internal and external benchmarks. It is very
important in evaluating the financial position and results of operation of a medical practice that
the data can be compared with industry averages (e.g. MGMA survey data).
1
“Reading and Understanding Financial Statements.” Altschuler, Melvoin and Glasser LLP. 2005:3.
2
Zeller, Thomas L., PhD, CPA, Stanko, Brian B., PhD, CPA, Senagore, MD, MBA, FACS. “A Physician’s Guide to
Financial Statements.” American College of Physician Executive., 2002:49.
3
Zeller, Thomas L., PhD,CPA, Stanko, Brian B., PhD, CPA, Senagore, MD., MBA, FACS. “A Physician’s Guide to
Financial Statements.” American College of Physician Executives. 2002:18.
4
Ramos, Michael J., CPA “Preparing and Reporting on Cash-and Tax-Basis Financial Statements.” American
Institute of Certified Public Accountant., 1998:20.
5
Pavlock, Ernest J., PhD, CPA. “Financial Management for Medical Groups.” Medical Group Management
Association. 2000:77.
6
Pavlock, Ernest J., PhD, CPA. “Financial Management for Medical Groups.” Medical Group Management
Association. 2000:79.
7
Pavlock, Ernest J., PhD, CPA. “Financial Management for Medical Groups.” Medical Group Management
Association. 2000:79.
8
Tinsley, Reed, CPA. “Medical Practice Management Handbook for CPAs, Policy Guide to Accounting and Tax
Issues, Daily Operations, and Physicians’ Contracts.” Harcourt Brace Professional Publishing. 1996:21-39.
20
9
Financial Reports, “Medical Group Management Information Exchange, A networking and information sharing
tool, Medical Group Management Association. 2003:1.
10
Johnson, Bruce A., JD, MPA, Keegan, Deborah Walker, PhD, FACMPE. “Physicians Compensation Plans”.
2006:284-285.
21
Independent Audit Report
We have audited the accompanying balance sheets of XYZ Company as of December 31, 2006, and the
related statements of income, retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of XYZ Company as of December 31, 2006, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principals generally accepted in the United States of
America.
Review Report
We have reviewed the accompanying balance sheet of XYZ Company (a corporation) as of December 31,
2006, and the related statements of income and retained earnings and cash flows for the year then ended,
in accordance with Statements on Standards for Accounting and Review Services issued by the American
Institute of Certified Public Accountants. All information included in these financial statements is the
representation of the management of XYZ Company.
A review consists principally of inquiries of Company personnel and analytical procedures applied to
financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
accompanying financial statements in order for them to be in conformity with generally accepted accounting
principles.
Compilation Report
We have compiled the accompanying balance sheet of XYZ Company (a corporation) as of December 31,
2006, and the related statements of income and retained earnings and cash flows for the year then ended,
in accordance with Statements on Standards for Accounting and Review Services issued by the American
Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements information that is the representation
of management. We have not audited or reviewed the accompanying financial statements and, accordingly,
do not express an opinion or any other form of assurance on them.
Exhibit 17
Right Way Pediatrics
Balance Sheets
December 31,2006 and 2005
ASSETS
2006
CURRENT ASSETS
Checking Account
Petty Cash
Total current assets
PROPERTY AND EQUIPMENT
Computer hardware
Furniture and fixtures
Leasehold improvements
Medical equipment
Office equipment
Accumulated depreciation
Net property and equipment
$45,800
1,000
46,800
$36,600
1,000
37,600
30,000
27,000
66,000
10,000
27,000
160,000
(83,000)
77,000
25,000
27,000
66,000
9,000
26,000
153,000
(65,000)
88,000
OTHER ASSETS
Deposits
Investments
Total other assets
TOTAL ASSETS
2005
4,000
3,000
7,000
4,000
3,000
7,000
$130,800
$132,600
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Payroll taxes payable
Retirement plan contributions payable
Total current liabilities
LONG TERM LIABILITIES
Note Payable
Total Liabilities
STOCKHOLDERS' EQUITY
Common stock
Retained earnings
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$13,000
19,000
32,000
$11,000
21,000
32,000
73,150
84,350
105,150
116,350
5,000
20,650
25,650
5,000
11,250
16,250
$130,800
$132,600
Exhibit 1
Right Way Pediatrics
Income Statements
For Twelve Months Ended December 31,2006 and 2005
2006
REVENUES
Professional fees
Vaccines & immunizations
Miscellaneous income
Refunds
Total revenues
PHYSICIAN EXPENSES
Salaries
Physician expenses
Health insurance
Payroll taxes
Retirement plan contribution
Total physician expenses
NON PHYSICIAN PROVIDER EXPENSES
Salaries-Physician Assistants
Payroll taxes
Health insurance
Retirement Plan
Continuing medical education
Total Mid-Level Provider Expenses
STAFF EXPENSES
Salaries-Medical Assts
Salaries-Nurses
Salaries-Receptionists
Salaries-Business Office
Health insurance
Retirement plan contribution
Payroll Taxes
Total Staff Expenses
$5,300,000
1,100,000
14,000
(20,000)
6,394,000
1,800,000
25,000
60,000
90,000
150,000
2,125,000
2005
82.9 %
17.2
0.2
(0.3)
100.0
28.2
0.4
$5,000,000
950,000
100,000
(18,000)
6,032,000
82.9 %
15.7
1.7
(0.3)
100.0
1.4
2.3
33.2
1,600,000
24,000
57,000
80,000
140,000
1,901,000
26.5
0.4
0.9
1.3
2.3
31.5
574,000
42,000
34,000
50,000
1,000
701,000
9.0
0.7
0.5
0.8
0.0
11.0
555,000
41,000
33,000
48,000
1,000
678,000
9.2
0.7
0.5
0.8
0.0
11.2
384,000
144,000
336,000
360,000
103,200
120,000
96,000
1,543,200
6.0
2.3
5.3
5.6
1.6
1.9
1.5
24.1
400,000
140,000
325,000
385,000
115,000
125,000
100,000
1,590,000
6.6
2.3
5.4
6.4
1.9
2.1
1.7
26.4
Exhibit 2 (Pg 1 of 2)
Right Way Pediatrics
Income Statements
For Twelve Months Ended December 31,2006 and 2005
GENERAL & ADMINISTRATIVE
Accounting & bookkeeping
Advertising and promotion
Bank charges
Computer expense
Credit card fees
Depreciation
Dues and fees
Education
Insurance-general
Insurance-professional liability
Insurance-workers compensation
Interest
Leased equipment
Legal fees
Meals and entertainment
Medical records
Medical supplies
Office expense
Payroll fees
Publications
Rent
Repairs and maintenance
Taxes-other
Telephone
Vaccinations and drugs
Waste removal
Total General & Administrative
36,000
24,000
3,600
88,000
20,000
18,000
1,200
1,200
2,600
126,000
14,000
5,000
14,800
5,000
7,000
8,000
100,000
60,000
48,000
3,600
384,000
8,600
2,400
60,000
970,000
4,400
2,015,400
0.6 %
0.4
0.1
1.4
0.3
0.3
0.0
0.0
0.0
2.0
0.2
0.1
0.2
0.1
0.1
0.1
1.6
0.9
0.8
0.1
6.0
0.1
0.0
0.9
15.2
0.1
31.5
40,000
26,000
3,500
90,000
21,000
17,000
1,100
1,500
2,500
122,000
13,500
4,500
14,000
7,500
9,000
10,500
105,000
58,000
46,600
3,500
372,000
8,400
2,000
58,000
825,000
4,200
1,866,300
0.7 %
0.4
0.1
1.5
0.3
0.3
0.0
0.0
0.0
2.0
0.2
0.1
0.2
0.1
0.1
0.2
1.7
1.0
0.8
0.1
6.2
0.1
0.0
1.0
13.7
0.1
30.9
TOTAL OVERHEAD
3,558,600
55.7
3,456,300
57.3
NET INCOME
RETAINED EARNINGS - Beginning
RETAINED EARNINGS - Ending
9,400
0.1 %
(3,300)
11,250
14,550
$20,650
$11,250
(0.1) %
Exhibit 2 (Pg 2 of 2)
Right Way Pediatrics
Income Statements
For One Month and Twelve Months Ended December 31,2006
Current Month
REVENUES
Professional fees
Vaccines & immunizations
Miscellaneous income
Refunds
Total revenues
PHYSICIAN EXPENSES
Salaries
Physician expenses
Health insurance
Payroll taxes
Retirement plan contribution
Total physician expenses
NON PHYSICIAN PROVIDER EXPENSES
Salaries-Physician Assistants
Payroll taxes
Health insurance
Retirement Plan
Continuing medical education
Total Mid-Level Provider Expenses
STAFF EXPENSES
Salaries-Medical Assts
Salaries-Nurses
Salaries-Receptionists
Salaries-Business Office
Health insurance
Retirement plan contribution
Payroll Taxes
Total Staff Expenses
$456,000
90,000
1,000
(2,000)
545,000
Year to Date
83.7 %
16.5
0.2
-0.4
100.0
22.0
1.8
$5,300,000
1,100,000
14,000
(20,000)
6,394,000
82.9
17.2
0.2
(0.3)
100.0
28.2
0.4
1.4
2.3
33.2
120,000
10,000
5,000
11,600
8,000
154,600
2.1
1.5
28.4
1,800,000
25,000
60,000
90,000
150,000
2,125,000
34,000
4,000
3,000
4,000
0
45,000
6.2
0.7
0.6
0.7
0.0
8.3
574,000
42,000
34,000
50,000
1,000
701,000
9.0
0.7
0.5
0.8
0.0
11.0
32,000
12,000
28,000
30,000
8,600
10,000
8,000
128,600
5.9
2.2
5.1
5.5
1.6
1.8
1.5
23.6
384,000
144,000
336,000
360,000
103,200
120,000
96,000
1,543,200
6.0
2.3
5.3
5.6
1.6
1.9
1.5
24.1
Exhibit 3 (Pg 1 of
Right Way Pediatrics
Income Statements
For One Month and Twelve Months Ended December 31,2006
GENERAL & ADMINISTRATIVE
Accounting & bookkeeping
Advertising and promotion
Bank charges
Computer expense
Credit card fees
Depreciation
Dues and fees
Education
Insurance-general
Insurance-professional liability
Insurance-workers compensation
Interest
Leased equipment
Legal fees
Meals and entertainment
Medical records
Medical supplies
Office expense
Payroll fees
Publications
Rent
Repairs and maintenance
Taxes-other
Telephone
Vaccinations and drugs
Waste removal
Total General & Administrative
3,000
1,400
400
7,600
1,600
1,500
300
200
0
5,000
1,200
400
1,200
500
400
400
8,000
4,000
4,000
0
32,000
1,900
0
5,000
130,000
700
210,700
0.6
0.3
0.1
1.4
0.3
0.3
0.1
0.0
0.0
0.9
0.2
0.1
0.2
0.1
0.1
0.1
1.5
0.7
0.7
0.0
5.9
0.3
0.0
0.9
23.9
0.1
38.7
36,000
24,000
3,600
88,000
20,000
18,000
1,200
1,200
2,600
126,000
14,000
5,000
14,800
5,000
7,000
8,000
100,000
60,000
48,000
3,600
384,000
8,600
2,400
60,000
970,000
4,400
2,015,400
0.6
0.4
0.1
1.4
0.3
0.3
0.0
0.0
0.0
2.0
0.2
0.1
0.2
0.1
0.1
0.1
1.6
0.9
0.8
0.1
6.0
0.1
0.0
0.9
15.2
0.1
31.5
TOTAL OVERHEAD
339,300
62.3
3,558,600
55.7
9,400
0.1
NET INCOME
RETAINED EARNINGS - Beginning
RETAINED EARNINGS - Ending
6,100
1.1 %
11,250
11,250
$17,350
$20,650
Exhibit 3 (Pg 2 of 2)
%
f 2)
%
Right Way Pediatrics
Statement of Cash Flows
For the Year Ended 12/31/06
Beginning Cash Balance - 1/1/06
$36,600
Cash Provided by Operations
Net Income for the Year
Plus Expense Not Requiring Use of Cash - Depreciation
Net Cash Provided by Operations
9,400
18,000
27,400
Cash Used for Investing Activities
Purchase of property and equipment
(7,000)
Cash Used for Financing Activites
Principal payments on note payable
Increase in Cash for 2006
Ending Cash Balance - 12/31/06
(11,200)
9,200
$45,800
Exhibit 4
Rocky Mountain High, PC
Statement of Cash Flows
Comparison of Cash in Bank and Taxable Income
Annual
Taxable
Income
Cash
Beginning Balance
$
-
$
-
Financial Transactions
Cash Received
From insurance companies or patients for medical services
From bank - proceeds of borrowing
From new shareholders to purchase stock
400,000
21,000
15,000
400,000
(47,000)
(50,000)
(210,000)
(47,000)
(50,000)
(210,000)
Cash Disbursed
To vendors for services, supplies, rent, and other expenses
(*** generally - anything with less than a one year life)
To employees for payroll
To physicians for payroll
To vendors for fixed asset purchases
Leasehold improvements
Computer equipment
Furniture
(*** generally - anything with more than a one year life)
To retiring shareholders to redeem stock
To bank to repay loan principal
To bank to repay loan interest
(78,000)
(5,000)
(10,000)
(30,000)
(5,000)
(1,000)
(1,000)
Non-cash Transactions
Depreciation
Leasehold improvements - 15 years
Computer equipment - Section 179
Furniture - Section 179
Ending Balance
(5,200)
(5,000)
(10,000)
$
-
Cash in Bank
$
71,800
Taxable Income
Exhibit 5
Wrong Way Pediatrics
Income Statements
For One Month and Twelve Months Ended December 31,2006
Current Month
REVENUES
Patient revenue received
Miscellaneous income
Refunds
Total revenues
EXPENSES
Accounting & bookkeeping
Advertising and promotion
Bank charges
Computer expense
Continuing medical education
Credit card fees
Depreciation
Dues and fees
Education
Insurance
Interest
Leased equipment
Legal fees
Meals and entertainment
Medical records
Medical supplies
Office expense
Payroll fees
Payroll taxes
Physician expenses
Publications
Rent
Repairs and maintenance
Retirement plan contributions
Salaries
Taxes-other
Telephone
Vaccinations and drugs
Waste removal
Total Expenses
NET INCOME
RETAINED EARNINGS - Beginning
RETAINED EARNINGS - Ending
546,000
1,000
(2,000)
$545,000
3,000
1,400
400
7,600
Year to Date
6,400,000
14,000
(20,000)
$6,394,000
1,600
1,500
300
200
22,800
400
1,200
500
400
400
8,000
4,000
4,000
23,600
10,000
0
32,000
1,900
22,000
256,000
0
5,000
130,000
700
538,900
36,000
24,000
3,600
88,000
1,000
20,000
18,000
1,200
1,200
339,800
5,000
14,800
5,000
7,000
8,000
100,000
60,000
48,000
228,000
25,000
3,600
384,000
8,600
320,000
3,598,000
2,400
60,000
970,000
4,400
6,384,600
6,100
9,400
11,250
11,250
$17,350
$20,650
Exhibit 6
Right Way Pediatrics
Supplementary Financial Statement
For One Month and Twelve Months Ended December 31,2006
Practice Totals
REVENUES
Professional fees
Vaccines & immunizations
Miscellaneous income
Refunds
Total revenues
PHYSICIAN EXPENSES
Salaries
Physician expenses
Health insurance
Payroll taxes
Retirement plan contribution
Total physician expenses
NON PHYSICIAN PROVIDER EXPENSES
Salaries-Physician Assistants
Payroll taxes
Health insurance
Retirement Plan
Continuing medical education
Total Mid-Level Provider Expenses
STAFF EXPENSES
Salaries-Medical Assts
Salaries-Nurses
Salaries-Receptionists
Salaries-Business Office
Health insurance
Retirement plan contribution
Payroll Taxes
Total Staff Expenses
$5,300,000
1,100,000
14,000
(20,000)
6,394,000
1,800,000
25,000
60,000
90,000
150,000
2,125,000
82.89 %
17.20
0.22
(0.31)
100.00
28.15
0.39
Year to Date
North Office
$3,200,000
700,000
2,000
(12,000)
3,890,000
82.26 %
17.99
0.05
(0.31)
100.00
West Office
$2,100,000
$400,000
$12,000
($8,000)
2,504,000
83.87 %
15.97
0.48
(0.32)
100.00
1.41
2.35
33.23
1,080,000
15,000
36,000
54,000
90,000
1,275,000
27.76
0.39
0.93
1.39
2.31
32.78
720,000
10,000
24,000
36,000
60,000
850,000
28.75
0.40
0.96
1.44
2.40
33.95
574,000
42,000
34,000
50,000
1,000
701,000
8.98
0.66
0.53
0.78
0.02
10.96
345,000
25,000
20,400
30,000
600
421,000
8.87
0.64
0.52
0.77
0.02
10.82
229,000
17,000
13,600
20,000
400
280,000
9.15
0.68
0.54
0.80
0.02
11.18
384,000
144,000
336,000
360,000
103,200
120,000
96,000
1,543,200
6.01
2.25
5.25
5.63
1.61
1.88
1.50
24.14
230,400
86,400
168,000
180,000
57,000
66,000
24,200
812,000
5.92
2.22
4.32
4.63
1.47
1.70
0.62
20.87
153,600
57,600
168,000
180,000
46,200
54,000
71,800
731,200
6.13
2.30
6.71
7.19
1.85
2.16
2.87
29.20
Exhibit 7 (Pg 1 of 2)
Right Way Pediatrics
Supplementary Financial Statement
For One Month and Twelve Months Ended December 31,2006
GENERAL & ADMINISTRATIVE
Accounting & bookkeeping
Advertising and promotion
Bank charges
Computer expense
Credit card fees
Depreciation
Dues and fees
Education
Insurance-general
Insurance-professional liability
Insurance-workers compensation
Interest
Leased equipment
Legal fees
Meals and entertainment
Medical records
Medical supplies
Office expense
Payroll fees
Publications
Rent
Repairs and maintenance
Taxes-other
Telephone
Vaccinations and drugs
Waste removal
Total General & Administrative
36,000
24,000
3,600
88,000
20,000
18,000
1,200
1,200
2,600
126,000
14,000
5,000
14,800
5,000
7,000
8,000
100,000
60,000
48,000
3,600
384,000
8,600
2,400
60,000
970,000
4,400
2,015,400
0.6
0.4
0.1
1.4
0.3
0.3
0.0
0.0
0.0
2.0
0.2
0.1
0.2
0.1
0.1
0.1
1.6
0.9
0.8
0.1
6.0
0.1
0.0
0.9
15.2
0.1
31.5
18,000
12,000
1,800
44,000
10,000
9,000
600
600
1,300
75,600
7,980
2,500
8,880
2,500
3,500
4,800
66,000
30,000
30,720
1,800
192,000
5,160
1,200
30,000
620,800
2,640
1,183,380
0.46
0.31
0.05
1.13
0.26
0.23
0.02
0.02
0.03
1.94
0.21
0.06
0.23
0.06
0.09
0.12
1.70
0.77
0.79
0.05
4.94
0.13
0.03
0.77
15.96
0.07
30.42
18,000
12,000
1,800
44,000
10,000
9,000
600
600
1,300
50,400
6,020
2,500
5,920
2,500
3,500
3,200
34,000
30,000
17,280
1,800
192,000
3,440
1,200
30,000
349,200
1,760
832,020
0.72
0.48
0.07
1.76
0.40
0.36
0.02
0.02
0.05
2.01
0.24
0.10
0.24
0.10
0.14
0.13
1.36
1.20
0.69
0.07
7.67
0.14
0.05
1.20
13.95
0.07
33.23
TOTAL OVERHEAD
3,558,600
55.7
1,995,380
51.30
1,563,220
62.43
9,400
0.1
198,620
NET INCOME
0.05 %
(189,220)
(7.56)
Exhibit 7 (Pg 2 of 2)
Anesthesia Practice Annual Benchmarking with MGMA Data
MGMA
Anesthesia
All Practices
Days Charges in Accounts Receivable
Payer Mix
Medicare
Medicaid
Commercial - Mangaged care
Commercial - Other
Workers' compensation
Self pay
Per FTE Physician
Gross FFS Charges
Adjustments to FFS Charges
Bad debts due to FFS Activity
Other medical revenue
Total medical revenue
Per FTE Physician
Operating Cost
Professional liability insurance
Operating Cost
Professional liability insurance
Medical Revenue per unit
Physician Cost
Compensation
Benefits
51.6 days
Median
27.00%
6.48%
38.00%
12.00%
2.00%
3.43%
88.91%
MGMA
Anesthesia
Physician Only Model
52.9 days
Mean
29.31%
11.57%
32.37%
20.65%
2.55%
4.01%
100.5%
Weeks worked per year
39.0 days
Mean
25.3%
9.8%
35.1%
22.3%
3.5%
4.0%
100.0%
Median
24.25%
5.64%
43.25%
13.30%
2.80%
3.55%
92.79%
Mean
25.0%
5.7%
60.2%
2.7%
3.8%
2.6%
100.0%
877,408
(450,975)
(22,306)
404,127
20,356
$ 424,483
100.0%
-51.4%
-2.5%
46.1%
2.3%
48.4%
$ 790,000
(370,000)
(23,000)
397,000
12,000
$ 409,000
$
$
$
$
$
ASA Units per physician
Anesthesia Practice
37,634
12,011
8.87%
2.83%
$37.61
$
$
33,000
24,000
8.07%
5.87%
$40.07
334,608
50,903
385,511
$ 298,000
54,000
$ 352,000
10,945
10,206
44
100.00%
-46.84%
-2.91%
50.25%
1.52%
51.77%
40
Exhibit 8
Kidz Pediatrics
Revenue and Expense per FTE Physician
For Twelve Months Ended December 31,2006 compared with MGMA Mean
2006
MGMA Mean
MEDICAL REVENUES
Total medical revenues
645,000
100.0 %
573,484
100.0 %
PHYSICIAN EXPENSES
Compensation
Benefit cost
Total physician cost
175,000
30,000
205,000
27.1 %
4.7 %
31.8 %
181,847
25,193
207,040
31.7 %
4.4 %
36.1 %
57,400
12,700
70,100
8.9 %
2.0 %
10.9 %
32,706
4,641
37,347
5.7 %
0.8 %
6.5 %
STAFF EXPENSES
Total Staff Expenses
175,500
27.2 %
144,463
25.2 %
GENERAL & ADMINISTRATIVE
Accounting and legal
Advertising and promotion
Computer expense
Insurance-professional liability
Insurance-general
Medical supplies
Office expense
Rent
Vaccinations and drugs
Miscellaneous other
Total General & Administrative
3,600
2,400
8,800
12,600
1,400
10,000
6,800
38,400
97,000
20,540
201,540
0.6
0.4
1.4
2.0
0.2
1.6
1.1
6.0
15.0
3.2
31.2
%
%
%
%
%
%
%
%
%
%
%
5,476
2,255
11,422
12,409
3,417
11,956
11,440
38,369
61,061
25,724
183,529
1.0
0.4
2.0
2.2
0.6
2.1
2.0
6.7
10.6
4.5
32.0
TOTAL OVERHEAD
377,040
58.5 %
327,992
57.2 %
NON PHYSICIAN PROVIDER EXPENSES
Compensation
Benefit cost
Total non physician provider cost
Exhibit 9
%
%
%
%
%
%
%
%
%
%
%
Cardiology Group
Production Report for the Period 1/1/06 - 06/30/06
Office Encounters
Current Current Prior
Month Year
Year
Total Total Total
Hospital Encounters
Current Current Prior
Month Year
Year
Total
Total
Total
Doctor 1
160
800
960
138
621
90
Doctor 2
153
842
995
74
444
Doctor 3
127
762
667
138
Doctor 4
182
1,183
1,128
Doctor 5
104
546
Doctor 6
104
645
Cardiac Intervnentions
Current Current Prior
Month Year
Year
Total
Total
Total
28
154
168
Thalium Treadmills
Current Current Prior
Month Year
Year
Total
Total
Total
14
70
77
463
25
150
137.5
794
662
15
75
90
63
315
441
6
36
39
31
186
217
650
15
94
90
15
105
94
24
108
144
598
57
274
314
23
143
133.4
This report is summarized and abbreviated for illustration purposes only. The actual document reports
many more procedures, including Echo, EKG, Treadmill, etc.
Exhibit 10
Medical Practice - Productions Reports
Charges and Collections
Location 1
January
February
March
April
May
June
July
August
September
October
November
December
Monthly Average
Monthly Average
Collection percent
Total
Location 1
2006
Charges
Location 2
Total
315,000
322,000
485,000
300,000
440,000
465,000
418,000
540,000
335,000
334,000
425,000
380,000
4,759,000
130,000
113,500
118,500
118,000
172,000
140,000
153,000
124,000
132,000
146,000
114,000
132,000
1,593,000
445,000
435,500
603,500
418,000
612,000
605,000
571,000
664,000
467,000
480,000
539,000
512,000
6,352,000
501,000
497,000
370,000
560,000
525,000
485,000
385,000
413,000
440,000
346,000
381,000
374,000
5,277,000
137,000
131,000
177,000
145,000
105,000
165,000
171,000
173,000
174,000
141,000
133,000
163,000
1,815,000
638,000
628,000
547,000
705,000
630,000
650,000
556,000
586,000
614,000
487,000
514,000
537,000
7,092,000
396,583
132,750
529,333
439,750
151,250
591,000
Location 1
January
February
March
April
May
June
July
August
September
October
November
December
2005
Charges
Location 2
2005
Collections
Location 2
Total
Location 1
2006
Collections
Location 2
Total
224,000
140,000
149,000
193,000
171,000
195,000
161,000
165,000
208,000
195,000
175,000
153,000
2,129,000
61,000
68,000
66,000
65,000
66,000
65,000
70,000
68,000
65,000
78,000
79,000
56,000
807,000
285,000
208,000
215,000
258,000
237,000
260,000
231,000
233,000
273,000
273,000
254,000
209,000
2,936,000
186,000
191,000
185,000
170,000
222,000
185,000
185,000
153,000
189,000
265,000
209,000
118,000
2,258,000
60,000
52,000
57,000
79,000
61,000
73,000
77,000
74,000
79,000
101,000
88,000
98,000
899,000
246,000
243,000
242,000
249,000
283,000
258,000
262,000
227,000
268,000
366,000
297,000
216,000
3,157,000
177,417
67,250
244,667
188,167
74,917
263,083
44.7%
50.7%
46.2%
42.8%
49.5%
44.5%
This report shows two years, for illustration purposes. The actual report contained the prior 5 years.
Exhibit 11
Sample Medical Practice
Accounts Receivable Report
Month End
2005
January
February
March
April
May
June
July
August
September
October
November
December
Total for Year
2006
January
February
March
April
May
June
July
August
September
October
November
December
Beginning
Accounts
Receivable
Balance
Charges
Collections Adjustments
Bad
Debts
Ending
Accounts
Receivable
Balance
Collection
Percentage
750,000
793,000
769,000
890,500
720,100
886,100
851,600
791,600
850,600
656,850
663,850
736,850
445,000
435,500
603,500
418,000
612,000
605,000
571,000
664,000
467,000
480,000
539,000
512,000
6,352,000
200,000
225,000
217,000
300,000
210,000
305,000
300,000
285,000
330,000
225,000
235,000
250,000
3,082,000
200,000
233,000
262,000
288,000
235,000
334,000
326,000
318,000
330,000
247,000
227,000
269,000
3,269,000
2,000
1,500
3,000
400
1,000
500
5,000
2,000
750
1,000
4,000
950
22,100
793,000
769,000
890,500
720,100
886,100
851,600
791,600
850,600
656,850
663,850
736,850
728,900
728,900
50.0%
49.1%
45.3%
51.0%
47.2%
47.7%
47.9%
47.3%
50.0%
47.7%
50.9%
48.2%
48.5%
728,900
827,850
904,850
950,350
1,089,600
1,090,500
1,166,500
1,152,000
1,233,000
1,279,550
1,017,800
872,800
618,000
600,000
547,000
650,000
615,000
625,000
550,000
575,000
605,000
475,000
500,000
515,000
6,875,000
242,000
240,000
239,000
225,000
289,000
253,000
268,000
215,000
258,000
334,000
297,000
212,000
3,072,000
276,000
280,000
260,000
285,000
325,000
291,000
290,000
277,000
299,000
402,000
346,000
245,000
3,576,000
1,050
3,000
2,500
750
100
5,000
6,500
2,000
1,450
750
2,000
1,000
26,100
827,850
904,850
950,350
1,089,600
1,090,500
1,166,500
1,152,000
1,233,000
1,279,550
1,017,800
872,800
929,800
929,800
46.7%
46.2%
47.9%
44.1%
47.1%
46.5%
48.0%
43.7%
46.3%
45.4%
46.2%
46.4%
46.2%
Exhibit 12
Western Plains Physicians
Physician Compensation - Bonus Analysis
12/31/2006
Allocation
Method
Revenue Collected
Direct
Percent of total collections
Practice
Total
2,000,000
100.0%
Doctor 1
Doctor 2
Doctor 3
Doctor 4
570,000
480,000
550,000
400,000
28.5%
24.0%
27.5%
20.0%
Less Expense Allocation
Staff Expenses
% of collections
400,000
114,000
96,000
110,000
80,000
Equal
% of collections
250,000
250,000
500,000
62,500
71,250
133,750
62,500
60,000
122,500
62,500
68,750
131,250
62,500
50,000
112,500
General Overhead
50 % Equally Shared
50% based on collections
Physician Expenses
Direct
80,000
25,000
20,000
22,000
13,000
Physician Salaries
Direct
800,000
215,000
215,000
215,000
155,000
Retirement plan
Direct
100,000
25,000
25,000
25,000
25,000
1,880,000
512,750
478,500
503,250
385,500
120,000
57,250
1,500
46,750
14,500
Total Expense Allocation
Year-end Bonus Due
Exhibit 13
Right Way Pediatrics
December 31, 2006
Income Available for Physician Compensation
All Physicians
Total
Per M.D.
Per Physician
Total
Per Month
2006
1,803,900
180,390
180,390
15,033
2005
1,649,600
164,960
164,960
13,747
Cash in Bank
Notes Payable.
Accounts Receivable ( Gross )
Collection Percentage
2005
2006
61.0%
62.0%
2006
45,800
2005
36,600
73,150
84,350
1,250,000
1,150,000
762,500
713,000
125.00
122.50
Charges for December
900,000
850,000
Collections for December
545,000
515,000
4,360
4,204
51,152
49,796
Accounts Receivable ( Net ) @
Collection rate per encounter - Prior 12 months
Ambulatory Encounters for December
Ambulatory Encounters year to date
Year to Date
2006
2005
Revenues Collected
6,394,000
100.0%
6,100,000
100.0%
Expenses
Non Physician Providers
Staff Expenses
General Overhead
Interest
Total
701,000
1,543,200
1,900,900
5,000
4,150,100
11.0%
24.1%
29.7%
0.1%
64.9%
685,000
1,495,000
1,825,000
5,400
4,010,400
11.2%
24.5%
29.9%
0.1%
65.7%
Income before Physician Cost
2,243,900
35.1%
2,089,600
34.3%
Total Operating Cost as a Percentage
MGMA Operating Cost as a Percentage (mean)
55.9%
58.7%
56.5%
59.7%
Exhibit 14
Sample Anesthesia Practice
For the Month of June 2006 and YTD 2006
Production
A
ASA Units for the June
ASA Units - YTD
Physician
B
875
5,500
Charges for June
Charges - YTD
$
$
Revenue & Expense
74,375
467,500
C
750
5,000
$
$
63,750
425,000
900
6,000
$
$
June 2006
Total
Per unit
Revenue
$
125,000
$
49.50
Total
76,500
510,000
2,525
16,500
$
$
214,625
1,402,500
YTD 2006
Total
Per Unit
$
820,000
$
49.70
Physicians' Salary
90,000
35.64
600,000
36.36
Physicians' Expenses
10,000
3.96
60,000
3.64
Overhead Expenses
10,000
3.96
65,000
3.94
Net Income
$
$
9.90
Sample Practice
Amount
%
Accounts Receivable
Average Days in AR
45 days
Actual AR
AR Aging
25,000
Current
30 - 60
60 - 90
90 - 120
120 +
$
155,000
$
9.39
MGMA Better
Performers
37 days
$
350,000
100.0%
$
$
$
$
$
263,900
44,100
26,250
8,750
7,000
75.4%
12.6%
7.5%
2.5%
2.0%
65.3%
14.5%
7.0%
3.9%
9.9%
Exhibit 15
Low Overhead Surgery Practice
Budget Report
BUDGET
2006
Budget
$ 3,400,000
$ 590,000
$ 580,000
Physicians Cost
Salaries
Payroll taxes
Health insurance
Profit-sharing
Professional liability
Dues and licenses
Professional development
Other
Total Physician Cost
1,800,000
108,000
90,000
270,000
80,000
36,000
31,000
50,000
2,465,000
300,000
22,950
15,000
45,000
20,000
7,000
8,500
8,333
426,783
Staff Expenses
Salaries
Payroll taxes
Health insurance
Profit-sharing
Other
Total Staff Expenses
500,000
40,000
54,000
75,000
10,000
679,000
General Overhead
Office expense
Rent
Communications
Repairs and maintenance
Legal accounting
Insurance
Meals and entertainment
Other
Total General Overhead
Revenue Collected
Revenues Collected less
Expenses Paid
$
Year to Date
Actual Variance
Budget
January
Actual
Variance
Budget
February
Actual
Variance
$ (10,000)
$ 265,000
$ 275,000
$ 10,000
$ 325,000
$ 305,000
$ (20,000)
300,000
23,000
15,000
44,000
20,000
11,000
7,500
7,500
428,000
50
(1,000)
4,000
(1,000)
(833)
1,217
150,000
11,475
7,500
6,000
2,500
4,167
181,642
150,000
11,500
7,500
10,000
2,000
5,000
186,000
25
4,000
(500)
833
4,358
150,000
11,500
7,500
44,000
20,000
1,000
5,500
2,500
242,000
25
(1,000)
(500)
(1,667)
(3,142)
83,333
6,667
9,000
12,500
1,667
113,167
82,000
6,560
8,400
12,000
1,750
110,710
(1,333)
(107)
(600)
(500)
83
(2,457)
41,667
3,333
4,500
833
50,333
40,000
3,200
4,200
1,500
48,900
(1,667)
(133)
(300)
667
(1,433)
42,000
3,360
4,200
12,000
250
61,810
333
27
(300)
(500)
(583)
(1,023)
65,000
60,000
24,000
12,000
10,000
6,000
8,000
34,000
219,000
10,833
10,000
4,000
2,000
1,667
1,000
1,333
5,667
36,500
10,400
10,000
4,000
1,500
1,600
950
1,575
5,000
35,025
(433)
(500)
(67)
(50)
242
(667)
(1,475)
5,417
5,000
2,000
1,000
833
500
667
2,833
18,250
5,000
5,000
2,100
800
500
1,050
3,000
17,450
(417)
100
(1,000)
(33)
383
167
(800)
150,000
11,475
7,500
45,000
20,000
1,000
6,000
4,167
245,142
41,667
3,333
4,500
12,500
833
62,833
5,417
5,000
2,000
1,000
833
500
667
2,833
18,250
5,400
5,000
1,900
1,500
800
450
525
2,000
17,575
(17)
(100)
500
(33)
(50)
(142)
(833)
(675)
37,000
$ 13,550
(7,285)
$ 14,775
$ 22,650
$
6,265
$
$
7,875
$ (1,225) $ (16,385) $ (15,160)
Exhibit 16
Return to Tim Krause
FAX 303-753-1532
email to tek@krausecpa.com
or mail to Krause & Company, PC, 4155 E. Jewell Ave. #200, Denver, CO 80222 (return envelope is enclosed)
1.
How often does your practice provide basic financial statements (income statement
and balance sheet) to the physicians ?
Monthly
Quarterly
Annually
2.
Never
Other
Do your physicians review the basic practice financial statements ?
Yes, all do
No, none do
Some do
3.
Rate the physician(s) overall ability to understand basic practice financial statements.
Excellent
Average
Poor
4.
(They always review, ask appropriate questions, and use the data)
(They review occasionally, and ask questions if their compensation is going down )
(They refer to them as "just bunch of numbers that don't make any sense")
What other financial reports does the practice provide to the physicians?
Flash reports
Accounts receivable reports
Production reports
5.
How frequently does the practice compare itself to MGMA benchmarks?
Monthly
Quarterly
Every six months
6.
Annually
Every two years
Never
Which financial report do the physicians understand the best and find the most valuable.
Basic financial statements
Flash report
Production report
Accounts receivable report
7.
Other (Please list)
Where would you go to learn more about ''basic financial statements" ?
The MGMA library (information center)
The bookstore
Your CPA
The Internet (Google)
8.
Other (please list)
Other (Please list)
How many physicians are in your practice ?
Thank you for completing this survey and for sending any financial statements or financial reports.
Please Respond by August 4,2006
Exhibit 18