Thursday, September 3, 2015

How About Getting Long-Timers Disease? ICD-10 and Cash Flow

The medical practice world is built on a cash basis accounting system. Cash comes it, it is recorded as income, cash goes out  it is recorded as an expense. At the end of the year we take all income out so we don’t have to pay corporate taxes. This creates a void in looking at new investments.

I hate to pay taxes like anyone else except for what I owe to make sure that I get the benefits that I need and deserve, I know we could get into a long discussion about this idea! But that’s not the point. The point is that things are changing and it may be beneficial to think about a long term strategy and long term investment into our business model.

An independent practice can consider switching to an accrual based accounting strategy. We book activities when they occur rather than when they are paid for. If we manage the revenue cycle well, we will know what is coming in and that it is coming in timely, e.g., our days in accounts receivable is less than 30 days. We effectively manage our inventory. Our tax burden is controllable.

Now is a great time to think about this strategy for 2016. Why? Because the ICD-10 conversion will occur in October! I suggest that cash planning for 2015 include NO bonus or significant cash out at year end! It’s not that you will have a problem with managing the change! Half a joke! It’s that the payer is on the other side. So the recommendation is to plan on normal cash in October, but very little in November and December. Plan on cash infusion in January.

Therefore, it you were to start a new program, purchase new equipment, renovate the office, or make some change it should occur in 2016. You may also then elect to move to an accrual based accounting strategy as of January 1, 2016. You then can consider the future with a solid long term investment strategy rather than a year-to-year model.

2 comments:



  1. This content creates a new hope and inspiration with in me. Thanks for sharing article like this. The way you have stated everything above is quite awesome. Keep blogging like this. Thanks.


    SAP training in Chennai

    ReplyDelete