Financial Performance Management of Medical Practices

No matter how good a medical practice’s healthcare services, unless the practice is successful financially, it is doomed.  Because, in the most basic sense, financial success is medical practice success.

Business history is littered with stories of companies that had innovative products and visionary ideas, yet couldn’t translate those assets into sustainable success in the marketplace.  In today’s healthcare environment, with healthcare reform pressures, stiff competition, and increased regulatory scrutiny, achieving that all-important financial success demands effective financial performance management.

So just what is financial performance management and how does it differ from the various other species of performance management that consultants preach?  Financial performance management is a specific set of capabilities that includes defining key performance indicators, formulating strategic plans and forecasts, handling performance reporting, and increasing finance operational efficiency and execution throughout the medical practice.  It is a continual process of identifying the financial strengths and weaknesses of the practice.

Managing the finances of a medical practice takes discipline, systems and controls, and the desire to manage them well.  Through financial performance management, the medical practice can adapt quickly to changing conditions, instead of following the dictates of a rigid annual budget.  In addition, certain capabilities such as scenario modeling and rolling forecasts allow practice managers and physician owners to anticipate and prepare for what’s ahead.  Not only does it help in short- and long-term forecasting, but practice growth can also be identified with the help of a structured financial performance management process.

Many medical groups know that in order to keep your medical practice financially sound, you must be able to collect financial data and understand what this data is telling you about your current collection rate and your future collection rate.  However, it is also extremely important to delve deeper and identify the financial strengths and weaknesses of your medical practice.  You should have a process of detailed financial statement review focusing on principle elements that are critical to your particular practice.  The overarching goal here is to evaluate the financial position of your business in terms of solvency, profitability, activity, and key financial ratios.

To achieve optimum performance, you need to zero in on problems, evaluate options and make the right decision — without delay.  Lack of timely, actionable information masks and enables a multitude of sins (e.g. increasing costs, decreased productivity, revenue declines, technology utilization issues, deteriorating referrals, etc.).  When assessing the financial status of your practice, keep reports simple and relevant, and present data in terms of time.

Running a small business is never easy.  Financial analysis provides the primary tools for monitoring your practice’s performance and diagnosing problems that impair productivity.  Smart medical practices seek competitive advantages wherever they can be found.  Financial performance management is what allows practices to identify those advantages, to compete, and to succeed in today’s fast-paced healthcare environment.


Contact ABISA, a consultancy specializing in solo and small group practice management.  Visit us at

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