Conduct an Effective Year-End Review

Copyright 2022

Like any well-run business, a medical practice needs to step back periodically and try to get a bird's-eye view of where it has been and where it is going. A good time to perform such a review is at the end of the calendar year. Go into the meeting with a plan, prepared to focus on three critical areas: corporate, financial and operational planning.

Operational Planning

Compliance Issues:

  • If your practice doesn't have a compliance program, set one up as part of your year-end planning.
  • For a practice with a compliance program, are you adhering to it? If there are difficulties in complying, this is a good time to discuss how the program needs to be changed. For more information, read the Final Compliance Program Guidance for Individual and Small Group Physician Practices issued by the Office of the Inspector General.

Personnel Management:

  • Make sure your practice's employee policy manual is up-to-date with current legal issues. Unless you know what these issues are, it is wise to check with your attorney. Verify that everyone has read and understands the policies by signing off to that effect.
  • In the past year, did you conduct employee appraisals using job descriptions and a standard evaluation form? Using the evaluations, this is a good time to decide on the details of year-end bonuses, salary increases, and if necessary, take corrective actions.

It is helpful to have a trusted adviser, such as your accountant, facilitate the meeting. An adviser who knows your practice can keep the agenda focused on the business issues, diffuse tense emotions and provide insight based on experience with other medical offices.

Corporate Planning

Many medical practices are organized as professional corporations and in most states that means they are required to hold annual meetings. Moreover, each state may have certain other filing requirements.

But even if you operate as a limited liability company or a partnership, holding annual meetings provides an opportunity to review current agreements and plan for the upcoming year.

When preparing for the annual meeting, review your Operating Agreement, Partnership Agreement and your bank loan requirements to make sure you are not in violation of agreed-upon covenants.

If your practice operates as a corporation, take a close look at:

The shareholders' agreement, which specifies the restrictions associated with the sale of stock as well as the formulas for the valuation of the shares. Update the agreement if it doesn't reflect the current value of your practice.

The bylaws, which should reflect your business structure and outline the process for holding corporate meetings, voting on corporate issues, electing directors and appointing officers. The bylaws should be adaptable to the day-to-day needs of your practice.

Employment agreements. Review provisions that involve buying out a co-owner, including the buyout provisions, deferred compensation and length of termination notices. Also, review and update restrictive or non-solicitation covenants. Consider whether both the practice and employees are in violation of the agreements. If necessary, make changes. When it comes to the actual meeting, you can be flexible about the agenda. However, consider adding to the agenda the election of corporate officers (even if you are the sole shareholder of your corporation), approval of actions taken since the last meeting and approval of bonus distributions, including retirement plan contributions. Retain signed-and-approved minutes of the meeting.

Caution: If you don't adhere to state-required formalities, you could face a legal challenge on the validity of your corporation during a legal dispute. A successful challenge potentially increases your financial exposure.

Financial Planning

The year-end is also a good opportunity to review finances and determine if additional tax planning opportunities are available. Here are some basic steps:

Compare the balance sheet and statement of income from the current year to the previous year. A side-by-side financial analysis can give you a clear picture of financial changes. Look at and compare every category to highlight significant changes. If material, determine why those changes occurred and lay out a plan to repeat positive financial performance and avoid negative actions. Consult with your accountants to provide this service.

Compare year-to-year accounts receivables, paying particular attention to the difference between total charges and total collections, the average number of days for collections and your mix of payers. While you're at it, estimate how much cash your practice is likely to receive in January. If it looks like cash will be tight, you may want to consider setting up a line of credit in advance to navigate the rough spots.

Look to improve the realization of your receivables. Should you upgrade or enhance your billing system? If you outsource billing, are you satisfied with the results? Take this opportunity to evaluate third-party payer plans to determine whether it is in the best interest of your practice to continue doing business with them.

Time Well Spent...

According to the old saying, if you fail to plan, you plan to fail. For busy physicians, a time-consuming meeting might feel like a waste of time. But effective year-end planning can provide insight into how well your practice is performing, help avoid problems before they occur and give you the information needed for a financially successful new year.