Joseph S. Eastern

As more patients attempt to e-mail their physicians, I am increasingly asked if this is a good idea. The answer is, as with most things, it depends.

Although this is not a particularly new issue, and many patients are enthusiastic about the prospect of communicating with their physicians online, most physicians remain reluctant to do so. Aside from the obvious privacy issues, many balk at one more unreimbursed demand on their time. While I share those concerns, there also are real benefits to be gained from online communication, among them increased practice efficiency for you, and increased quality of care and satisfaction for your patients.

I started giving one of my e-mail addresses to selected patients several years ago as an experiment, hoping to take some pressure off of our overloaded telephone system. The patients were grateful for simplified and more direct access to me, and I appreciated the decline in phone messages and interruptions while I was seeing patients. I also noticed a welcome decrease in those frustrating, unnecessary follow-up visits—you know, “The rash is completely gone, but you told me to come back. …”

Of course, the experiment has yielded some problems. Privacy is always a concern, although no patients have yet raised the issue. Also, some patients don't always give me the information I need, and often include a lot of stuff I don't need. And occasionally, despite my best efforts to educate them on appropriate e-mail use, I receive requests for refills or treatment I cannot provide without an office visit.

In general, however, I have found that the advantages for everyone involved (not least my nurses and receptionists) far outweigh the problems. And now, newer technologies such as encrypted e-mail, Web-based messaging, and integrated online communication systems should go a long way toward assuaging privacy concerns.

Contrary to popular belief, ordinary unencrypted e-mail does not necessarily violate the Health Insurance Portability and Accountability Act (HIPAA). As I've noted many times, HIPAA allows you to handle medical information in just about any way you wish, as long as patients are informed of what you are doing and accept any risks of breach of privacy associated with it. As long as the Notice of Privacy Practices that you distribute to patients explains your e-mail policies, and each e-mail includes a standard confidentiality disclaimer, you will be HIPAA compliant.

Still, if the lack of encryption and other privacy safeguards makes you (or your patients) uncomfortable, encryption software can be added to your practice's e-mail system. Kryptiq (www.kryptiq.comwww.sigaba.comwww.tumbleweed.comwww.zixcorp.com

But rather than simply encrypting their e-mail, increasing numbers of physicians are opting for Web-based messaging. Patients enter your Web site and send a message using an electronic template that you design. You (or a designated staffer) will be notified by regular e-mail when messages are received, and you can post a reply on a page that can only be accessed by the patient. Besides enhanced privacy and security, the big advantage of Web messaging is the ability to use templates, which ensure that messages include the information you need and minimize extraneous chatter. And you can design separate templates for nurses and receptionists so every message need not go through you.

Web-based messaging services can be freestanding or incorporated into existing secure Web sites. Medem (www.medem.comwww.medfusion.netwww.relayhealth.com

To really do it right, though, you need to integrate your messaging service into your medical records. If you are looking to add an electronic medical record (EMR) system to your office, add Web messaging to your list of essential features.

Last year I discussed the basic rules to keep in mind when shopping for an EMR system. (If you missed that column, you can find it on the SKIN & ALLERGY NEWS Web site, www.skinandallergynews.com

Naturally, this is not only your best option over the long haul, but also the most expensive. However, all of us not planning to retire in the next decade will be looking into EMR whether we want to or not. So it behooves us to make sure efficient patient communication capabilities are an integral part of any system we choose.

As more patients attempt to e-mail their physicians, I am increasingly asked if this is a good idea. The answer is, as with most things, it depends.

Although this is not a particularly new issue, and many patients are enthusiastic about the prospect of communicating with their physicians online, most physicians remain reluctant to do so. Aside from the obvious privacy issues, many balk at one more unreimbursed demand on their time. While I share those concerns, there also are real benefits to be gained from online communication, among them increased practice efficiency for you, and increased quality of care and satisfaction for your patients.

I started giving one of my e-mail addresses to selected patients several years ago as an experiment, hoping to take some pressure off of our overloaded telephone system. The patients were grateful for simplified and more direct access to me, and I appreciated the decline in phone messages and interruptions while I was seeing patients. I also noticed a welcome decrease in those frustrating, unnecessary follow-up visits—you know, “The rash is completely gone, but you told me to come back. …”

Of course, the experiment has yielded some problems. Privacy is always a concern, although no patients have yet raised the issue. Also, some patients don't always give me the information I need, and often include a lot of stuff I don't need. And occasionally, despite my best efforts to educate them on appropriate e-mail use, I receive requests for refills or treatment I cannot provide without an office visit.

In general, however, I have found that the advantages for everyone involved (not least my nurses and receptionists) far outweigh the problems. And now, newer technologies such as encrypted e-mail, Web-based messaging, and integrated online communication systems should go a long way toward assuaging privacy concerns.

Contrary to popular belief, ordinary unencrypted e-mail does not necessarily violate the Health Insurance Portability and Accountability Act (HIPAA). As I've noted many times, HIPAA allows you to handle medical information in just about any way you wish, as long as patients are informed of what you are doing and accept any risks of breach of privacy associated with it. As long as the Notice of Privacy Practices that you distribute to patients explains your e-mail policies, and each e-mail includes a standard confidentiality disclaimer, you will be HIPAA compliant.

Still, if the lack of encryption and other privacy safeguards makes you (or your patients) uncomfortable, encryption software can be added to your practice's e-mail system. Kryptiq (www.kryptiq.comwww.sigaba.comwww.tumbleweed.comwww.zixcorp.com

But rather than simply encrypting their e-mail, increasing numbers of physicians are opting for Web-based messaging. Patients enter your Web site and send a message using an electronic template that you design. You (or a designated staffer) will be notified by regular e-mail when messages are received, and you can post a reply on a page that can only be accessed by the patient. Besides enhanced privacy and security, the big advantage of Web messaging is the ability to use templates, which ensure that messages include the information you need and minimize extraneous chatter. And you can design separate templates for nurses and receptionists so every message need not go through you.

Web-based messaging services can be freestanding or incorporated into existing secure Web sites. Medem (www.medem.comwww.medfusion.netwww.relayhealth.com

To really do it right, though, you need to integrate your messaging service into your medical records. If you are looking to add an electronic medical record (EMR) system to your office, add Web messaging to your list of essential features.

Last year I discussed the basic rules to keep in mind when shopping for an EMR system. (If you missed that column, you can find it on the SKIN & ALLERGY NEWS Web site, www.skinandallergynews.com

Naturally, this is not only your best option over the long haul, but also the most expensive. However, all of us not planning to retire in the next decade will be looking into EMR whether we want to or not. So it behooves us to make sure efficient patient communication capabilities are an integral part of any system we choose.

As more patients attempt to e-mail their physicians, I am increasingly asked if this is a good idea. The answer is, as with most things, it depends.

Although this is not a particularly new issue, and many patients are enthusiastic about the prospect of communicating with their physicians online, most physicians remain reluctant to do so. Aside from the obvious privacy issues, many balk at one more unreimbursed demand on their time. While I share those concerns, there also are real benefits to be gained from online communication, among them increased practice efficiency for you, and increased quality of care and satisfaction for your patients.

I started giving one of my e-mail addresses to selected patients several years ago as an experiment, hoping to take some pressure off of our overloaded telephone system. The patients were grateful for simplified and more direct access to me, and I appreciated the decline in phone messages and interruptions while I was seeing patients. I also noticed a welcome decrease in those frustrating, unnecessary follow-up visits—you know, “The rash is completely gone, but you told me to come back. …”

Of course, the experiment has yielded some problems. Privacy is always a concern, although no patients have yet raised the issue. Also, some patients don't always give me the information I need, and often include a lot of stuff I don't need. And occasionally, despite my best efforts to educate them on appropriate e-mail use, I receive requests for refills or treatment I cannot provide without an office visit.

In general, however, I have found that the advantages for everyone involved (not least my nurses and receptionists) far outweigh the problems. And now, newer technologies such as encrypted e-mail, Web-based messaging, and integrated online communication systems should go a long way toward assuaging privacy concerns.

Contrary to popular belief, ordinary unencrypted e-mail does not necessarily violate the Health Insurance Portability and Accountability Act (HIPAA). As I've noted many times, HIPAA allows you to handle medical information in just about any way you wish, as long as patients are informed of what you are doing and accept any risks of breach of privacy associated with it. As long as the Notice of Privacy Practices that you distribute to patients explains your e-mail policies, and each e-mail includes a standard confidentiality disclaimer, you will be HIPAA compliant.

Still, if the lack of encryption and other privacy safeguards makes you (or your patients) uncomfortable, encryption software can be added to your practice's e-mail system. Kryptiq (www.kryptiq.comwww.sigaba.comwww.tumbleweed.comwww.zixcorp.com

But rather than simply encrypting their e-mail, increasing numbers of physicians are opting for Web-based messaging. Patients enter your Web site and send a message using an electronic template that you design. You (or a designated staffer) will be notified by regular e-mail when messages are received, and you can post a reply on a page that can only be accessed by the patient. Besides enhanced privacy and security, the big advantage of Web messaging is the ability to use templates, which ensure that messages include the information you need and minimize extraneous chatter. And you can design separate templates for nurses and receptionists so every message need not go through you.

Web-based messaging services can be freestanding or incorporated into existing secure Web sites. Medem (www.medem.comwww.medfusion.netwww.relayhealth.com

To really do it right, though, you need to integrate your messaging service into your medical records. If you are looking to add an electronic medical record (EMR) system to your office, add Web messaging to your list of essential features.

Last year I discussed the basic rules to keep in mind when shopping for an EMR system. (If you missed that column, you can find it on the SKIN & ALLERGY NEWS Web site, www.skinandallergynews.com

Naturally, this is not only your best option over the long haul, but also the most expensive. However, all of us not planning to retire in the next decade will be looking into EMR whether we want to or not. So it behooves us to make sure efficient patient communication capabilities are an integral part of any system we choose.

Retirement seems to be on a lot of readers' minds these days, and one of the more common questions I'm receiving is, “How will I know when I've accumulated enough money to safely retire?”

It's good that more physicians are turning their attention to this issue, because the road to retirement is fraught with many challenges.

The most common mistake made by physicians and other professionals is saving too little. We either never calculate or we underestimate how much we'll need to last through retirement.

We also tend to live longer than planned. As life expectancy increases, we run the risk of outliving our savings. And we don't face facts about long-term care. Not nearly enough of us have long-term-care insurance, or the means to self-fund an extended long-term-care situation.

Many people lack a clear idea of where their retirement income will come from, and even when they do, they don't know how to manage their savings correctly. Physicians in particular are notorious for not understanding investments. Many attempt to manage their practice's retirement plans with inadequate knowledge of how the investments within their plans work. Seeking the guidance of a qualified financial professional is often a far better strategy.

So, how will you know when you can safely retire? As with everything else, it depends. To arrive at any sort of reliable ballpark figure, you'll need to know three things: how much you realistically expect to spend annually after retirement, how much principal you'll need to generate that annual income, and how far your present savings are from that figure.

According to one oft-quoted rule of thumb, in retirement you should plan to spend about 70% of what you're spending now. That's nonsense. A few significant expenses, such as disability and malpractice insurance premiums, will be eliminated, but other expenses, such as travel, recreation, and medical care (including long-term-care insurance), will increase.

My wife and I are assuming we will spend about the same in retirement as we spend now, and I suggest you do, too.

Once you have an estimate of your annual retirement expenses, you'll need to determine how much you'll need—usually in fixed pensions and invested assets—to generate that income. Social Security can be included, if you're over 50. If you're younger, don't count on receiving any entitlements since no one can predict how they will fare in coming generations.

Most financial advisors use the 5% rule: Assume the best you'll do on your money is 5% a year. So if your annual retirement expense estimate is $100,000, you'll need $2 million in assets. If you want to spend $200,000 per year, you'll need $4 million. That rule has worked well in most years, allowing for reasonable taxes, inflation, and rates of return.

How do you accumulate that kind of money? Financial experts say that too many physicians invest too aggressively. For retirement, safety is the key. The most foolproof strategy—seldom employed, because it's boring—is to sock away a fixed amount per month (after your retirement plan has been funded) in a mutual fund. With the power of compounded interest working for you, $1,000 per month for 25 years with the market earning 10% overall comes to almost $2 million.

Of course, it goes without saying that debt can destroy the best-laid retirement plans. If you carry significant debt, pay it off as soon as possible.

For those of you who are early in your careers, it is never too soon to think about retirement. Young physicians often defer contributing to their retirement plans because they want to save for a new house or for college for their children. There are tangible tax benefits that you get now, though, because your contributions usually reduce your taxable income and your investment grows tax free until you take it out.

No matter what your age, it's hard to motivate yourself to save for retirement because it generally requires spending less money now. You can always pay a financial planner to help you get organized, but you still must motivate yourself to change and follow the planner's advice.

In the end, the strategy is very straightforward: Put as much money as you can in a tax-deductible retirement plan, let it stay there and grow tax deferred until you take it out, and invest for the long term with your target amount in mind. It really is that simple.

Retirement seems to be on a lot of readers' minds these days, and one of the more common questions I'm receiving is, “How will I know when I've accumulated enough money to safely retire?”

It's good that more physicians are turning their attention to this issue, because the road to retirement is fraught with many challenges.

The most common mistake made by physicians and other professionals is saving too little. We either never calculate or we underestimate how much we'll need to last through retirement.

We also tend to live longer than planned. As life expectancy increases, we run the risk of outliving our savings. And we don't face facts about long-term care. Not nearly enough of us have long-term-care insurance, or the means to self-fund an extended long-term-care situation.

Many people lack a clear idea of where their retirement income will come from, and even when they do, they don't know how to manage their savings correctly. Physicians in particular are notorious for not understanding investments. Many attempt to manage their practice's retirement plans with inadequate knowledge of how the investments within their plans work. Seeking the guidance of a qualified financial professional is often a far better strategy.

So, how will you know when you can safely retire? As with everything else, it depends. To arrive at any sort of reliable ballpark figure, you'll need to know three things: how much you realistically expect to spend annually after retirement, how much principal you'll need to generate that annual income, and how far your present savings are from that figure.

According to one oft-quoted rule of thumb, in retirement you should plan to spend about 70% of what you're spending now. That's nonsense. A few significant expenses, such as disability and malpractice insurance premiums, will be eliminated, but other expenses, such as travel, recreation, and medical care (including long-term-care insurance), will increase.

My wife and I are assuming we will spend about the same in retirement as we spend now, and I suggest you do, too.

Once you have an estimate of your annual retirement expenses, you'll need to determine how much you'll need—usually in fixed pensions and invested assets—to generate that income. Social Security can be included, if you're over 50. If you're younger, don't count on receiving any entitlements since no one can predict how they will fare in coming generations.

Most financial advisors use the 5% rule: Assume the best you'll do on your money is 5% a year. So if your annual retirement expense estimate is $100,000, you'll need $2 million in assets. If you want to spend $200,000 per year, you'll need $4 million. That rule has worked well in most years, allowing for reasonable taxes, inflation, and rates of return.

How do you accumulate that kind of money? Financial experts say that too many physicians invest too aggressively. For retirement, safety is the key. The most foolproof strategy—seldom employed, because it's boring—is to sock away a fixed amount per month (after your retirement plan has been funded) in a mutual fund. With the power of compounded interest working for you, $1,000 per month for 25 years with the market earning 10% overall comes to almost $2 million.

Of course, it goes without saying that debt can destroy the best-laid retirement plans. If you carry significant debt, pay it off as soon as possible.

For those of you who are early in your careers, it is never too soon to think about retirement. Young physicians often defer contributing to their retirement plans because they want to save for a new house or for college for their children. There are tangible tax benefits that you get now, though, because your contributions usually reduce your taxable income and your investment grows tax free until you take it out.

No matter what your age, it's hard to motivate yourself to save for retirement because it generally requires spending less money now. You can always pay a financial planner to help you get organized, but you still must motivate yourself to change and follow the planner's advice.

In the end, the strategy is very straightforward: Put as much money as you can in a tax-deductible retirement plan, let it stay there and grow tax deferred until you take it out, and invest for the long term with your target amount in mind. It really is that simple.

Retirement seems to be on a lot of readers' minds these days, and one of the more common questions I'm receiving is, “How will I know when I've accumulated enough money to safely retire?”

It's good that more physicians are turning their attention to this issue, because the road to retirement is fraught with many challenges.

The most common mistake made by physicians and other professionals is saving too little. We either never calculate or we underestimate how much we'll need to last through retirement.

We also tend to live longer than planned. As life expectancy increases, we run the risk of outliving our savings. And we don't face facts about long-term care. Not nearly enough of us have long-term-care insurance, or the means to self-fund an extended long-term-care situation.

Many people lack a clear idea of where their retirement income will come from, and even when they do, they don't know how to manage their savings correctly. Physicians in particular are notorious for not understanding investments. Many attempt to manage their practice's retirement plans with inadequate knowledge of how the investments within their plans work. Seeking the guidance of a qualified financial professional is often a far better strategy.

So, how will you know when you can safely retire? As with everything else, it depends. To arrive at any sort of reliable ballpark figure, you'll need to know three things: how much you realistically expect to spend annually after retirement, how much principal you'll need to generate that annual income, and how far your present savings are from that figure.

According to one oft-quoted rule of thumb, in retirement you should plan to spend about 70% of what you're spending now. That's nonsense. A few significant expenses, such as disability and malpractice insurance premiums, will be eliminated, but other expenses, such as travel, recreation, and medical care (including long-term-care insurance), will increase.

My wife and I are assuming we will spend about the same in retirement as we spend now, and I suggest you do, too.

Once you have an estimate of your annual retirement expenses, you'll need to determine how much you'll need—usually in fixed pensions and invested assets—to generate that income. Social Security can be included, if you're over 50. If you're younger, don't count on receiving any entitlements since no one can predict how they will fare in coming generations.

Most financial advisors use the 5% rule: Assume the best you'll do on your money is 5% a year. So if your annual retirement expense estimate is $100,000, you'll need $2 million in assets. If you want to spend $200,000 per year, you'll need $4 million. That rule has worked well in most years, allowing for reasonable taxes, inflation, and rates of return.

How do you accumulate that kind of money? Financial experts say that too many physicians invest too aggressively. For retirement, safety is the key. The most foolproof strategy—seldom employed, because it's boring—is to sock away a fixed amount per month (after your retirement plan has been funded) in a mutual fund. With the power of compounded interest working for you, $1,000 per month for 25 years with the market earning 10% overall comes to almost $2 million.

Of course, it goes without saying that debt can destroy the best-laid retirement plans. If you carry significant debt, pay it off as soon as possible.

For those of you who are early in your careers, it is never too soon to think about retirement. Young physicians often defer contributing to their retirement plans because they want to save for a new house or for college for their children. There are tangible tax benefits that you get now, though, because your contributions usually reduce your taxable income and your investment grows tax free until you take it out.

No matter what your age, it's hard to motivate yourself to save for retirement because it generally requires spending less money now. You can always pay a financial planner to help you get organized, but you still must motivate yourself to change and follow the planner's advice.

In the end, the strategy is very straightforward: Put as much money as you can in a tax-deductible retirement plan, let it stay there and grow tax deferred until you take it out, and invest for the long term with your target amount in mind. It really is that simple.

A lot of questions are coming in concerning the financial considerations involved in bringing a new physician into a private practice.

Having decided that an associate is needed, many doctors are concerned about the expense. Disposable funds are scarce these days. They ask how to realistically predict the costs involved in finding their new doctor, then supporting him or her until income outstrips expenditures.

Every medical practice is different, so generalizations are difficult. It may behoove you to hire a practice consultant to sort out the unique aspects of your particular situation.

That said, many of the expenses involved are foreseeable and calculable. You probably already know how much you plan to pay the new associate. If not, find out what nearby practices are paying their recruits and ask applicants themselves how much they expect to be paid. Remember to include payroll taxes, liability insurance, health insurance, retirement plan costs, dues and memberships, and other fringe benefits your practice provides.

Then estimate the costs of additional staff members, supplies, and other items that will be needed to support the new physician. If additional office space, furnishings, and equipment will be needed, factor that in, too. There also will be legal costs, and possibly marketing costs, if the newly hired physician will be providing new, specialized services that need to be announced to the community.

Next, look at what it will cost you to do the actual recruiting. Some practices may find all the prospects they need by running a few classified ads in specialty journals; others will have to hire a recruitment firm. You should factor in the time you will spend interviewing, conducting reference checks, negotiating, and meeting with attorneys and others—time that must be taken away from seeing patients.

Now, you will need to determine when the new doctor will become self-sufficient by estimating how many patients he or she realistically will see from the first day in the practice, and how rapidly that census will increase.

You should first calculate an average fee per patient collected by your practice, along with average time elapsed until insurance payments are received. Your accountant can help with this.

Once you have that data, you can begin forecasting revenues. If you figure that 10 patients per day is a realistic starting point for your new physician, and your average revenue is $100 per patient received an average of 30 days after the visit, you can anticipate that additional revenues of $1,000 per day will begin arriving about a month after the new doctor begins working.

As time progresses, the number of patients will hopefully increase, with a corresponding increase in revenues. Many practices tend to be overly optimistic in predicting practice growth, but since this is the point at which cash flow will be tightest, prudence dictates that you err on the side of underestimating your revenue projections and overestimating expense projections.

At this point, you need a clear, overall view of those revenue and expense estimates over time. This can be obtained by preparing a spreadsheet-type schedule and recording all the estimates on a month-by-month basis over the time period necessary to assimilate the new doctor, say 2 years.

Remember to begin with the first month you plan to incur an expense—probably when you start recruiting. Not only is this necessary for an accurate assessment of total expenses, but it will remind you that expenses begin to accrue long before the physician starts working.

As you decide when each expense will start, list it in the corresponding monthly column along with the estimated amount. Do the same with projected revenues. Your accountant can help you with this schedule, too. He or she should also calculate other essential projections, such as rent and overhead increases, debt service on any loans to finance the project, inflation, and tax effects.

When you have finished, you will have a summary of all estimated expenses and revenues, by month, that are associated with hiring the new physician. You will have a good idea of how much cash will go out before patients are even seen and how long it will take before revenues surpass expenses. This serves not only to solidify the plan in your own mind, but to illustrate your plans in graphic form for your banker, should you need a loan to finance the project.

All this may seem like a lot of work, but without it you won't have a realistic picture of the costs incurred in adding a physician, and you won't be able to make well-informed decisions on how much of the startup costs the practice can afford to finance and how much may have to be financed through your bank.

A lot of questions are coming in concerning the financial considerations involved in bringing a new physician into a private practice.

Having decided that an associate is needed, many doctors are concerned about the expense. Disposable funds are scarce these days. They ask how to realistically predict the costs involved in finding their new doctor, then supporting him or her until income outstrips expenditures.

Every medical practice is different, so generalizations are difficult. It may behoove you to hire a practice consultant to sort out the unique aspects of your particular situation.

That said, many of the expenses involved are foreseeable and calculable. You probably already know how much you plan to pay the new associate. If not, find out what nearby practices are paying their recruits and ask applicants themselves how much they expect to be paid. Remember to include payroll taxes, liability insurance, health insurance, retirement plan costs, dues and memberships, and other fringe benefits your practice provides.

Then estimate the costs of additional staff members, supplies, and other items that will be needed to support the new physician. If additional office space, furnishings, and equipment will be needed, factor that in, too. There also will be legal costs, and possibly marketing costs, if the newly hired physician will be providing new, specialized services that need to be announced to the community.

Next, look at what it will cost you to do the actual recruiting. Some practices may find all the prospects they need by running a few classified ads in specialty journals; others will have to hire a recruitment firm. You should factor in the time you will spend interviewing, conducting reference checks, negotiating, and meeting with attorneys and others—time that must be taken away from seeing patients.

Now, you will need to determine when the new doctor will become self-sufficient by estimating how many patients he or she realistically will see from the first day in the practice, and how rapidly that census will increase.

You should first calculate an average fee per patient collected by your practice, along with average time elapsed until insurance payments are received. Your accountant can help with this.

Once you have that data, you can begin forecasting revenues. If you figure that 10 patients per day is a realistic starting point for your new physician, and your average revenue is $100 per patient received an average of 30 days after the visit, you can anticipate that additional revenues of $1,000 per day will begin arriving about a month after the new doctor begins working.

As time progresses, the number of patients will hopefully increase, with a corresponding increase in revenues. Many practices tend to be overly optimistic in predicting practice growth, but since this is the point at which cash flow will be tightest, prudence dictates that you err on the side of underestimating your revenue projections and overestimating expense projections.

At this point, you need a clear, overall view of those revenue and expense estimates over time. This can be obtained by preparing a spreadsheet-type schedule and recording all the estimates on a month-by-month basis over the time period necessary to assimilate the new doctor, say 2 years.

Remember to begin with the first month you plan to incur an expense—probably when you start recruiting. Not only is this necessary for an accurate assessment of total expenses, but it will remind you that expenses begin to accrue long before the physician starts working.

As you decide when each expense will start, list it in the corresponding monthly column along with the estimated amount. Do the same with projected revenues. Your accountant can help you with this schedule, too. He or she should also calculate other essential projections, such as rent and overhead increases, debt service on any loans to finance the project, inflation, and tax effects.

When you have finished, you will have a summary of all estimated expenses and revenues, by month, that are associated with hiring the new physician. You will have a good idea of how much cash will go out before patients are even seen and how long it will take before revenues surpass expenses. This serves not only to solidify the plan in your own mind, but to illustrate your plans in graphic form for your banker, should you need a loan to finance the project.

All this may seem like a lot of work, but without it you won't have a realistic picture of the costs incurred in adding a physician, and you won't be able to make well-informed decisions on how much of the startup costs the practice can afford to finance and how much may have to be financed through your bank.

A lot of questions are coming in concerning the financial considerations involved in bringing a new physician into a private practice.

Having decided that an associate is needed, many doctors are concerned about the expense. Disposable funds are scarce these days. They ask how to realistically predict the costs involved in finding their new doctor, then supporting him or her until income outstrips expenditures.

Every medical practice is different, so generalizations are difficult. It may behoove you to hire a practice consultant to sort out the unique aspects of your particular situation.

That said, many of the expenses involved are foreseeable and calculable. You probably already know how much you plan to pay the new associate. If not, find out what nearby practices are paying their recruits and ask applicants themselves how much they expect to be paid. Remember to include payroll taxes, liability insurance, health insurance, retirement plan costs, dues and memberships, and other fringe benefits your practice provides.

Then estimate the costs of additional staff members, supplies, and other items that will be needed to support the new physician. If additional office space, furnishings, and equipment will be needed, factor that in, too. There also will be legal costs, and possibly marketing costs, if the newly hired physician will be providing new, specialized services that need to be announced to the community.

Next, look at what it will cost you to do the actual recruiting. Some practices may find all the prospects they need by running a few classified ads in specialty journals; others will have to hire a recruitment firm. You should factor in the time you will spend interviewing, conducting reference checks, negotiating, and meeting with attorneys and others—time that must be taken away from seeing patients.

Now, you will need to determine when the new doctor will become self-sufficient by estimating how many patients he or she realistically will see from the first day in the practice, and how rapidly that census will increase.

You should first calculate an average fee per patient collected by your practice, along with average time elapsed until insurance payments are received. Your accountant can help with this.

Once you have that data, you can begin forecasting revenues. If you figure that 10 patients per day is a realistic starting point for your new physician, and your average revenue is $100 per patient received an average of 30 days after the visit, you can anticipate that additional revenues of $1,000 per day will begin arriving about a month after the new doctor begins working.

As time progresses, the number of patients will hopefully increase, with a corresponding increase in revenues. Many practices tend to be overly optimistic in predicting practice growth, but since this is the point at which cash flow will be tightest, prudence dictates that you err on the side of underestimating your revenue projections and overestimating expense projections.

At this point, you need a clear, overall view of those revenue and expense estimates over time. This can be obtained by preparing a spreadsheet-type schedule and recording all the estimates on a month-by-month basis over the time period necessary to assimilate the new doctor, say 2 years.

Remember to begin with the first month you plan to incur an expense—probably when you start recruiting. Not only is this necessary for an accurate assessment of total expenses, but it will remind you that expenses begin to accrue long before the physician starts working.

As you decide when each expense will start, list it in the corresponding monthly column along with the estimated amount. Do the same with projected revenues. Your accountant can help you with this schedule, too. He or she should also calculate other essential projections, such as rent and overhead increases, debt service on any loans to finance the project, inflation, and tax effects.

When you have finished, you will have a summary of all estimated expenses and revenues, by month, that are associated with hiring the new physician. You will have a good idea of how much cash will go out before patients are even seen and how long it will take before revenues surpass expenses. This serves not only to solidify the plan in your own mind, but to illustrate your plans in graphic form for your banker, should you need a loan to finance the project.

All this may seem like a lot of work, but without it you won't have a realistic picture of the costs incurred in adding a physician, and you won't be able to make well-informed decisions on how much of the startup costs the practice can afford to finance and how much may have to be financed through your bank.

Every so often, it becomes necessary to dismiss a patient from your practice.

I get several questions a month about the “legalities” involved; the usual wording is something like, “How do I dismiss a patient without violating any laws?”

Contrary to popular opinion, there are no statutory laws that I'm aware of that specifically apply to patient dismissal. While there is a remote (and quite preventable) chance of running afoul of antidiscrimination laws, you should be concerned mostly with leaving yourself open to civil litigation—charges of abandonment and the like.

There are no rules that dictate specific reasons for dismissal, so reasons will vary from practice to practice. A common reason is failure to pay legitimate and reasonable charges. This can include technical requirements in the event that you drop out of a health plan. Depending on the contractual rules of the plan, you may be forced to formally terminate treatment of participating patients if they have been given, and have refused, the option to pay out of pocket. Theft (including theft of insurance checks) also falls under this category.

Most patients, however, are dismissed because of interpersonal conflicts with the physician. Mostly that means persistent noncompliance with a reasonable treatment plan, but there are other valid reasons. These include unacceptable behavior, particularly in the presence of other patients, or a generally unruly or uncooperative demeanor. And most experts agree you can refuse to treat a patient who insists on treatment outside your area of expertise, or at a location other than your private office.

Since there are no hard and fast rules, your reasons for dismissal should be determined in advance, written out, and included in your practice manual. Once you have made your rules, follow them. Exceptions should be rare and made under extraordinary circumstances.

Even when circumstances warrant, dismissal should be a last resort. As with most interpersonal conflicts, your best option is reconciliation. Sit down with the patient, explain your concerns, and discuss what must be done if your doctor-patient relationship is to continue. Document this conversation in detail in the patient's chart and follow up with a letter reconfirming what you discussed.

Often, such patients are not aware (or willing to admit) that they are violating your office policies. Honest communication often will save such relationships. But be sure to make it clear that failure to address the problems you have outlined will result in dismissal from your practice.

Once again—this cannot be repeated too often—you should clearly document in the patient's chart exactly how he or she has violated your office policy. This will minimize your chances of being charged with discrimination of any sort. Be especially diligent about this step if the patient has any sort of obvious disability, whether physical or mental.

If, despite your best (documented) efforts, the problems continue and you feel you must remove the patient from your practice, following a few generally recognized guidelines will keep the process smooth and consequence free.

Begin by informing the patient, preferably via certified mail, of your decision to dismiss him or her. Clearly spell out your reasons, and include a reminder that these problems have been discussed, a warning has been given, and the problems have continued. If the patient belongs to a third-party health plan, be certain that you are acting within the stipulations of your contract with that plan, and inform the payer, in writing, of your action.

Give the patient a reasonable amount of time (30 days is common) to find another physician, and mention that you will address any emergent problems within the scope of your specialty during that 30-day period. Include a list of competent physicians in your area who might assume the patient's care (but don't guarantee that any of them will), or include the phone number of the local medical society that they can contact to find a replacement. This will minimize any potential allegations of abandonment.

Offer to transfer medical records to a newly designated physician upon written authorization to do so from the patient.

File a copy of the letter, the receipt for the certified service, and the returned signature card in the patient's chart. While the law states that a first-class letter, properly addressed and stamped, is presumed to have been delivered, you don't want any question as to whether the patient received the letter.

Finally, try to avoid dismissing a patient in the midst of a course of treatment. If this is unavoidable, you may wish to contact your malpractice carrier to review the case prior to doing so.

Forcibly ending a physician-patient relationship is a significant event, requiring the same serious consideration as any other important patient-care decision. Don't undertake it lightly. Remember, dismissing a patient should be a rare occurrence, a last resort.

Every so often, it becomes necessary to dismiss a patient from your practice.

I get several questions a month about the “legalities” involved; the usual wording is something like, “How do I dismiss a patient without violating any laws?”

Contrary to popular opinion, there are no statutory laws that I'm aware of that specifically apply to patient dismissal. While there is a remote (and quite preventable) chance of running afoul of antidiscrimination laws, you should be concerned mostly with leaving yourself open to civil litigation—charges of abandonment and the like.

There are no rules that dictate specific reasons for dismissal, so reasons will vary from practice to practice. A common reason is failure to pay legitimate and reasonable charges. This can include technical requirements in the event that you drop out of a health plan. Depending on the contractual rules of the plan, you may be forced to formally terminate treatment of participating patients if they have been given, and have refused, the option to pay out of pocket. Theft (including theft of insurance checks) also falls under this category.

Most patients, however, are dismissed because of interpersonal conflicts with the physician. Mostly that means persistent noncompliance with a reasonable treatment plan, but there are other valid reasons. These include unacceptable behavior, particularly in the presence of other patients, or a generally unruly or uncooperative demeanor. And most experts agree you can refuse to treat a patient who insists on treatment outside your area of expertise, or at a location other than your private office.

Since there are no hard and fast rules, your reasons for dismissal should be determined in advance, written out, and included in your practice manual. Once you have made your rules, follow them. Exceptions should be rare and made under extraordinary circumstances.

Even when circumstances warrant, dismissal should be a last resort. As with most interpersonal conflicts, your best option is reconciliation. Sit down with the patient, explain your concerns, and discuss what must be done if your doctor-patient relationship is to continue. Document this conversation in detail in the patient's chart and follow up with a letter reconfirming what you discussed.

Often, such patients are not aware (or willing to admit) that they are violating your office policies. Honest communication often will save such relationships. But be sure to make it clear that failure to address the problems you have outlined will result in dismissal from your practice.

Once again—this cannot be repeated too often—you should clearly document in the patient's chart exactly how he or she has violated your office policy. This will minimize your chances of being charged with discrimination of any sort. Be especially diligent about this step if the patient has any sort of obvious disability, whether physical or mental.

If, despite your best (documented) efforts, the problems continue and you feel you must remove the patient from your practice, following a few generally recognized guidelines will keep the process smooth and consequence free.

Begin by informing the patient, preferably via certified mail, of your decision to dismiss him or her. Clearly spell out your reasons, and include a reminder that these problems have been discussed, a warning has been given, and the problems have continued. If the patient belongs to a third-party health plan, be certain that you are acting within the stipulations of your contract with that plan, and inform the payer, in writing, of your action.

Give the patient a reasonable amount of time (30 days is common) to find another physician, and mention that you will address any emergent problems within the scope of your specialty during that 30-day period. Include a list of competent physicians in your area who might assume the patient's care (but don't guarantee that any of them will), or include the phone number of the local medical society that they can contact to find a replacement. This will minimize any potential allegations of abandonment.

Offer to transfer medical records to a newly designated physician upon written authorization to do so from the patient.

File a copy of the letter, the receipt for the certified service, and the returned signature card in the patient's chart. While the law states that a first-class letter, properly addressed and stamped, is presumed to have been delivered, you don't want any question as to whether the patient received the letter.

Finally, try to avoid dismissing a patient in the midst of a course of treatment. If this is unavoidable, you may wish to contact your malpractice carrier to review the case prior to doing so.

Forcibly ending a physician-patient relationship is a significant event, requiring the same serious consideration as any other important patient-care decision. Don't undertake it lightly. Remember, dismissing a patient should be a rare occurrence, a last resort.

Every so often, it becomes necessary to dismiss a patient from your practice.

I get several questions a month about the “legalities” involved; the usual wording is something like, “How do I dismiss a patient without violating any laws?”

Contrary to popular opinion, there are no statutory laws that I'm aware of that specifically apply to patient dismissal. While there is a remote (and quite preventable) chance of running afoul of antidiscrimination laws, you should be concerned mostly with leaving yourself open to civil litigation—charges of abandonment and the like.

There are no rules that dictate specific reasons for dismissal, so reasons will vary from practice to practice. A common reason is failure to pay legitimate and reasonable charges. This can include technical requirements in the event that you drop out of a health plan. Depending on the contractual rules of the plan, you may be forced to formally terminate treatment of participating patients if they have been given, and have refused, the option to pay out of pocket. Theft (including theft of insurance checks) also falls under this category.

Most patients, however, are dismissed because of interpersonal conflicts with the physician. Mostly that means persistent noncompliance with a reasonable treatment plan, but there are other valid reasons. These include unacceptable behavior, particularly in the presence of other patients, or a generally unruly or uncooperative demeanor. And most experts agree you can refuse to treat a patient who insists on treatment outside your area of expertise, or at a location other than your private office.

Since there are no hard and fast rules, your reasons for dismissal should be determined in advance, written out, and included in your practice manual. Once you have made your rules, follow them. Exceptions should be rare and made under extraordinary circumstances.

Even when circumstances warrant, dismissal should be a last resort. As with most interpersonal conflicts, your best option is reconciliation. Sit down with the patient, explain your concerns, and discuss what must be done if your doctor-patient relationship is to continue. Document this conversation in detail in the patient's chart and follow up with a letter reconfirming what you discussed.

Often, such patients are not aware (or willing to admit) that they are violating your office policies. Honest communication often will save such relationships. But be sure to make it clear that failure to address the problems you have outlined will result in dismissal from your practice.

Once again—this cannot be repeated too often—you should clearly document in the patient's chart exactly how he or she has violated your office policy. This will minimize your chances of being charged with discrimination of any sort. Be especially diligent about this step if the patient has any sort of obvious disability, whether physical or mental.

If, despite your best (documented) efforts, the problems continue and you feel you must remove the patient from your practice, following a few generally recognized guidelines will keep the process smooth and consequence free.

Begin by informing the patient, preferably via certified mail, of your decision to dismiss him or her. Clearly spell out your reasons, and include a reminder that these problems have been discussed, a warning has been given, and the problems have continued. If the patient belongs to a third-party health plan, be certain that you are acting within the stipulations of your contract with that plan, and inform the payer, in writing, of your action.

Give the patient a reasonable amount of time (30 days is common) to find another physician, and mention that you will address any emergent problems within the scope of your specialty during that 30-day period. Include a list of competent physicians in your area who might assume the patient's care (but don't guarantee that any of them will), or include the phone number of the local medical society that they can contact to find a replacement. This will minimize any potential allegations of abandonment.

Offer to transfer medical records to a newly designated physician upon written authorization to do so from the patient.

File a copy of the letter, the receipt for the certified service, and the returned signature card in the patient's chart. While the law states that a first-class letter, properly addressed and stamped, is presumed to have been delivered, you don't want any question as to whether the patient received the letter.

Finally, try to avoid dismissing a patient in the midst of a course of treatment. If this is unavoidable, you may wish to contact your malpractice carrier to review the case prior to doing so.

Forcibly ending a physician-patient relationship is a significant event, requiring the same serious consideration as any other important patient-care decision. Don't undertake it lightly. Remember, dismissing a patient should be a rare occurrence, a last resort.

As I stepped from an exam room one busy morning last month, my office manager pulled me aside.

“Someone from the county courthouse is on the phone, and needs to talk to you right now,” she whispered.

“You know better than that,” I said. “While I'm seeing patients, I don't take calls from anyone except colleagues and immediate family.”

“He says he has a warrant for your arrest!”

I took the call.

“You failed to appear for jury duty,” the official-sounding voice said. That's a violation of New Jersey law, as you were warned when you received your jury summons. You'll have to come down here and surrender yourself immediately, or else we'll have to send deputies to your office. I don't think you'll want to be led through your waiting room in handcuffs.”

“Wait a minute,” I replied nervously. “I served on a jury less than a year ago. They said I wouldn't be called again for at least 3 years. There must be some mistake.”

“Perhaps we've confused you with a citizen with the same or a similar name,” he said. “Let me have your Social Security number and birth date.”

Alarm bells! Suddenly I realized what must be happening. “You should have that information already,” I replied. “Why don't you read me what you have?”

A short silence, and then … click.

I called the courthouse immediately. “Citizens who fail to appear receive a warning letter and a new questionnaire, not a phone call,” said the jury manager. “And we use driver license numbers to keep track of jurors.”

Like most other supposedly affluent professionals, doctors have always been popular targets for scam artists and con men, but their increasing creativity requires ever-higher levels of vigilance. This is especially true as the Internet becomes more popular and communication is facilitated. As the cartoon character Dilbert once said, there's a real dark side to the information age.

The phone company traced the call, which dead-ended at a Voice over Internet Protocol (VoIP) circuit, as the police warned me it probably would. I'll be discussing the many benefits of VoIP and its potential usefulness to your practice in a future column. But for now, know that the downside of VoIP is that unscrupulous individuals can use the technology to appear to be calling you from a legitimate business when they are not.

Those of us of a certain age remember phony calls offering great deals on office supplies or waiting room magazine subscriptions. As those capers became well known they gradually disappeared, but scam artists are endlessly creative in finding new, clever ways to target professionals.

The jury duty scheme, I learned, is an increasingly popular one. Others involve calls from the “fraud department” of your bank, claiming to be investigating a breach of your checking or savings account, or one of your credit or debit card accounts. Another purports to be a “customs official” informing you that you owe a big duty payment on an overseas shipment.

And then there are a few old standbys: the irresistible offer of a “preapproved,” unsecured loan; the good news that a distant relative you never met has died, leaving you lots of money; the packet of “confidential inside information” that will save you a bundle on taxes.

Usually, the common denominator, and the biggest red flag, is a request for a Social Security number, a birth date, a credit card number, or other private information that could be used to steal your identity or rob you blind.

You may think you would never be fooled for a minute by any of these schemes. But trust me: These guys are good. And they sound quite authentic, particularly when they surprise you in the midst of a busy schedule.

So stay alert, trust no one you don't know personally, and always be suspicious of unsolicited offers and unexpected “windfalls.” The cliché, “If it seems too good to be true, it probably is” is a cliché because it is true.

And always keep the following in mind:

▸ Do not give out bank account, Social Security, or credit card numbers over the telephone if you didn't initiate the call, no matter how legitimate the caller sounds. This is true of anyone claiming to be from a bank, a service company, or a government office, as well as anyone trying to sell you anything. If such callers insist upon “verifying” personal information, have them read the data to you from their records for you to confirm or deny.

▸ Court workers will never call to say you've missed jury duty, or that they are assembling jury pools and need to “prescreen” those who might be selected to serve on them. The police detectives I spoke with said they knew of no reason you would ever be called about jury service until after you had mailed back your completed questionnaire, and even then such a call would be extraordinary.

▸ Never send anyone a “commission” or “finder's fee” as a condition of receiving funds. In legitimate transactions, such fees are merely deducted from the money being paid out.

▸ Examine your credit card and bank account statements every month, keeping an eye out for unauthorized charges. Immediately challenge any items that you did not approve.

As I stepped from an exam room one busy morning last month, my office manager pulled me aside.

“Someone from the county courthouse is on the phone, and needs to talk to you right now,” she whispered.

“You know better than that,” I said. “While I'm seeing patients, I don't take calls from anyone except colleagues and immediate family.”

“He says he has a warrant for your arrest!”

I took the call.

“You failed to appear for jury duty,” the official-sounding voice said. That's a violation of New Jersey law, as you were warned when you received your jury summons. You'll have to come down here and surrender yourself immediately, or else we'll have to send deputies to your office. I don't think you'll want to be led through your waiting room in handcuffs.”

“Wait a minute,” I replied nervously. “I served on a jury less than a year ago. They said I wouldn't be called again for at least 3 years. There must be some mistake.”

“Perhaps we've confused you with a citizen with the same or a similar name,” he said. “Let me have your Social Security number and birth date.”

Alarm bells! Suddenly I realized what must be happening. “You should have that information already,” I replied. “Why don't you read me what you have?”

A short silence, and then … click.

I called the courthouse immediately. “Citizens who fail to appear receive a warning letter and a new questionnaire, not a phone call,” said the jury manager. “And we use driver license numbers to keep track of jurors.”

Like most other supposedly affluent professionals, doctors have always been popular targets for scam artists and con men, but their increasing creativity requires ever-higher levels of vigilance. This is especially true as the Internet becomes more popular and communication is facilitated. As the cartoon character Dilbert once said, there's a real dark side to the information age.

The phone company traced the call, which dead-ended at a Voice over Internet Protocol (VoIP) circuit, as the police warned me it probably would. I'll be discussing the many benefits of VoIP and its potential usefulness to your practice in a future column. But for now, know that the downside of VoIP is that unscrupulous individuals can use the technology to appear to be calling you from a legitimate business when they are not.

Those of us of a certain age remember phony calls offering great deals on office supplies or waiting room magazine subscriptions. As those capers became well known they gradually disappeared, but scam artists are endlessly creative in finding new, clever ways to target professionals.

The jury duty scheme, I learned, is an increasingly popular one. Others involve calls from the “fraud department” of your bank, claiming to be investigating a breach of your checking or savings account, or one of your credit or debit card accounts. Another purports to be a “customs official” informing you that you owe a big duty payment on an overseas shipment.

And then there are a few old standbys: the irresistible offer of a “preapproved,” unsecured loan; the good news that a distant relative you never met has died, leaving you lots of money; the packet of “confidential inside information” that will save you a bundle on taxes.

Usually, the common denominator, and the biggest red flag, is a request for a Social Security number, a birth date, a credit card number, or other private information that could be used to steal your identity or rob you blind.

You may think you would never be fooled for a minute by any of these schemes. But trust me: These guys are good. And they sound quite authentic, particularly when they surprise you in the midst of a busy schedule.

So stay alert, trust no one you don't know personally, and always be suspicious of unsolicited offers and unexpected “windfalls.” The cliché, “If it seems too good to be true, it probably is” is a cliché because it is true.

And always keep the following in mind:

▸ Do not give out bank account, Social Security, or credit card numbers over the telephone if you didn't initiate the call, no matter how legitimate the caller sounds. This is true of anyone claiming to be from a bank, a service company, or a government office, as well as anyone trying to sell you anything. If such callers insist upon “verifying” personal information, have them read the data to you from their records for you to confirm or deny.

▸ Court workers will never call to say you've missed jury duty, or that they are assembling jury pools and need to “prescreen” those who might be selected to serve on them. The police detectives I spoke with said they knew of no reason you would ever be called about jury service until after you had mailed back your completed questionnaire, and even then such a call would be extraordinary.

▸ Never send anyone a “commission” or “finder's fee” as a condition of receiving funds. In legitimate transactions, such fees are merely deducted from the money being paid out.

▸ Examine your credit card and bank account statements every month, keeping an eye out for unauthorized charges. Immediately challenge any items that you did not approve.

As I stepped from an exam room one busy morning last month, my office manager pulled me aside.

“Someone from the county courthouse is on the phone, and needs to talk to you right now,” she whispered.

“You know better than that,” I said. “While I'm seeing patients, I don't take calls from anyone except colleagues and immediate family.”

“He says he has a warrant for your arrest!”

I took the call.

“You failed to appear for jury duty,” the official-sounding voice said. That's a violation of New Jersey law, as you were warned when you received your jury summons. You'll have to come down here and surrender yourself immediately, or else we'll have to send deputies to your office. I don't think you'll want to be led through your waiting room in handcuffs.”

“Wait a minute,” I replied nervously. “I served on a jury less than a year ago. They said I wouldn't be called again for at least 3 years. There must be some mistake.”

“Perhaps we've confused you with a citizen with the same or a similar name,” he said. “Let me have your Social Security number and birth date.”

Alarm bells! Suddenly I realized what must be happening. “You should have that information already,” I replied. “Why don't you read me what you have?”

A short silence, and then … click.

I called the courthouse immediately. “Citizens who fail to appear receive a warning letter and a new questionnaire, not a phone call,” said the jury manager. “And we use driver license numbers to keep track of jurors.”

Like most other supposedly affluent professionals, doctors have always been popular targets for scam artists and con men, but their increasing creativity requires ever-higher levels of vigilance. This is especially true as the Internet becomes more popular and communication is facilitated. As the cartoon character Dilbert once said, there's a real dark side to the information age.

The phone company traced the call, which dead-ended at a Voice over Internet Protocol (VoIP) circuit, as the police warned me it probably would. I'll be discussing the many benefits of VoIP and its potential usefulness to your practice in a future column. But for now, know that the downside of VoIP is that unscrupulous individuals can use the technology to appear to be calling you from a legitimate business when they are not.

Those of us of a certain age remember phony calls offering great deals on office supplies or waiting room magazine subscriptions. As those capers became well known they gradually disappeared, but scam artists are endlessly creative in finding new, clever ways to target professionals.

The jury duty scheme, I learned, is an increasingly popular one. Others involve calls from the “fraud department” of your bank, claiming to be investigating a breach of your checking or savings account, or one of your credit or debit card accounts. Another purports to be a “customs official” informing you that you owe a big duty payment on an overseas shipment.

And then there are a few old standbys: the irresistible offer of a “preapproved,” unsecured loan; the good news that a distant relative you never met has died, leaving you lots of money; the packet of “confidential inside information” that will save you a bundle on taxes.

Usually, the common denominator, and the biggest red flag, is a request for a Social Security number, a birth date, a credit card number, or other private information that could be used to steal your identity or rob you blind.

You may think you would never be fooled for a minute by any of these schemes. But trust me: These guys are good. And they sound quite authentic, particularly when they surprise you in the midst of a busy schedule.

So stay alert, trust no one you don't know personally, and always be suspicious of unsolicited offers and unexpected “windfalls.” The cliché, “If it seems too good to be true, it probably is” is a cliché because it is true.

And always keep the following in mind:

▸ Do not give out bank account, Social Security, or credit card numbers over the telephone if you didn't initiate the call, no matter how legitimate the caller sounds. This is true of anyone claiming to be from a bank, a service company, or a government office, as well as anyone trying to sell you anything. If such callers insist upon “verifying” personal information, have them read the data to you from their records for you to confirm or deny.

▸ Court workers will never call to say you've missed jury duty, or that they are assembling jury pools and need to “prescreen” those who might be selected to serve on them. The police detectives I spoke with said they knew of no reason you would ever be called about jury service until after you had mailed back your completed questionnaire, and even then such a call would be extraordinary.

▸ Never send anyone a “commission” or “finder's fee” as a condition of receiving funds. In legitimate transactions, such fees are merely deducted from the money being paid out.

▸ Examine your credit card and bank account statements every month, keeping an eye out for unauthorized charges. Immediately challenge any items that you did not approve.

I knew my December 2005 column, which suggested asking each patient for a credit card number and billing balances to the card account as they come in, was an idea whose time had come. But I was quite unprepared for the huge volume of feedback—more, by far, than any column before it. (If you missed that column, you'll find it at the Web site, www.skinandallergynews.com

Questions and requests for copies of my letter of explanation and consent form continue to pour in, even now. Many of the questions are similar, so I've decided to answer the more common ones this month.

Don't your patients object to signing, in effect, a blank check?

Some did object initially—mostly older people. Nowadays a wide chasm seems to have formed in financial philosophies, right at about age 35. If you're older than that, for example, when you receive your checking account statement each month you probably say, “Thank goodness they still include copies of my canceled checks.” If you're younger, you probably say, “Why do they send all this paper with each statement?”

But when we explain that we're doing nothing different than most restaurants and online businesses, and it will work to patients' advantage by decreasing the bills they will receive and the checks they must write, most come around.

And they're not “signing a blank check”—all credit card contracts give cardholders the right to challenge any charge against their account, and we remind them of that.

Once you've collected the credit card information, where do you store it, and how do you keep it secure?

We keep it in the patient's chart, where it is guarded with the same level of security as the rest of that patient's privileged information.

Some offices prefer to store it all in one place—a Rolodex-type container, or an Excel (or Quickbooks, or similar) computer file, for example—protected by locked cabinets, passwords, and any other precautions that might be necessary.

Couldn't this be considered “balance billing” and therefore illegal?

This is not “balance billing,” which is asking patients to pay the difference between your normal fee and the insurer's normal payment. If you have a contract with the insurer, that's illegal—or more precisely, it's a breach of your contract. What you charge to the patient's credit card is the portion of the insurer-determined payment not paid by the insurer. For example, you bill $200, the payer approves $100 and pays 80% of that. The remaining $20 is the patient's responsibility, and that is what you charge to the credit card, rather than sending the patient a statement for that amount.

We instituted this policy after you suggested it in your American Academy of Dermatology course. So far one patient has called to ask if it is legal, and one insurance company has inquired about it. How do you respond to such queries?

Of course it's legal. (See above.) Ask those patients if they question the legality every time they check into a hotel or rent a car. We have had no inquiries from insurers, but my response would be it's none of their business.

You have every right to collect the patient-owed portion of your fees, and insurance companies have no say in how you do it.

How do you handle patients who refuse to hand over a number, particularly those who claim they have no credit cards?

We used to let refusers slide, but as of Jan. 1, we've made the policy mandatory. Patients who refuse without a good reason are asked, like any patient who refuses to cooperate with any standard office policy, to go elsewhere. Life's too short. And “I don't have any credit cards” does not count as a good reason. Everybody has credit cards in this day and age, except deadbeats with such awful credit that you don't want them anyway. My office manager does have authority to make exceptions on a case-by-case basis, however.

One surgeon I know asks “no credit card” patients to pay a lawyer-style “retainer” of $500 which is held in escrow and used to pay receivable amounts as they come due. When presented with that alternative, most suddenly remember that they do have a credit card after all.

Do you envision using this policy to enforce any no-show charges a practice might have?

I had not, but now I am. Excellent suggestion!

I knew my December 2005 column, which suggested asking each patient for a credit card number and billing balances to the card account as they come in, was an idea whose time had come. But I was quite unprepared for the huge volume of feedback—more, by far, than any column before it. (If you missed that column, you'll find it at the Web site, www.skinandallergynews.com

Questions and requests for copies of my letter of explanation and consent form continue to pour in, even now. Many of the questions are similar, so I've decided to answer the more common ones this month.

Don't your patients object to signing, in effect, a blank check?

Some did object initially—mostly older people. Nowadays a wide chasm seems to have formed in financial philosophies, right at about age 35. If you're older than that, for example, when you receive your checking account statement each month you probably say, “Thank goodness they still include copies of my canceled checks.” If you're younger, you probably say, “Why do they send all this paper with each statement?”

But when we explain that we're doing nothing different than most restaurants and online businesses, and it will work to patients' advantage by decreasing the bills they will receive and the checks they must write, most come around.

And they're not “signing a blank check”—all credit card contracts give cardholders the right to challenge any charge against their account, and we remind them of that.

Once you've collected the credit card information, where do you store it, and how do you keep it secure?

We keep it in the patient's chart, where it is guarded with the same level of security as the rest of that patient's privileged information.

Some offices prefer to store it all in one place—a Rolodex-type container, or an Excel (or Quickbooks, or similar) computer file, for example—protected by locked cabinets, passwords, and any other precautions that might be necessary.

Couldn't this be considered “balance billing” and therefore illegal?

This is not “balance billing,” which is asking patients to pay the difference between your normal fee and the insurer's normal payment. If you have a contract with the insurer, that's illegal—or more precisely, it's a breach of your contract. What you charge to the patient's credit card is the portion of the insurer-determined payment not paid by the insurer. For example, you bill $200, the payer approves $100 and pays 80% of that. The remaining $20 is the patient's responsibility, and that is what you charge to the credit card, rather than sending the patient a statement for that amount.

We instituted this policy after you suggested it in your American Academy of Dermatology course. So far one patient has called to ask if it is legal, and one insurance company has inquired about it. How do you respond to such queries?

Of course it's legal. (See above.) Ask those patients if they question the legality every time they check into a hotel or rent a car. We have had no inquiries from insurers, but my response would be it's none of their business.

You have every right to collect the patient-owed portion of your fees, and insurance companies have no say in how you do it.

How do you handle patients who refuse to hand over a number, particularly those who claim they have no credit cards?

We used to let refusers slide, but as of Jan. 1, we've made the policy mandatory. Patients who refuse without a good reason are asked, like any patient who refuses to cooperate with any standard office policy, to go elsewhere. Life's too short. And “I don't have any credit cards” does not count as a good reason. Everybody has credit cards in this day and age, except deadbeats with such awful credit that you don't want them anyway. My office manager does have authority to make exceptions on a case-by-case basis, however.

One surgeon I know asks “no credit card” patients to pay a lawyer-style “retainer” of $500 which is held in escrow and used to pay receivable amounts as they come due. When presented with that alternative, most suddenly remember that they do have a credit card after all.

Do you envision using this policy to enforce any no-show charges a practice might have?

I had not, but now I am. Excellent suggestion!

I knew my December 2005 column, which suggested asking each patient for a credit card number and billing balances to the card account as they come in, was an idea whose time had come. But I was quite unprepared for the huge volume of feedback—more, by far, than any column before it. (If you missed that column, you'll find it at the Web site, www.skinandallergynews.com

Questions and requests for copies of my letter of explanation and consent form continue to pour in, even now. Many of the questions are similar, so I've decided to answer the more common ones this month.

Don't your patients object to signing, in effect, a blank check?

Some did object initially—mostly older people. Nowadays a wide chasm seems to have formed in financial philosophies, right at about age 35. If you're older than that, for example, when you receive your checking account statement each month you probably say, “Thank goodness they still include copies of my canceled checks.” If you're younger, you probably say, “Why do they send all this paper with each statement?”

But when we explain that we're doing nothing different than most restaurants and online businesses, and it will work to patients' advantage by decreasing the bills they will receive and the checks they must write, most come around.

And they're not “signing a blank check”—all credit card contracts give cardholders the right to challenge any charge against their account, and we remind them of that.

Once you've collected the credit card information, where do you store it, and how do you keep it secure?

We keep it in the patient's chart, where it is guarded with the same level of security as the rest of that patient's privileged information.

Some offices prefer to store it all in one place—a Rolodex-type container, or an Excel (or Quickbooks, or similar) computer file, for example—protected by locked cabinets, passwords, and any other precautions that might be necessary.

Couldn't this be considered “balance billing” and therefore illegal?

This is not “balance billing,” which is asking patients to pay the difference between your normal fee and the insurer's normal payment. If you have a contract with the insurer, that's illegal—or more precisely, it's a breach of your contract. What you charge to the patient's credit card is the portion of the insurer-determined payment not paid by the insurer. For example, you bill $200, the payer approves $100 and pays 80% of that. The remaining $20 is the patient's responsibility, and that is what you charge to the credit card, rather than sending the patient a statement for that amount.

We instituted this policy after you suggested it in your American Academy of Dermatology course. So far one patient has called to ask if it is legal, and one insurance company has inquired about it. How do you respond to such queries?

Of course it's legal. (See above.) Ask those patients if they question the legality every time they check into a hotel or rent a car. We have had no inquiries from insurers, but my response would be it's none of their business.

You have every right to collect the patient-owed portion of your fees, and insurance companies have no say in how you do it.

How do you handle patients who refuse to hand over a number, particularly those who claim they have no credit cards?

We used to let refusers slide, but as of Jan. 1, we've made the policy mandatory. Patients who refuse without a good reason are asked, like any patient who refuses to cooperate with any standard office policy, to go elsewhere. Life's too short. And “I don't have any credit cards” does not count as a good reason. Everybody has credit cards in this day and age, except deadbeats with such awful credit that you don't want them anyway. My office manager does have authority to make exceptions on a case-by-case basis, however.

One surgeon I know asks “no credit card” patients to pay a lawyer-style “retainer” of $500 which is held in escrow and used to pay receivable amounts as they come due. When presented with that alternative, most suddenly remember that they do have a credit card after all.

Do you envision using this policy to enforce any no-show charges a practice might have?

I had not, but now I am. Excellent suggestion!

Last month, I discussed the importance of learning to read and understand financial statements. It is the only way in which you can truly evaluate your practice's financial health.

I named the three barometers of financial strength: liquidity, solvency, and profitability. The first two are measured with the balance sheet, which I covered last month. Measuring profitability requires a separate tool: the income statement.

An income statement summarizes revenue and expenses for a specific time period, usually a year, although reports should be generated more frequently for large or complicated practices. Here are the essential components:

▸ Total sales revenue (TSR). Nicknamed the "top line," TSR represents the practice's gross income for the period. In large offices with multiple "providers" and/or multiple specialized services, TSR will be broken down to identify and track all major revenue producers.

▸ Operating costs. In other words, overhead. For many practices, there is only one category of operating costs, usually called general and administrative expenses (G&A). However, if you offer ancillary services, such as a spa, or sell a lot of products, your income statement should separate the costs of producing these products or services into a separate category called sales costs. Cosmetically oriented practices with large marketing expenses should have a third category to track them.

Many physicians instinctively strive to slash operating costs, but they often fail to distinguish between G&A expenses—which should be kept as low as possible—and sales and marketing costs. The latter often must be maintained or even increased. A practice spending 30% on overhead, for example, is not necessarily doing as well as one spending 60%: Would you rather have 70% of $250,000 or 40% of $1 million?

▸ Gross profit (or loss). In practices with significant sales costs, this is the difference between sales revenue and sales/marketing costs. A positive difference is profit; a negative difference is a loss and is shown in brackets. If you offer ancillary products or services, this category determines if they, by themselves, are making money.

▸ Operating income. What's left when you subtract all the operating expenses from gross profit.

▸ Income before taxes. After subtracting any interest paid on outstanding debt from total operating income, you are left with the amount on which the practice may be liable for taxes.

▸ Taxes. All paid or anticipated taxes during the period, to all jurisdictions.

▸ Net income from continuing operations. After subtracting taxes from its income, this is what is left.

▸ Nonrecurring events. This is the cost of any one-time expenses, such as restructuring the practice or an unreimbursed casualty loss. These are shown on a separate line so as to not confuse the "continuing operations" figure.

▸ Net income. What the practice has left after subtracting all its expenses from its total revenue. If the difference is positive, it is profit. A negative difference is a loss and is shown in brackets. This is a different benchmark for a professional corporation than for most businesses, since professional corporations strive to minimize net income, and thus corporate taxes.

▸ Net income available to shareholders. This is the bottom line, the money left at the end of the period. It is held for future needs, invested as the board directs, or returned to investors in the future.

It takes awhile to become adept at analyzing financial reports, so ask your accountant to walk you through your practice's balance sheet and income statement and point out the important indicators.

Last month, I discussed the importance of learning to read and understand financial statements. It is the only way in which you can truly evaluate your practice's financial health.

I named the three barometers of financial strength: liquidity, solvency, and profitability. The first two are measured with the balance sheet, which I covered last month. Measuring profitability requires a separate tool: the income statement.

An income statement summarizes revenue and expenses for a specific time period, usually a year, although reports should be generated more frequently for large or complicated practices. Here are the essential components:

▸ Total sales revenue (TSR). Nicknamed the "top line," TSR represents the practice's gross income for the period. In large offices with multiple "providers" and/or multiple specialized services, TSR will be broken down to identify and track all major revenue producers.

▸ Operating costs. In other words, overhead. For many practices, there is only one category of operating costs, usually called general and administrative expenses (G&A). However, if you offer ancillary services, such as a spa, or sell a lot of products, your income statement should separate the costs of producing these products or services into a separate category called sales costs. Cosmetically oriented practices with large marketing expenses should have a third category to track them.

Many physicians instinctively strive to slash operating costs, but they often fail to distinguish between G&A expenses—which should be kept as low as possible—and sales and marketing costs. The latter often must be maintained or even increased. A practice spending 30% on overhead, for example, is not necessarily doing as well as one spending 60%: Would you rather have 70% of $250,000 or 40% of $1 million?

▸ Gross profit (or loss). In practices with significant sales costs, this is the difference between sales revenue and sales/marketing costs. A positive difference is profit; a negative difference is a loss and is shown in brackets. If you offer ancillary products or services, this category determines if they, by themselves, are making money.

▸ Operating income. What's left when you subtract all the operating expenses from gross profit.

▸ Income before taxes. After subtracting any interest paid on outstanding debt from total operating income, you are left with the amount on which the practice may be liable for taxes.

▸ Taxes. All paid or anticipated taxes during the period, to all jurisdictions.

▸ Net income from continuing operations. After subtracting taxes from its income, this is what is left.

▸ Nonrecurring events. This is the cost of any one-time expenses, such as restructuring the practice or an unreimbursed casualty loss. These are shown on a separate line so as to not confuse the "continuing operations" figure.

▸ Net income. What the practice has left after subtracting all its expenses from its total revenue. If the difference is positive, it is profit. A negative difference is a loss and is shown in brackets. This is a different benchmark for a professional corporation than for most businesses, since professional corporations strive to minimize net income, and thus corporate taxes.

▸ Net income available to shareholders. This is the bottom line, the money left at the end of the period. It is held for future needs, invested as the board directs, or returned to investors in the future.

It takes awhile to become adept at analyzing financial reports, so ask your accountant to walk you through your practice's balance sheet and income statement and point out the important indicators.

Last month, I discussed the importance of learning to read and understand financial statements. It is the only way in which you can truly evaluate your practice's financial health.

I named the three barometers of financial strength: liquidity, solvency, and profitability. The first two are measured with the balance sheet, which I covered last month. Measuring profitability requires a separate tool: the income statement.

An income statement summarizes revenue and expenses for a specific time period, usually a year, although reports should be generated more frequently for large or complicated practices. Here are the essential components:

▸ Total sales revenue (TSR). Nicknamed the "top line," TSR represents the practice's gross income for the period. In large offices with multiple "providers" and/or multiple specialized services, TSR will be broken down to identify and track all major revenue producers.

▸ Operating costs. In other words, overhead. For many practices, there is only one category of operating costs, usually called general and administrative expenses (G&A). However, if you offer ancillary services, such as a spa, or sell a lot of products, your income statement should separate the costs of producing these products or services into a separate category called sales costs. Cosmetically oriented practices with large marketing expenses should have a third category to track them.

Many physicians instinctively strive to slash operating costs, but they often fail to distinguish between G&A expenses—which should be kept as low as possible—and sales and marketing costs. The latter often must be maintained or even increased. A practice spending 30% on overhead, for example, is not necessarily doing as well as one spending 60%: Would you rather have 70% of $250,000 or 40% of $1 million?

▸ Gross profit (or loss). In practices with significant sales costs, this is the difference between sales revenue and sales/marketing costs. A positive difference is profit; a negative difference is a loss and is shown in brackets. If you offer ancillary products or services, this category determines if they, by themselves, are making money.

▸ Operating income. What's left when you subtract all the operating expenses from gross profit.

▸ Income before taxes. After subtracting any interest paid on outstanding debt from total operating income, you are left with the amount on which the practice may be liable for taxes.

▸ Taxes. All paid or anticipated taxes during the period, to all jurisdictions.

▸ Net income from continuing operations. After subtracting taxes from its income, this is what is left.

▸ Nonrecurring events. This is the cost of any one-time expenses, such as restructuring the practice or an unreimbursed casualty loss. These are shown on a separate line so as to not confuse the "continuing operations" figure.

▸ Net income. What the practice has left after subtracting all its expenses from its total revenue. If the difference is positive, it is profit. A negative difference is a loss and is shown in brackets. This is a different benchmark for a professional corporation than for most businesses, since professional corporations strive to minimize net income, and thus corporate taxes.

▸ Net income available to shareholders. This is the bottom line, the money left at the end of the period. It is held for future needs, invested as the board directs, or returned to investors in the future.

It takes awhile to become adept at analyzing financial reports, so ask your accountant to walk you through your practice's balance sheet and income statement and point out the important indicators.

A balance sheet provides an essential picture of your practice's financial health, yet, amazingly, few physicians can make heads or tails of one. Medical schools don't teach that stuff, of course, but most doctors don't see a reason to learn about it anyway. After all, that's why you pay an accountant, right?

But it's your practice. You can't really get a handle on its finances and how they are trending unless you can interpret financial statements. With a basic understanding of what's going on, you'll be far better equipped to understand the advice accountants and other financial professionals give you, and you won't need to rely on them to make all the crucial decisions about your practice's future.

A balance sheet, like a blood pressure reading, is a snapshot—a measure of a practice's financial situation at a given point in time. And like a blood pressure reading, its main usefulness lies in how it compares with other snapshots at other times.

Essential components of a balance sheet include assets (what your practice owns outright), liabilities (what it owes others), and equity (value added to the practice, such as financed equipment and profits retained within the business.)

As the name implies, a balance sheet must balance. The fundamental equation is assets equal liabilities plus equity. In other words that I find easier to grasp: Equity equals assets minus liabilities.

Assets are typically divided into current and long term. Current assets are those that could be liquidated within 1 year, such as cash, accounts receivable, and inventory if you stock products for resale. Long-term assets include buildings, furniture, equipment, and other durable goods, less depreciation (the taxable value they have lost since they were purchased).

Liabilities are similarly classified as current and long term. Current liabilities must be paid within the next year and include accounts payable, wages, and payroll taxes. Long-term liabilities, such as mortgages, loans, and equipment leases, are due over a period of years.

Equity is basically the owner's money—theoretically what would be left if you liquidated all the practice's assets and paid all its liabilities. It is not a realistic measure of a practice's net value since it doesn't reflect the current, open-market value of assets and doesn't consider intangibles such as good will. That's not what a balance sheet is designed to measure.

So what does a balance sheet measure? It keeps track of two of the three key elements of financial strength: liquidity and solvency. The third element, profitability, is measured with a separate tool, the income statement.

Liquidity, as calculated by current ratio (current assets divided by current liabilities), is a measure of the practice's ability to pay its bills over the next year. Your ratio should be at least 2:1. If it's lower, the practice is probably carrying too much debt and may run into trouble, particularly if too many bills come due at once.

Solvency, or debt-to-equity ratio (total liabilities divided by total equity), is a measure of borrowing power. A 3:1 ratio is the upper limit of normal for most banks, meaning for every $3 in debt there is at least $1 in equity (owner's money). Any higher and the practice will not be able to finance expansion, or even weather an economic downturn, because loan money will not be available.

The time to do these calculations is not when you apply for a loan, but long before—by assembling and analyzing balance sheets regularly—so that negative trends can be identified and turned around.

Hopefully, the importance of regular financial analysis is becoming obvious.

Numerous other useful bits of information—asset allocation, collection efficiency, and cash utilization—can be gleaned from a balance sheet if you know what to look for.

So how often should you review your practice's balance sheet? In an established practice, during relatively stable economic times, once a year may be sufficient. If your practice is new, though, or you're having liquidity problems, more frequent analysis, perhaps quarterly, is necessary. When in doubt, have a look. Balance sheets are neither expensive nor difficult to produce. With modern financial software, a few keystrokes on your accountant's computer are usually all that's necessary.

It may take you awhile, however, to feel comfortable analyzing financial statements. You didn't master medical diagnosis and treatment overnight, and this skill won't come instantaneously either.

I suggest you ask your accountant to walk you through your practice's balance sheet the first few times. Ask questions. Get a feel for what he or she sees within it, and take the opportunity to review your plans for the future. A good accountant will welcome the chance to show you the financial ropes and to help you work toward your long-term practice goals.

A balance sheet provides an essential picture of your practice's financial health, yet, amazingly, few physicians can make heads or tails of one. Medical schools don't teach that stuff, of course, but most doctors don't see a reason to learn about it anyway. After all, that's why you pay an accountant, right?

But it's your practice. You can't really get a handle on its finances and how they are trending unless you can interpret financial statements. With a basic understanding of what's going on, you'll be far better equipped to understand the advice accountants and other financial professionals give you, and you won't need to rely on them to make all the crucial decisions about your practice's future.

A balance sheet, like a blood pressure reading, is a snapshot—a measure of a practice's financial situation at a given point in time. And like a blood pressure reading, its main usefulness lies in how it compares with other snapshots at other times.

Essential components of a balance sheet include assets (what your practice owns outright), liabilities (what it owes others), and equity (value added to the practice, such as financed equipment and profits retained within the business.)

As the name implies, a balance sheet must balance. The fundamental equation is assets equal liabilities plus equity. In other words that I find easier to grasp: Equity equals assets minus liabilities.

Assets are typically divided into current and long term. Current assets are those that could be liquidated within 1 year, such as cash, accounts receivable, and inventory if you stock products for resale. Long-term assets include buildings, furniture, equipment, and other durable goods, less depreciation (the taxable value they have lost since they were purchased).

Liabilities are similarly classified as current and long term. Current liabilities must be paid within the next year and include accounts payable, wages, and payroll taxes. Long-term liabilities, such as mortgages, loans, and equipment leases, are due over a period of years.

Equity is basically the owner's money—theoretically what would be left if you liquidated all the practice's assets and paid all its liabilities. It is not a realistic measure of a practice's net value since it doesn't reflect the current, open-market value of assets and doesn't consider intangibles such as good will. That's not what a balance sheet is designed to measure.

So what does a balance sheet measure? It keeps track of two of the three key elements of financial strength: liquidity and solvency. The third element, profitability, is measured with a separate tool, the income statement.

Liquidity, as calculated by current ratio (current assets divided by current liabilities), is a measure of the practice's ability to pay its bills over the next year. Your ratio should be at least 2:1. If it's lower, the practice is probably carrying too much debt and may run into trouble, particularly if too many bills come due at once.

Solvency, or debt-to-equity ratio (total liabilities divided by total equity), is a measure of borrowing power. A 3:1 ratio is the upper limit of normal for most banks, meaning for every $3 in debt there is at least $1 in equity (owner's money). Any higher and the practice will not be able to finance expansion, or even weather an economic downturn, because loan money will not be available.

The time to do these calculations is not when you apply for a loan, but long before—by assembling and analyzing balance sheets regularly—so that negative trends can be identified and turned around.

Hopefully, the importance of regular financial analysis is becoming obvious.

Numerous other useful bits of information—asset allocation, collection efficiency, and cash utilization—can be gleaned from a balance sheet if you know what to look for.

So how often should you review your practice's balance sheet? In an established practice, during relatively stable economic times, once a year may be sufficient. If your practice is new, though, or you're having liquidity problems, more frequent analysis, perhaps quarterly, is necessary. When in doubt, have a look. Balance sheets are neither expensive nor difficult to produce. With modern financial software, a few keystrokes on your accountant's computer are usually all that's necessary.

It may take you awhile, however, to feel comfortable analyzing financial statements. You didn't master medical diagnosis and treatment overnight, and this skill won't come instantaneously either.

I suggest you ask your accountant to walk you through your practice's balance sheet the first few times. Ask questions. Get a feel for what he or she sees within it, and take the opportunity to review your plans for the future. A good accountant will welcome the chance to show you the financial ropes and to help you work toward your long-term practice goals.

A balance sheet provides an essential picture of your practice's financial health, yet, amazingly, few physicians can make heads or tails of one. Medical schools don't teach that stuff, of course, but most doctors don't see a reason to learn about it anyway. After all, that's why you pay an accountant, right?

But it's your practice. You can't really get a handle on its finances and how they are trending unless you can interpret financial statements. With a basic understanding of what's going on, you'll be far better equipped to understand the advice accountants and other financial professionals give you, and you won't need to rely on them to make all the crucial decisions about your practice's future.

A balance sheet, like a blood pressure reading, is a snapshot—a measure of a practice's financial situation at a given point in time. And like a blood pressure reading, its main usefulness lies in how it compares with other snapshots at other times.

Essential components of a balance sheet include assets (what your practice owns outright), liabilities (what it owes others), and equity (value added to the practice, such as financed equipment and profits retained within the business.)

As the name implies, a balance sheet must balance. The fundamental equation is assets equal liabilities plus equity. In other words that I find easier to grasp: Equity equals assets minus liabilities.

Assets are typically divided into current and long term. Current assets are those that could be liquidated within 1 year, such as cash, accounts receivable, and inventory if you stock products for resale. Long-term assets include buildings, furniture, equipment, and other durable goods, less depreciation (the taxable value they have lost since they were purchased).

Liabilities are similarly classified as current and long term. Current liabilities must be paid within the next year and include accounts payable, wages, and payroll taxes. Long-term liabilities, such as mortgages, loans, and equipment leases, are due over a period of years.

Equity is basically the owner's money—theoretically what would be left if you liquidated all the practice's assets and paid all its liabilities. It is not a realistic measure of a practice's net value since it doesn't reflect the current, open-market value of assets and doesn't consider intangibles such as good will. That's not what a balance sheet is designed to measure.

So what does a balance sheet measure? It keeps track of two of the three key elements of financial strength: liquidity and solvency. The third element, profitability, is measured with a separate tool, the income statement.

Liquidity, as calculated by current ratio (current assets divided by current liabilities), is a measure of the practice's ability to pay its bills over the next year. Your ratio should be at least 2:1. If it's lower, the practice is probably carrying too much debt and may run into trouble, particularly if too many bills come due at once.

Solvency, or debt-to-equity ratio (total liabilities divided by total equity), is a measure of borrowing power. A 3:1 ratio is the upper limit of normal for most banks, meaning for every $3 in debt there is at least $1 in equity (owner's money). Any higher and the practice will not be able to finance expansion, or even weather an economic downturn, because loan money will not be available.

The time to do these calculations is not when you apply for a loan, but long before—by assembling and analyzing balance sheets regularly—so that negative trends can be identified and turned around.

Hopefully, the importance of regular financial analysis is becoming obvious.

Numerous other useful bits of information—asset allocation, collection efficiency, and cash utilization—can be gleaned from a balance sheet if you know what to look for.

So how often should you review your practice's balance sheet? In an established practice, during relatively stable economic times, once a year may be sufficient. If your practice is new, though, or you're having liquidity problems, more frequent analysis, perhaps quarterly, is necessary. When in doubt, have a look. Balance sheets are neither expensive nor difficult to produce. With modern financial software, a few keystrokes on your accountant's computer are usually all that's necessary.

It may take you awhile, however, to feel comfortable analyzing financial statements. You didn't master medical diagnosis and treatment overnight, and this skill won't come instantaneously either.

I suggest you ask your accountant to walk you through your practice's balance sheet the first few times. Ask questions. Get a feel for what he or she sees within it, and take the opportunity to review your plans for the future. A good accountant will welcome the chance to show you the financial ropes and to help you work toward your long-term practice goals.

Quick, what's the largest asset on your balance sheet? Almost certainly it's accounts receivable. Many physicians fail to realize that, often because they've never assembled a balance sheet or budget—something I'll discuss in an upcoming column. Many also fail to appreciate that aggressive management of accounts receivable is key to any practice's financial success.

Collecting balances due has always been a problem for physicians. After all, as I've pointed out many times, most of us receive woefully deficient business training, if we get any at all.

One result of that is that we extend more credit than any other business except banks and mortgage/finance companies. That's insane! Like every other business, we should strive to minimize the credit we extend by keeping our accounts receivable at as low a level as possible.

This is, of course, easier said than done. The traditional advice for minimizing accounts receivable has always been that any amount collectable at the time of service should be collected. But some patients inevitably brandish the old "I forgot my checkbook" excuse and escape without paying. And some fees, in particular the patient-owed portion of most insurance plans, are difficult if not impossible to calculate at the time of service and must be billed later.

The problem is once patients have left your office, according to one study, your bill drops to 19th out of 20 on their payment priority list. So why not do what a growing number of businesses, including every hotel, motel, and country inn on the planet, already do: Ask each patient for a credit card, take an imprint, and bill balances to it as they accrue.

Geoff Anders, president of the Health Care Group Inc., suggested this in a talk he gave for my office efficiency course at the 2004 American Academy of Dermatology summer meeting, and it hit me like the proverbial "whack on the side of the head"—Why haven't we all been doing this for years?

After all, patients think nothing of handing a credit card to a busboy in a restaurant or blithely shooting credit card numbers into a black hole in the Internet. So why should they object to doing the same thing with their medical bills?

Beginning last January, every patient entering our office has been handed a letter at the check-in desk explaining our new policy of asking for a credit card number on which any outstanding balances will be billed. (If you would like a copy of my letter, e-mail me and I'll be happy to send it along.) At the bottom is a brief consent for the patient to sign, and a place to write the credit card number and expiration date.

Some did object initially—mostly older people. But when we explain that we're doing nothing different than a hotel does at each check in, and that it will work to their advantage as well by decreasing the bills they will receive and the checks they must write, most come around.

This year it's been optional, but beginning next month it will be mandatory. Why? Because in only 1 year our accounts receivable totals have dropped by nearly 50%. They are now the lowest they have ever been, in all categories, in my 24 years of practice.

Credit card companies have begun to appreciate this largely untapped segment of potential business for them. Soon, you may begin receiving help from them in setting up a system similar to mine, as well as other payment plans for your patients.

A few credit companies are even promoting cards to finance private-pay portions of health care expenses. One example is the HELPcard (www.helpcard.com

It's time for physicians to do more of what we do best—treat patients—and leave the business of extending credit to those who do that best.

Quick, what's the largest asset on your balance sheet? Almost certainly it's accounts receivable. Many physicians fail to realize that, often because they've never assembled a balance sheet or budget—something I'll discuss in an upcoming column. Many also fail to appreciate that aggressive management of accounts receivable is key to any practice's financial success.

Collecting balances due has always been a problem for physicians. After all, as I've pointed out many times, most of us receive woefully deficient business training, if we get any at all.

One result of that is that we extend more credit than any other business except banks and mortgage/finance companies. That's insane! Like every other business, we should strive to minimize the credit we extend by keeping our accounts receivable at as low a level as possible.

This is, of course, easier said than done. The traditional advice for minimizing accounts receivable has always been that any amount collectable at the time of service should be collected. But some patients inevitably brandish the old "I forgot my checkbook" excuse and escape without paying. And some fees, in particular the patient-owed portion of most insurance plans, are difficult if not impossible to calculate at the time of service and must be billed later.

The problem is once patients have left your office, according to one study, your bill drops to 19th out of 20 on their payment priority list. So why not do what a growing number of businesses, including every hotel, motel, and country inn on the planet, already do: Ask each patient for a credit card, take an imprint, and bill balances to it as they accrue.

Geoff Anders, president of the Health Care Group Inc., suggested this in a talk he gave for my office efficiency course at the 2004 American Academy of Dermatology summer meeting, and it hit me like the proverbial "whack on the side of the head"—Why haven't we all been doing this for years?

After all, patients think nothing of handing a credit card to a busboy in a restaurant or blithely shooting credit card numbers into a black hole in the Internet. So why should they object to doing the same thing with their medical bills?

Beginning last January, every patient entering our office has been handed a letter at the check-in desk explaining our new policy of asking for a credit card number on which any outstanding balances will be billed. (If you would like a copy of my letter, e-mail me and I'll be happy to send it along.) At the bottom is a brief consent for the patient to sign, and a place to write the credit card number and expiration date.

Some did object initially—mostly older people. But when we explain that we're doing nothing different than a hotel does at each check in, and that it will work to their advantage as well by decreasing the bills they will receive and the checks they must write, most come around.

This year it's been optional, but beginning next month it will be mandatory. Why? Because in only 1 year our accounts receivable totals have dropped by nearly 50%. They are now the lowest they have ever been, in all categories, in my 24 years of practice.

Credit card companies have begun to appreciate this largely untapped segment of potential business for them. Soon, you may begin receiving help from them in setting up a system similar to mine, as well as other payment plans for your patients.

A few credit companies are even promoting cards to finance private-pay portions of health care expenses. One example is the HELPcard (www.helpcard.com

It's time for physicians to do more of what we do best—treat patients—and leave the business of extending credit to those who do that best.

Quick, what's the largest asset on your balance sheet? Almost certainly it's accounts receivable. Many physicians fail to realize that, often because they've never assembled a balance sheet or budget—something I'll discuss in an upcoming column. Many also fail to appreciate that aggressive management of accounts receivable is key to any practice's financial success.

Collecting balances due has always been a problem for physicians. After all, as I've pointed out many times, most of us receive woefully deficient business training, if we get any at all.

One result of that is that we extend more credit than any other business except banks and mortgage/finance companies. That's insane! Like every other business, we should strive to minimize the credit we extend by keeping our accounts receivable at as low a level as possible.

This is, of course, easier said than done. The traditional advice for minimizing accounts receivable has always been that any amount collectable at the time of service should be collected. But some patients inevitably brandish the old "I forgot my checkbook" excuse and escape without paying. And some fees, in particular the patient-owed portion of most insurance plans, are difficult if not impossible to calculate at the time of service and must be billed later.

The problem is once patients have left your office, according to one study, your bill drops to 19th out of 20 on their payment priority list. So why not do what a growing number of businesses, including every hotel, motel, and country inn on the planet, already do: Ask each patient for a credit card, take an imprint, and bill balances to it as they accrue.

Geoff Anders, president of the Health Care Group Inc., suggested this in a talk he gave for my office efficiency course at the 2004 American Academy of Dermatology summer meeting, and it hit me like the proverbial "whack on the side of the head"—Why haven't we all been doing this for years?

After all, patients think nothing of handing a credit card to a busboy in a restaurant or blithely shooting credit card numbers into a black hole in the Internet. So why should they object to doing the same thing with their medical bills?

Beginning last January, every patient entering our office has been handed a letter at the check-in desk explaining our new policy of asking for a credit card number on which any outstanding balances will be billed. (If you would like a copy of my letter, e-mail me and I'll be happy to send it along.) At the bottom is a brief consent for the patient to sign, and a place to write the credit card number and expiration date.

Some did object initially—mostly older people. But when we explain that we're doing nothing different than a hotel does at each check in, and that it will work to their advantage as well by decreasing the bills they will receive and the checks they must write, most come around.

This year it's been optional, but beginning next month it will be mandatory. Why? Because in only 1 year our accounts receivable totals have dropped by nearly 50%. They are now the lowest they have ever been, in all categories, in my 24 years of practice.

Credit card companies have begun to appreciate this largely untapped segment of potential business for them. Soon, you may begin receiving help from them in setting up a system similar to mine, as well as other payment plans for your patients.

A few credit companies are even promoting cards to finance private-pay portions of health care expenses. One example is the HELPcard (www.helpcard.com

It's time for physicians to do more of what we do best—treat patients—and leave the business of extending credit to those who do that best.

I've often mentioned that poor and marginal employees are the single biggest efficiency killer in most medical practices. And it's far from a rare problem.

I get a lot of questions about poor employee performance—what constitutes it, how to deal with it, the steps one can take to minimize it. Very often, the best remedy is to prevent it entirely by hiring top-flight employees to begin with.

Good hiring techniques are yet another in a long line of basic business skills never taught to the vast majority of physicians.

Martin Yate, in “Hiring the Best” (Avon, Mass.: Adams Media Corp., 1997), lists the common mistakes that often result in a “bad hire.”

They include poor analysis of job functions, resulting in a cloudy vision of what the job entails and an incomplete (or nonexistent) written job description; inadequate initial screening of prospective employees; inadequate assessment of the prospective employee's personality, resulting in poor matching of employee with job skills; poor interviewing technique; superficial (or nonexistent) checking of references; and overselling of expectations regarding financial compensation and potential career advancement.

Therefore, Mr. Yate recommends, when a job vacancy occurs in your office, first reevaluate your written job description for that position. Does it meet your office's needs? Does it describe, accurately and in detail, exactly what you expect from the employee you will hire to perform that job? If not, revise it before you do anything else.

A good job description lists the major responsibilities of the position, with the relative importance of each duty and the critical knowledge, skills, and education level that are necessary to perform each function.

Once you have clearly defined the position you have available, take the time to find the best possible match for it. My longtime friend Jim Del Rosso, M.D., speaking at a practice management meeting last month, outlined the most important considerations (and the most common mistakes to avoid): Know what you are looking for, carefully screen your candidates, and avoid lowering your expectations—resist the temptation to settle for a marginal candidate or to hire someone you vaguely “like” and then try to mold the job to that person.

As Jim pointed out, the natural tendency is to “wing it”—to hire the candidate you have the “best feeling” about. Don't!

As every physician knows, hunches are no substitute for hard data. Know your job description and hiring criteria, carefully review resumes, check references, and conduct thorough but efficient interviews.

Be alert for resume red flags: significant time gaps between jobs; positions at companies no longer in business, or otherwise impossible to verify; job titles that don't make sense, given the applicant's history and qualifications.

Background checks are a dicey subject, but publicly available information can be found easily on Web sites such as knowx.com. (As always, I have no financial interest in any enterprise discussed in this column.)

Make sure applicants know you will be verifying facts in their resumes, and get their consent to do so.

Too many physicians skip the essential step of calling references. You'd be amazed what some old bosses really think of employees they write of so glowingly in their letters of recommendation.

Interviews often get short shrift as well. As Jim Del Rosso said, “The importance of quality interviewing cannot be overemphasized.”

“There is no such thing as a casual interview,” he added. “But it should be relaxed.”

Most of us tend to talk too much during an interview, when it is the candidate who should be talking. Jim suggests the “2-to-1 rule”: Listen twice as much as you talk. “Didn't your mother tell you,” he asked, “why we have two ears and only one mouth?”

Important interview topics include educational background, skills, relevant experience and training, and unrelated job history.

By law, some questions are forbidden during an employment interview. You cannot ask an applicant's age or date of birth. You cannot ask about gender, creed, color, religion, or national origin.

The subject of disabilities is a no-no, as is marital status, date or type of military discharge, number of children (or who cares for them), addiction history, citizenship, arrest record, psychiatric history, past absenteeism due to illness, or whether workmen's compensation has ever been collected.

There are, however, acceptable alternatives to some of these questions. You can't ask about marriage or maiden names, for example, but you can ask if an applicant has ever gone by another name for your background review. Instead of asking about citizenship, ask if applicants are legally authorized to work in the United States.

You can't ask if someone is disabled, but it is permissible to ask if he or she will be physically able to perform the job's essential functions. Past addictions are off-limits, but you do have a right to know about current addictions to illegal drugs.

Once you have made your decision, Jim Del Rosso says, practice fairness, not favoritism. Be objective, fair, and consistent.

Reward achievers and challenge slackers, but once you have made performance expectations clear, sit back and allow everyone an equal opportunity to succeed.

“The best executive,” Theodore Roosevelt once wrote, “is the one who has sense enough to pick good people to do what he [or she] wants done, and self-restraint enough to keep from meddling with them while they do it.”

I've often mentioned that poor and marginal employees are the single biggest efficiency killer in most medical practices. And it's far from a rare problem.

I get a lot of questions about poor employee performance—what constitutes it, how to deal with it, the steps one can take to minimize it. Very often, the best remedy is to prevent it entirely by hiring top-flight employees to begin with.

Good hiring techniques are yet another in a long line of basic business skills never taught to the vast majority of physicians.

Martin Yate, in “Hiring the Best” (Avon, Mass.: Adams Media Corp., 1997), lists the common mistakes that often result in a “bad hire.”

They include poor analysis of job functions, resulting in a cloudy vision of what the job entails and an incomplete (or nonexistent) written job description; inadequate initial screening of prospective employees; inadequate assessment of the prospective employee's personality, resulting in poor matching of employee with job skills; poor interviewing technique; superficial (or nonexistent) checking of references; and overselling of expectations regarding financial compensation and potential career advancement.

Therefore, Mr. Yate recommends, when a job vacancy occurs in your office, first reevaluate your written job description for that position. Does it meet your office's needs? Does it describe, accurately and in detail, exactly what you expect from the employee you will hire to perform that job? If not, revise it before you do anything else.

A good job description lists the major responsibilities of the position, with the relative importance of each duty and the critical knowledge, skills, and education level that are necessary to perform each function.

Once you have clearly defined the position you have available, take the time to find the best possible match for it. My longtime friend Jim Del Rosso, M.D., speaking at a practice management meeting last month, outlined the most important considerations (and the most common mistakes to avoid): Know what you are looking for, carefully screen your candidates, and avoid lowering your expectations—resist the temptation to settle for a marginal candidate or to hire someone you vaguely “like” and then try to mold the job to that person.

As Jim pointed out, the natural tendency is to “wing it”—to hire the candidate you have the “best feeling” about. Don't!

As every physician knows, hunches are no substitute for hard data. Know your job description and hiring criteria, carefully review resumes, check references, and conduct thorough but efficient interviews.

Be alert for resume red flags: significant time gaps between jobs; positions at companies no longer in business, or otherwise impossible to verify; job titles that don't make sense, given the applicant's history and qualifications.

Background checks are a dicey subject, but publicly available information can be found easily on Web sites such as knowx.com. (As always, I have no financial interest in any enterprise discussed in this column.)

Make sure applicants know you will be verifying facts in their resumes, and get their consent to do so.

Too many physicians skip the essential step of calling references. You'd be amazed what some old bosses really think of employees they write of so glowingly in their letters of recommendation.

Interviews often get short shrift as well. As Jim Del Rosso said, “The importance of quality interviewing cannot be overemphasized.”

“There is no such thing as a casual interview,” he added. “But it should be relaxed.”

Most of us tend to talk too much during an interview, when it is the candidate who should be talking. Jim suggests the “2-to-1 rule”: Listen twice as much as you talk. “Didn't your mother tell you,” he asked, “why we have two ears and only one mouth?”

Important interview topics include educational background, skills, relevant experience and training, and unrelated job history.

By law, some questions are forbidden during an employment interview. You cannot ask an applicant's age or date of birth. You cannot ask about gender, creed, color, religion, or national origin.

The subject of disabilities is a no-no, as is marital status, date or type of military discharge, number of children (or who cares for them), addiction history, citizenship, arrest record, psychiatric history, past absenteeism due to illness, or whether workmen's compensation has ever been collected.

There are, however, acceptable alternatives to some of these questions. You can't ask about marriage or maiden names, for example, but you can ask if an applicant has ever gone by another name for your background review. Instead of asking about citizenship, ask if applicants are legally authorized to work in the United States.

You can't ask if someone is disabled, but it is permissible to ask if he or she will be physically able to perform the job's essential functions. Past addictions are off-limits, but you do have a right to know about current addictions to illegal drugs.

Once you have made your decision, Jim Del Rosso says, practice fairness, not favoritism. Be objective, fair, and consistent.

Reward achievers and challenge slackers, but once you have made performance expectations clear, sit back and allow everyone an equal opportunity to succeed.

“The best executive,” Theodore Roosevelt once wrote, “is the one who has sense enough to pick good people to do what he [or she] wants done, and self-restraint enough to keep from meddling with them while they do it.”

I've often mentioned that poor and marginal employees are the single biggest efficiency killer in most medical practices. And it's far from a rare problem.

I get a lot of questions about poor employee performance—what constitutes it, how to deal with it, the steps one can take to minimize it. Very often, the best remedy is to prevent it entirely by hiring top-flight employees to begin with.

Good hiring techniques are yet another in a long line of basic business skills never taught to the vast majority of physicians.

Martin Yate, in “Hiring the Best” (Avon, Mass.: Adams Media Corp., 1997), lists the common mistakes that often result in a “bad hire.”

They include poor analysis of job functions, resulting in a cloudy vision of what the job entails and an incomplete (or nonexistent) written job description; inadequate initial screening of prospective employees; inadequate assessment of the prospective employee's personality, resulting in poor matching of employee with job skills; poor interviewing technique; superficial (or nonexistent) checking of references; and overselling of expectations regarding financial compensation and potential career advancement.

Therefore, Mr. Yate recommends, when a job vacancy occurs in your office, first reevaluate your written job description for that position. Does it meet your office's needs? Does it describe, accurately and in detail, exactly what you expect from the employee you will hire to perform that job? If not, revise it before you do anything else.

A good job description lists the major responsibilities of the position, with the relative importance of each duty and the critical knowledge, skills, and education level that are necessary to perform each function.

Once you have clearly defined the position you have available, take the time to find the best possible match for it. My longtime friend Jim Del Rosso, M.D., speaking at a practice management meeting last month, outlined the most important considerations (and the most common mistakes to avoid): Know what you are looking for, carefully screen your candidates, and avoid lowering your expectations—resist the temptation to settle for a marginal candidate or to hire someone you vaguely “like” and then try to mold the job to that person.

As Jim pointed out, the natural tendency is to “wing it”—to hire the candidate you have the “best feeling” about. Don't!

As every physician knows, hunches are no substitute for hard data. Know your job description and hiring criteria, carefully review resumes, check references, and conduct thorough but efficient interviews.

Be alert for resume red flags: significant time gaps between jobs; positions at companies no longer in business, or otherwise impossible to verify; job titles that don't make sense, given the applicant's history and qualifications.

Background checks are a dicey subject, but publicly available information can be found easily on Web sites such as knowx.com. (As always, I have no financial interest in any enterprise discussed in this column.)

Make sure applicants know you will be verifying facts in their resumes, and get their consent to do so.

Too many physicians skip the essential step of calling references. You'd be amazed what some old bosses really think of employees they write of so glowingly in their letters of recommendation.

Interviews often get short shrift as well. As Jim Del Rosso said, “The importance of quality interviewing cannot be overemphasized.”

“There is no such thing as a casual interview,” he added. “But it should be relaxed.”

Most of us tend to talk too much during an interview, when it is the candidate who should be talking. Jim suggests the “2-to-1 rule”: Listen twice as much as you talk. “Didn't your mother tell you,” he asked, “why we have two ears and only one mouth?”

Important interview topics include educational background, skills, relevant experience and training, and unrelated job history.

By law, some questions are forbidden during an employment interview. You cannot ask an applicant's age or date of birth. You cannot ask about gender, creed, color, religion, or national origin.

The subject of disabilities is a no-no, as is marital status, date or type of military discharge, number of children (or who cares for them), addiction history, citizenship, arrest record, psychiatric history, past absenteeism due to illness, or whether workmen's compensation has ever been collected.

There are, however, acceptable alternatives to some of these questions. You can't ask about marriage or maiden names, for example, but you can ask if an applicant has ever gone by another name for your background review. Instead of asking about citizenship, ask if applicants are legally authorized to work in the United States.

You can't ask if someone is disabled, but it is permissible to ask if he or she will be physically able to perform the job's essential functions. Past addictions are off-limits, but you do have a right to know about current addictions to illegal drugs.

Once you have made your decision, Jim Del Rosso says, practice fairness, not favoritism. Be objective, fair, and consistent.

Reward achievers and challenge slackers, but once you have made performance expectations clear, sit back and allow everyone an equal opportunity to succeed.

“The best executive,” Theodore Roosevelt once wrote, “is the one who has sense enough to pick good people to do what he [or she] wants done, and self-restraint enough to keep from meddling with them while they do it.”