Vigilance Pays Off in a Hurting Economy

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Management Essentials
By: Farrell "Toby" Tyson, M.D., F.A.C.S.
May 2010

Today, many practices are confronted with external challenges such as reduced fee schedules, relocating workforce and mandated practice changes. In the meantime, several internal challenges to the financial health of your practice also exist. Stealing, whether through fraud or outright theft, is one of the most insidious threats to a practice. As physicians, we want to believe in the basic morals of our employees, but that trust can be quickly betrayed — especially in a down economic climate.

Stealing comes in many shapes and sizes. It can be as simple as someone removing a frame from inventory and bringing it home or having cashpaying patients marked as no-shows or cancellations and pocketing the funds. Many of these forms of theft can be prevented or thwarted with basic financial controls. The real problems arise when there is collusion between vendors and staff.

Vendor-Staff Collusion

The retail side of any practice is ripe for this type of theft. One first needs to look for arrangements that lend themselves to "skimming." These arrangements are usually agreed-upon contractual relationships that your practice has with vendors. The vendors, in order to obtain a lucrative contract with the practice, will provide either "incentives" or "side deals" with the person negotiating on behalf of the practice. This can be quite common in the optical industry where the lens labs, optical supply and frame vendors will pay "incentives" to capture additional business. This can be very devastating to a business. What should be seen as a practice's discount on its cost of goods sold is now being used as "incentive." While these lost funds may be small at first, they can grow rapidly, especially when many practices are getting into the hearing aid business and large unit costs are in play. 

It is difficult for most practices to detect this type of theft because it usually occurs outside the practice and at a high level. A typical tipoff to this type of theft is when a staff member becomes overly protective of a certain vendor. This is usually exposed when you try to re-bid contracts or change vendors. It is good policy to put out your contracts to a new set of vendors regularly. This will ensure that any irregularities stand out. Having an itemized budget also helps to identify any changes in trends or outliers in practice spending.

Bartering and Stealing

Another form of theft is the bartering of services. Employed physicians and opticians usually accomplish this by performing after-hours or undocumented patient care in exchange for services or funds on the outside. Bartering of services may be as simple as doing contact lenses when the business is closed or, at the other end of the spectrum, having your optician actually order and produce lens jobs on your account and time for competing optical shops.

Stealing in the accounts receivable part of your practice can result in a significant loss of revenue. The advent of direct deposit has only heightened the danger. Many insurance companies now pay via direct deposit, which only requires a form to be filled out designating the account. Diversion of payments to a "dummy" account with the explanation of benefits and payment details diverted to a separate PO box can easily be accomplished when only one person is in charge of posting payments and managed-care contracting. Separation of duties with checks and balances can help prevent this form of embezzlement.

While these are only a few examples of stealing that one might encounter, there are more and more ingenious methods being thought up every day. In order to help prevent this type of loss, a physician-owner has to be ever vigilant and circumspect. We must learn to trust but verify and put in place financial controls. Just asking questions and showing interest in your business will help dissuade theft, as your employees will never fully know what you know or don't know.

Reprinted with permission from Ophthalmology Management May 2010