Cash Management


As the new administrator of the Miami Medical Group, I am tasked with the promulgation of a new cash management system for the Group.  There are two main principles underpinning the new group.  First, there is a group of older doctors that prefer a cash payout (dividend) at the end of each year.  There is also a group of newer doctors that wants a more conservative approach to financial management: They prefer to have more money left in the bank rather than a full payout at the end of each fiscal year.

Case Analysis

The main factors to balance in a cash management plan are the need to pay out a portion, while at the same time living a portion in the bank.  There are numerous structural factors militating against a larger payout for doctors.  One of the biggest operational challenges will be implementing the switch away from a fee-for-service (which is guaranteed revenue) to one that is either partially capitated or fully capitated- this will introduce greater volatility for cash flows, particularly on an annual basis.  In addition, there is increasing scrutiny on larger pay outs to doctors both at the individual and the group level.  Finally, the Affordable Care Act will be fully implemented in 2014 that, on top of the other factors mentioned, will add greater uncertainty to the long-term liquidity and operational cash flow.  The younger doctors in the group, however, have asked for a more conservative cash management structure that will minimize payouts and ensure the long-term financial stability of the organization.  The following cash management plan attempts to balance these concerns in order to come up with the ideal management structure.

Currently, the Group occupies a 15,000 square foot building.  This building is responsible for a majority of the physicians and the ancillary services.  The group also operates a 35,000 square feet for a practice geographically dispersed throughout Miami’s various ethnic communities.  The Group generates a total of $8.67 million a year in revenue with 69% dedicated to operating overhead.

With these financial metrics, the first step is to separate which amount of funds will be dedicated to operating expenses versus other expenses. With total annual revenues to $8.67 million annually, roughly $6 million dollars will thus be spent and unavailable for long-term investment.  Without monthly expense figures, it is impossible to know what amount can be put in say short-term cash management accounts that pay a nominal amount of interest.  At the end of the year, however, there should be roughly $2.67 million left over for disbursement.

According to the current plan, 20% of this total amount (roughly $520,000) will be distributed to doctors for performance bonuses.  This amount cannot be clawed back.  However, due to the advent of accountable care practices, the hospital will also distribute “performance” bonuses on an annual basis for those that are affiliated with accountable care.  The catch will be: depending on the length of the contract, that amount may be clawed back if they ultimately fail under the performance contract.  The remaining amount will put in a long-term investment account based on the level and amount of risk that the board is ultimately comfortable with.

Overall, this new cash management system meets the requirements of the younger doctors and the board. Due to systematic changes in how the practice works, there will need to be more cash on hand rather than distributed to doctors.  The remaining level of cash can be invested for the long-term in order to ensure that there is a cash operating cushion for the Group when it needs to use it.


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Fierce Biohealthcare. (2012).  Cash management in the new era.  Available at:

ACO News. (2012). ACOs and cash management.