Make Your Medical Practice More Healthy

“If you can’t measure it, you can’t manage it.”

This well-known quotation can be applied to the medical practice today as payer reimbursements and collections are falling. The best way to tackle this issue is to measure your financial data. By analyzing financial data in your practice management system over a period of time, you can identify areas that are doing well and areas that will need improvement. Focus on evaluating three areas of your practice: Processes and Procedures, Fee Analysis and Key Operating Indicators.

Processes and Procedures
By analyzing your gross and net collections, you can determine how effective the collections efforts are currently working. To figure out the gross collection rate, calculate the payments divided by the charges. This rate is measured by how high the charges are set above the negotiated rates. The net collection rate will summarize what percentage a practice is actually collecting after taking into account certain write-offs and discounts based on negotiated amounts. This will provide a way to benchmark for comparisons to industry net collection rates and determine the health of the collection efforts.

When it comes to the denial of claims, a strong follow up process is key. Recent studies indicate that 7% of all claims are never paid and 20% of claims are denied or delayed. Top denials are registration/eligibility, no prior authorization, coding/bundling, medical necessity, duplicate claims, additional information needed, untimely filing and coordination of benefits. Follow up on denials can help prevent future billing errors and prevent delayed payments. Running reports of denials occurring by a group, specific payer or by service code can help quantify and identify the reasons for the denial. Analyzing this report of denials that are occurring will help reduce denials, reduce A/R, reduce back office costs and improve overall cash flow.

Fee Analysis
The second area of your practice to evaluate involves reviewing the Explanation of Benefits Statements (EOBs) received by the practice from the insurance company. The goal is to determine whether charges for each service code are being fully allowed for reimbursement by third party payors. It will also help you to identify and reduce loss through negotiations of insurance contracts. In addition, by inspecting the EBOs, you will be able to verify if the practice is coding, filing charges and billing correctly as well as determine if personnel are competent and the receivable management process is working efficiently.

Key Operating Indicators
The third factor to review is your key operating indicators. Allocate costs to see what the procedures are costing. Quantify the cost to perform a particular procedure and determine if the proposed managed care fee schedule was fair. For each procedure code, a report can be complied to show the following:

• Billing, Collection and cost per Relative Value Units (RVU)
• Revenue and Cost Allocation
• Profit/Loss per RVU and per Year
• Break-Even Fees for Fixed and Fee-For Service Plans.

This report will help you to identify consistency levels for comparison of one procedure code to another and assess the collection rate to the expense rate. In addition, you will be able to recognize areas of profit and loss per procedure code, and–if properly tracked on a monthly or quarterly basis–the report can be used to measure current expenses with historical numbers, future goals, industry standards and costs surveys.

In conclusion, by measuring the effectiveness of the processes and procedures, fee analysis and key operating indicators, you will ultimately improve your bottom line. Consider incorporating these methods into your medical practice as it is key to determining the financial health of your business.

Linda Viles is a Certified Public Accountant who specializes in serving the medical industry. Contact her at (805) 963-7811 or lviles@bpw.com if you have any questions regarding this information.