Timely and relevant information is essential to staying on top of your finances. Whether you are an employed physician or own your practice, there are four simple things you should look at every month to ensure that your practice is running effectively. If your computer system cannot not readily provide you with the listed information, you need to find ways to get it. There are economical solutions available to readily extract and review your financial data, so if your practice management system vendor can’t help, look to add on a solution that will give you visibility into your financial data and allow for improvement over time.
1. Track Your Charges
Since charges are what drive practice revenue, you should keep a close eye on charges month-to-month. Any decrease in the average amount of charges from one month to the next should be investigated to look for issues such as a slow down in posting out procedures and visits at the billing office, decreased physician productivity, decreased volume of patients, and so on, adjusted for seasonal variation. By tracking this information on a monthly basis, you can at least get out in front of unexpected dips in revenue before a cash crunch is inevitable. See charges as the indicator for assessing the health of clinician productivity and patient volume.
2. Track Your Revenue
Each month, you should receive a detailed report by payor showing the total revenue collected for the prior period. Tracking revenue allows you to see not only how your cash flow is trending but to identify any problem areas that you need to tackle fast. If charges are steady but payments are declining, look carefully at the following areas:
- Operational issues impacting payments such being short-handed in the billing department for posting payments and following up on collections
- Changes to your Payer Mix, whereby a poor paying plan is accounting for a higher percentage of your volume and may need to be slowed down
- Changes in payment rates from a plan or two. Payers reduce fee schedules all the time, this time it may have been your specialty that got hit.
- Changes in payment policies, such as bundling of services or reductions in multiple codes billed on the same day
- Changes to Plan Mix, whereby patients may be moving to higher deductible plans within a given Payer and more and more of the expected payment for services now needs to be billed to the patient
3. Review ALL Denials and Adjustments
Ever wonder why some of your claims don’t get paid? Payers (or Managed Care Organizations known as MCOs) do a really good job of telling you why they don’t want to pay for a claim. For every claim submitted, your practice receives a detailed ‘Explanation of Benefits’ (EOB) or Electronic Remittance Advice (ERA) explaining by code why you will not get paid what you expect. You will find policy changes showing up there, such as new bundling rules being applied, but there are also frequent errors made by the plans that should not be allowed to result in unpaid claims to you. So make sure you understand why there is a change, and challenge or appeal all denials. You’ll be surprised how often the Payers make mistakes and end up paying claims upon appeal.
4. Calculate the Ratios
Now that you have these three key pieces of information, you can use them to much more effectively monitor the financial health of your practice under the following KPIs:
- Gross Collections – This shows total collections compared to the revenue you are generating. This should be tracked monthly, quarterly and annually for each Payer.
- Net Collections – This shows total collections compared to expected rates from Payers. While a practice may charge $300 for a series of CPT codes, you are likely contracted to collect $210 when you add up the combined allowables for the billed CPT codes. As such, many practices use the Net Collection Ratio to examine the amount of payments compared to the negotiated rates.
- Charges per Encounter – This shows the average gross charges per patient encounter. The use of this ratio is twofold: to monitor provider production and to estimate future gross charges to be used for budgeting and forecasting.
- Revenue per Encounter – This shows the average revenue per patient encounter and is also used to monitor provider production and to estimate future revenue.
Establishing ways to consistently pull and analyze this data on a routine basis will help to avoid potential cash flow challenges and ensure that you get out in front of any hazards that can impact your revenues down the line.