subject: Use Your Medical Billing Software for Analysis: Does Your Billing Really Measure Up? Part II [print this page] Use Your Medical Billing Software for Analysis: Does Your Billing Really Measure Up? Part II
Assess your cash flow and profitability with a quick and easy analysis of your medical billing
Note: The first part of this useful article was published yesterday, andcovered how to pull data from financial reports and input it inthe "dashboard" tool (spreadsheet) provided. Part II below covers how to compare your results to industry benchmarks ("healthy" ranges) and identify practice trends and areas of opportunity.
Once you have pulled data from your financial reports or, ideally, from your medical billing software reporting function, input the data into the dashboard tool provided in yesterday's article. Then you are ready to evaluate practice trends and compare your results to industry benchmarks.
Step 3: Compare your medical billing results to industry benchmarks ("healthy" ranges)
Once your data is entered and calculated in the spreadsheet, it's time to review the trends and compare your information to "healthy" ranges. This is just the beginning of performance measurement. There may be times when your information exceeds the industry benchmarks (which is good), but they are trending downward (which may not be good). This scenario should draw your attention and make you want to understand why the numbers are not moving in the right direction.
If you just see you are within or above the "healthy" range, you may gain a false sense that performance is great. But what you might not see, for example, is that you were 10 percent above the benchmark at the beginning of the year and now (just a few months later) you are only 2 percent above that mark. Something is driving the change, and now that you have measured it, you can manage it. Certain points in time are important to measure, but comparing that information to a "healthy" range and identifying trends is equally critical.
Step 4: Identify practice trends and areas of opportunity
The next step is to look at trends to determine areas for opportunity. Below I've highlighted some key points for each category/calculation of data:
Charges: There are several factors that can impact charges. For example, if a provider takes time off or performs more general procedures (versus surgical procedures), charges may be less from one month to another. Not only does this impact the current month's charges but, perhaps more critical, also the next three months of collections and adjustments.
A practice's fee schedule also can impact charges and adjustments. Higher fee schedules may result in higher charges, but also higher adjustments, and not necessarily more in collections. If you have recently changed your fee schedule, the trend in charges and adjustments will correlate to that change.
Adjustments: It's essential to understand what your contractual adjustments are, and that they are posted accurately. Many billers simply adjust off any unpaid balanceyes, it happens more often than anyone wants to admitso the collection and A/R ratios look better. This issue is critical to cash flow. If a balance is adjusted off, no statements are sent and there is no follow up with the patient, carrier, or secondary insurance to get paid what the practice is entitled to collect. While adjusting off balances is easy for the biller, reducing their workload while making numbers look "good," it decreases your cash flow
Adjusted Charges: It's critical to know how much you legally are entitled to collect from your insurance carriers. Adjusted charges are calculated for you in the "dashboard" (Charges Adjustments = Adjusted Charges). If the adjustments are accurate, the practice knows exactly what they should collect. This is very important when looking at the net collection ratio.
Adjustment percentage: This is another calculation in the "dashboard" (Contractual adjustments / Charges). Remember, including fee for service charges will result in a lower percentage because you have higher charges with no adjustments. Knowing what percentage you typically adjust off helps you understand and manage adjustments. This also serves warning to your billing team that someone is looking, often the best way of encouraging people to do the right thing.
Collections: Knowing the historical trend and collections total is important but can be misleading if that's all you're looking at. I have worked with providers who were very proud to tell me their billing team is terrific, saying for example "our collections have increased 20 percent each quarter the last two years." However, when asked about net collection ratio or other metrics, they have no idea. I then find out, for example, they have added providers and are working more hours/days, thus increasing chargesbut not achieving collections commensurate with that additional activity. The point is, even though more money is coming, providers may be working harder, spending more money, and not doing as wellprofit-wiseas they think. And this doesn't even factor increased A/R balances, delayed claims, or timely filing issues due to staff's inability to "keep up" with the increased patient visits.
Net Collection Ratio: This tells you what percentage of adjusted charges (what you're legally entitled to collect) the practice actually collected. (Net collections / adjusted charges = net collection ratio). The typical (varies slightly depending on what source you reference) "healthy" range is 95- 97 percent. Keep in mind there is a "bad debt" or "write off" amount from patients that refuse to pay, which is typically 1-3 percent.
Accounts Receivable (A/R): I am often asked "How much A/R should we have?" As long as it is current (0-60 days), you don't need to be too concerned with A/R. The next ratio, A/R percentage of gross charges, is more important to consider.
A/R Percentage of Gross Charges: This takes your A/R total and divides it by that month's charges. The "healthy" range for A/R is 1.5 times your monthly charges (or 150% of your charges). Fee for service charges included in this calculation will cause the percentage to be lower.
A/R Days Sales Outstanding (DSO): A/R DSO measures how many days it takes to collect a dollar owed. The typical (varies) "healthy" range is 30-45 days. With electronic remittance advices (ERAs) becoming more prevalent, enabling practices to get paid faster, that range should be coming down. Higher A/R DSO may be a sign your staff is not getting out "clean" claims, they are not working denials, or your payers are taking longer to pay. Just another data point to give you an idea on how the billing process is going.
A/R 0-90 Days, 91-120 Days: Aging "buckets" show where your money is in the collection process. Obviously, it's more challenging to collect money beyond 90 days. If your older "buckets" are growing, it could mean your staff is not working the A/R or addressing specific payer issues. Regardless, older A/R requires your attention and a plan to change that trend.
Patients Entered, Collections Per Patient, Charges Per Patient These are simply data points to help you look into and address what may be causing downward trends.
Conclusion
Once you've completed steps 1-4 and have a clearer picture of trends, challenges, and opportunities, it's time to set goals and take action to improve your billing performance. It's equally critical to continue measuring on a monthly basis. Taking a few minutes each month to gather this key data, populating a spreadsheet, and comparing the output to "healthy" ranges will present a true picture on how your billing team is performingin terms of collecting what you're legally entitled to. Not only does measuring and managing your mission-critical billing create greater accountability within your practice, it typically will increase your revenue and cash flow. And after all, that's the bottom line.
