Better financial controls put muscle into practice
Better financial controls put muscle into practice
Here are the key numbers to look at
A key component of any profitable practice is controlling expenses and making best use of staff and ancillary services, says Rebecca Anwar, a Philadelphia-based health consultant with the Sage Group. "The first step in maintaining financial control is to constantly analyze four areas of your practice financial operations: collection ratio, total accounts receivable, procedure production and revenue, and income and expense [reports]."
• Collection ratio. If your collection ratio for the past three months is below 90% after contractual adjustments, that is a good indicator your billing system is not working.
"The key to having an outstanding collections ratio is to hold your staff accountable and educate them about the importance of collecting accurate patient data and coding correctly," stresses Sage consultant Judy Capko of Philadelphia. For example, be sure to have your receptionist check to see that each patient’s insurance status is up to date, and that the copay is collected upfront.
• Total accounts receivable. Ideally, this should be no more than two to three times your monthly charges. For example, if your group practice monthly charges amount to $200,000, your total accounts receivable should be no
more than $600,000.
One reason practices sometimes see a sudden increase in outstanding charges or accounts receivable is that they send in a batch of incorrectly filled-out claims that payers refuse to honor. Or, a major payer may be having financial problems and just holding payments until pressed for the check.
Determining what’s profitable
• Procedure production and revenue. By examining several months of charges by procedure you learn where most of your charges are being initiated. "You can also determine which third-party payers are accounting for most of your charges and which procedures are the
most profitable this way," says Anwar.
Another important exercise is to analyze charges and services generated by individual physicians in the group to identify if the services performed by specific providers are consistent with practice standards, or if there any inequities in services or charges by different providers.
• Income and expense reports. These reports should be examined monthly to detect any un-planned changes in practice patterns. "If you spot a red flag, look at the itemization of expenses in that category. Then, when you find what’s causing the increase, address it immediately," stresses Anwar.
For instance, when overhead is constantly rising, one of the first places to look is personnel expenses. Some questions to ask: Has there been an increase in staff overtime; have employees been added; too many raises been given out; or is the part-time staff increasing their hours?
"Before you make any drastic changes, find out if these higher personnel costs are being justified by increased production," Anwar advises.
A common problem area for practices with financial problems is they are not using their resources — staff and equipment — wisely. For example, a group buys a sophisticated computer system, but only uses 30% of its capabilities. One way to avoid overspending is to analyze whether such purchases will increase revenue or productivity — and by how much — and if any increases go beyond the break-even point justifying the expenditure.
Another common oversight is to either undercalculate the cost of training or fail to provide enough training for new computer programs and equipment. "Remember, proper training pays off in improved efficiency which permits staffers to be more productive which lowers costs," notes Capko.
Another way to increase efficiency is to compare what percentage of your patient base belongs to which payers and how much time your staff must spend on related paperwork and administrative issues with each insurer.
"If you discover only 10% of your patients belong to Insurer A, yet their paperwork and red tape eats up 40% of your staff time, you may want to re-evaluate if it is worth your time and effort to keep doing business with that plan," says Capko.
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