Many practices feel powerless when it comes to sustaining their practice revenue. Anecdotally, physicians will tell you that payer reimbursements are barely keeping pace with practice expenses and there are many new demands to contend with, such as high-deductible health plans, the new ICD-10 coding system, and pressure to meet new federal quality-care mandates. With such tight margins, small, independent medical practices can find themselves struggling to stay afloat.
But there are strategies that practices can implement to improve their operating margins. One important way to maximize revenue is accurate and timely financial reporting. According to practice management consultant Ken Hertz, principal with the Medical Group Management Association (MGMA) Healthcare Consulting Group, practices that don’t track their financial data are skirting a dangerous precipice. “You know the saying goes, ‘If you don’t track it, you can’t manage it,'” says Hertz. He points out as operating margins shrink, costs rise, and new regulatory requirements place a greater financial burden on practices, physicians must watch every penny. “It is absolutely imperative that practices operate as efficiently and as effectively as they ever did in the past,” he says.
So if you find yourself wondering how you will meet payroll next week, read on. There are relatively simple ways to track and analyze payer reimbursements and patient collections. We talked to financial experts and practice consultants to find out the best ways for practices to manage their revenue. Here’s what they said.
* Each year Physicians Practice polls physicians across the country on how much they are being paid for their services. If you’d like to know what your colleagues are being reimbursed by payers, check out our annual Fee Schedule Survey results.
THE REASONS BEHIND REPORTING
Regardless of the size of your practice, the sophistication of your practice management system, or even your decision to remain “on paper” and eschew digital records, every practice should track and report on its financial status. Reed Tinsley, a Houston-based CPA and practice management consultant, puts it simply. ” … The numbers don’t lie,” he says. “You can look at the metrics of a medical practice and see pretty clearly, this practice is doing pretty good, this practice is doing pretty average, and this practice needs a lot of improvement.”
Typically, in most practices, the practice manager or administrator takes on the responsibility for financial reporting. But ultimately the physician-owner is responsible for making sure it happens, says Hertz. In larger practices, there are more resources and staff members to help with administrative functions; taking much of the burden off physician shoulders. That’s why it is so important that smaller practices make an extra effort to ensure financial reporting happens on a regular basis and to discuss it with the physician.
“The problem I see in smaller medical practices is there’s not a forum created to discuss [revenue],” says Tinsley, “… for smaller, medium-sized practices there needs to be a monthly financial meeting. I mean every single month.” He advises practice administrators to create a formal meeting agenda for managing physicians and to place finances at the top of the list. Practices should be reviewing the profit and loss statement, comparing financial metrics such as collection percentages to national benchmarks and evaluating current practice financial performance against the previous year.
Benchmarking the practice’s performance against itself is important for several reasons. It is vital for practice sustainability to know if metrics such as new patient visits are growing or declining. Is your practice doing more procedures than last year? Are established patients remaining stable? What about referral patterns? If trending the numbers shows a decline in revenue or patients, Tinsley says the practice needs to investigate the problem immediately. Don’t let it wait until it is a much bigger problem and more difficult to fix.
Timeliness is especially important when dealing with payer reimbursements, says P.J. Cloud-Moulds, owner of California-based Turnaround Medical AR Recovery. “If you are not tracking this information, you are going to miss critical updates. If Medicare makes one change that starts cascading [throughout the practice’s revenue cycle] and all of a sudden the bank account starts decreasing … no one can go back and pinpoint what the actual reason was,” she says.
WHAT METRICS SHOULD YOU TRACK?
There are literally hundreds of metrics that a practice could report on. But it really depends on what is important to your practice. A better approach is to ask yourself what your practice really needs to know, says Cloud-Moulds, and then go in and pull just those numbers. At its simplest, you’ll want to know what charges are billed out, what revenue comes in from payer reimbursements and patient collections, and what is outstanding. “I think a lot of people get overwhelmed when they say, ‘I’m billing out $250 a charge, but I’m only getting $80, so my percent collection is really low,'” she says. But, if the payer’s contractual rate is much lower than the billed charge, calculating the collection percentage is not really reflective of reality, Cloud-Moulds points out.
Nicholas Greco, president of C3 Education and Research Inc., a biopharma consulting company, and practice manager for a solo, psychiatric practice based in Gurnee, Ill., says he too keeps it simple. His focus is on charges billed out, receivables, patient amounts owed, and trending collection percentages over time. Because a psychiatric practice is patient-visit based, he was able to forecast annual revenue for the owner based on the size of the patient panel. Over time the practice has seen a significant decline in payer reimbursement, along with difficulties collecting patient balances; prompting the difficult decision (at the time of this interview) to close the practice at the end of December 2015.
“The practice was profitable at one point,” Greco notes, “Unfortunately the insurance companies have financially shifted the burden onto patients. They are paying less money to us and putting more of the onus on the patients. And the patients can’t pay or don’t want to pay [us].” Greco notes that collecting money from patients, especially mentally ill patients, is difficult. Coupled with a 3-year decline in payer reimbursements, which Greco says had approached a 36 percent collection rate from insurance companies, the owner made the decision to close the practice at the end of the year and return to an employed status.
That’s why knowing your fee schedules and spot checking explanation of benefits (EOBs) and/or electronic remittance advice (ERAs) to see if payers are actually reimbursing your practice the agreed upon contractual amounts is vital, says Cloud-Moulds. She feels continuous training and review is key for billing personnel and one of the best ways to catch problems with inaccurate payer reimbursement.
Greco says it has been particularly frustrating dealing with payers who randomly change their fee schedule. “When we called up the insurance company they said, ‘Well, we pay … this is our rate.’ But one month it is $82.75 and another month it is $85.11 and then $79.50. There’s no rhyme or reason; same person, same service,” he says.
You can take that one step further, by tracking reimbursement for your practice’s top procedures and CPT codes by payer, says Hertz. He recommends taking the top 10 codes in terms of practice volume, and then tracking what your top three to five payers are reimbursing for those codes. You may identify one or two payers that reimburse poorly and make up a smaller portion of your patient panel. Hertz says smaller practices have less negotiating clout than large groups, but that doesn’t mean they can’t have a conversation with their payers.
Perhaps one of the most important metrics to follow is days in accounts receivable (A/R) broken down by aging buckets — 30 days; 60 days; 90 days; 120+ days. “From a revenue side, there’s certain things that you’ve got to know. You’ve got to know how quickly your payers are paying you. Because delayed payments play havoc with your cash flow cycle,” Hertz says. And now that many patients have high-deductible insurance plans and practices are collecting more from patients, you should track patient A/R in a separate report. Because it is much harder to collect on accounts that are over 90 days, that’s where your practice should focus its attention first. Hertz recommends running a report on the percentage of A/R greater than 90 days on a monthly basis and trending that information over a period of three to six months to gauge collection effectiveness.
WHAT TECHNOLOGY SHOULD YOU USE?
Technology can be a huge help when it comes to running a medical practice, but it does come at a price. Each practice must weigh the costs and benefits of adopting technology such as an EHR system, practice management system, or patient portal. Small practices that have not adopted an EHR and continue to use paper charts often will report and track financial trends using computer spreadsheets, like Excel. That is how Greco tracks his practice’s revenue. “Maybe in a bigger practice you would have that type of huge billing system and EHR. … [But] if you spend [a large amount] on a full or part-time practice by yourself, [and] you have malpractice, rent, and all this overhead, it is really expensive to [purchase a system],” he says.
If your practice does have an EHR and/or a practice management system, then you most likely have greater capabilities for data reporting. There are usually stock reports available that come preloaded with most systems, says Tinsley. And if reporting options are slim, he adds, any system that will allow the user to export data can be used for data mining.
Many practice management systems and EHRs “have more robust capabilities for reporting, for extracting data … and putting it into a format that an experienced practice administrator can manipulate and use to do analysis,” says Hertz. But given the large number of vendors and systems available, he says not all systems will interface with each other, so that data can flow in both directions. In that case, practices can work with their vendors to request specialized report modules or interfaces, but that would come at an additional cost.
A third, pricier option, Hertz says, would be working with an external vendor that markets business intelligence software. The vendor will come in to a practice and develop custom software for its EHR and PM system that maps itself to the fields in the EHR, so that data can be extracted and any number of custom reports can be generated.
This article originally appeared here.