Assess your cash flow and profitability with a quick and easy analysis of your medical billing
Note: The first part of this useful article will cover how to pull data from financial reports and input it in the “dashboard” tool (spreadsheet) provided. Part II will cover how to compare your results to industry benchmarks (“healthy” ranges) and identify practice trends and areas of opportunity.
One of my favorite quotes is, “You can’t manage what you don’t measure.” It started for us as kids in school, when our work was managed by our teachers using the traditional grading system (“A” = good; “F”= not so good). In business, and specifically for medical practices, your “report card” consists of many areas that impact the cash flow and profitability of your business.
This article discusses how to accurately measure your medical billing performance and provides steps to perform your own analysis—with an easy-to-use “dashboard” tool that incorporates industry benchmarks or “healthy” ranges.
The Importance of Medical Billing—and Revenue—Performance
While it’s fairly easy to determine your profitability (revenue minus expenses equals profit), it’s critical—and more difficult—to measure your medical billing performance, which directly correlates to the revenue line. You and your administrator(s) may look at provider productivity (patient appointments and charges) as one metric; however, that does not tell the whole story.
Collections are a key part of the equation. This is the metric that tells you whether or not you are being paid successfully for your services. Specifically, your collections provide an indication whether charges are being billed correctly, being processed by payers, and being paid in a timely manner. This directly impacts the revenue factor in the profitability formula above. Unfortunately, the collections that your billing team is responsible for often go unmeasured, leaving you without a clear picture of how well you’re really doing in terms of cash flow and profitability.
Whether you outsource your medical billing or manage it in-house, it’s imperative to measure the performance of the team responsible on a monthly basis. But how do you accomplish that if you don’t quite understand the billing process or don’t have the time to dig through data and reports trying to figure out what’s working or not? Waiting until your cash flow is down is not the time to begin measuring and managing the medical billing team. It should be a proactive, monthly exercise that takes minutes—not hours or days.
Many in-house managers do not have billing experience, and those who do are often too distracted by daily “fires” to closely monitor billing performance. Even some outsourced billing companies don’t know what or how to measure, or in some cases they simply don’t want you to know—the reverse effect of “You can’t manage what you don’t measure.”
When you inquire about the status of your billing, you may hear “Billing is going well,” or “Collections are up.” Or perhaps you’re told of a Medicare issue or system glitch that has impacted claims processing and collections. These are surface comments and issues that can redirect your attention and provide a false sense of security around your cash flow and health of your business. In truth, many managers often don’t know the right questions to ask or reports to review in order to fully understand and measure billing performance. Or they simply don’t make the time around other “priorities.”
How Do You Measure Medical Billing Performance?
Throughout my 12 years consulting with medical practices, I have specifically focused on billing analyses. My presentations at national and regional meetings in recent years have focused often on financial analysis, benchmarking and measuring performance. I’d like to share with you my proven methodology and steps for completing your own analysis—in just minutes—which will provide a general sense of how your medical billing performance measures up.
The specific steps include:
- Pull data from financial reports
- Input data into “dashboard” tool (spreadsheet)
- Compare your results to industry benchmarks (“healthy” ranges)
- Identify practice trends and areas of opportunity
Below I will outline the first two steps; tomorrow I’ll walk you through the analysis process, and discuss the key data you should be looking at.
Step 1: Pull Data from Financial Reports
Many practices fail to get past steps 1 and 2 because they don’t know what data to pull. The basic information you need to analyze your billing performance includes:
- Adjustments (contractual)
- Total accounts receivable (A/R) balance
- Accounts receivable (A/R) aging analysis (0-30 days, 31-60 days, 61-90 days, 91-120 days, and 120+ days)
- Patient encounters
When gathering this data from your reports, there are a few important factors to consider:
- Time Period: Your data for each of the items above must be for the same time period, ideally for a 12-month period, which helps identify trends or patterns. Oftentimes, I have received reports reflecting different time periods and even incomplete months, which makes the analysis process much more difficult. Reviewing a single month (which can be good or bad based on practice variables) is not nearly as enlightening as reviewing a quarterly or annual time period.
- Accurate Data: Make sure data being pulled is accurate. I recently received a practice’s information that was not consistent from one report to another. For example, the A/R Report stated there was $230,000 in outstanding A/R, while the Production Report listed $1,300,000 in A/R. Obviously, this huge discrepancy indicates something wrong—either with the report pulled or the included data. Pay close attention to accuracy of the data you pull. It should be straight forward and consistent.
- Clinical vs. Cosmetic Data: It’s highly recommended to separate your clinical (insurance reimbursed) data from your “fee for service” data. This enables you to review the data separately, as well as combined (total practice). It’s important to know that “fee for service”-related data will have an impact on certain ratios and calculations, since there are no adjustments associated with those charges and payment is typically collected at time of service (e.g., no A/R balances). Some industry benchmarks report data with fee for service and others so be aware these variances will impact the ratios because those numbers vary significantly.
Most practice management systems today have production or practice performance reports that will have most of the above information (charges, adjustments, collections, A/R, encounters). I typically review the last page of a report and pull the monthly totals for the 12-month period for each category. The drill-down detail is helpful once you have identified a trend or “red flag,” but not needed for the initial analysis. Also, most A/R aging analysis reports will have the A/R balance and the “buckets” or number of days the balance is spread across.
Step 2: Input data into “dashboard” tool (spreadsheet)
Once you have that “raw” data, you need some sort of analytical tool to make sense of the information—that is, bring the numbers to life and tell your practice’s story. I typically provide my presentation attendees with a tool I’ve created—called the “dashboard—which they can take back to their practices and utilize immediately. This “dashboard” is a spreadsheet that allows you to input your data and then calculates ratios into an easy-to-read format that can be shared with your owners, supervisors and billing staff.
Note: This fully functional tool is available at http://www.aesyntix.com/resources/ (click on “Billing Sample Dashboard – Spreadsheet”). Feel free to download the spreadsheet and customize as needed. This is just one tool for a quick analysis, and you may want to create your own or customize this template. There also is an accompanying presentation (titled “How To Read Financials & Benchmarks”) that you can preview.
In the spreadsheet, input your data into the green cells only. The blue, grey and purple cells have preloaded formulas that automatically calculate averages and ratios to help you measure your billing performance.
Part II will cover how to compare your results to industry benchmarks (“healthy” ranges) and identify practice trends and areas of opportunity.
Thom Schildmeyer, MBA, is President of Aesyntix Health, Inc., a medical billing service based in Roseville, CA.