Looking For Revenue Leaks With An Internal Practice Review
I find that many physicians we consult with are running the business aspects of their practice much like they did seven to ten years ago. That was before the days of "discounted fee for service" and when the word "capitation" was not a medical term. Medical practitioners today must develop the business side of their practices to keep pace with the changing healthcare environment. To determine how your practice measures up to other offices, consider having your administrator or office manager perform an internal practice review.
One of the purposes of an internal practice review is to pinpoint weaknesses in your practice and propose solutions to them. You should know for sure that you are capturing and collecting all of the practice revenues and minimizing expenditures. Here are the factors to examine first in the process of improving your bottom line.
Financial Statement Overview: One of the very basics of the business office should be to prepare a monthly financial statement for the practice. It is general practice for the financial statement to be based on the cash basis of accounting. This means that you record revenue as it is collected and expenses as they are paid.
Start by looking at expenses (not including physicians' salaries) as a percentage of collected revenue. The "Medical Group Management Association" provides many valuable resources to assist in the analysis of your practice. Compare your practice to the statistics published in the MGMA "Cost Survey". The survey also provides specific information regarding average FTE's, rental square footage and A/R statistics.
For example, the survey indicates that in a typical OBGYN practice the operating expenses should be 48% of the collected billings. Accordingly, this means that the physician salaries should be 52% of all collections. If your practice expenses are in excess of the 48%, it deserves your attention to determine why.
Collection Ratio: This is the most all encompassing benchmark on the revenue side of your practice. In general the collection ratio is determined by dividing collections by gross revenue plus contractual adjustments. The "Cost Survey" indicates that this percentage should be 97%. In fact, I see very few practices that get anywhere close to this benchmark. If you can maintain a ratio of 92%-95%, your practice will do well.
Number of Months in A/R: This benchmark will also give you a good indication of your collection efforts. This ratio is calculated by dividing your total outstanding accounts receivable by your average gross billings, per month. This ratio for the OBGYN practices should be about 2.55 months.
As you look at the total A/R, be cognizant of the percentage of total accounts receivable in the various aging categories. The following percentages are considered average:
0-30 days--45
31-60 days--18
61-90 days--10
91-120 days--07
Over 120 days--20Document Flow: To isolate any breakdowns in the system, walk through the process of your document flow from the time a patient is scheduled to the final resolution of the charge. Consider the people involved and their longevity with the practice in addition to the documents generated. Note how current and appropriate your superbill is. This is a must! After reviewing the way that you record charges for office visits, look at the documents used to capture charges for hospital visits and surgical charges. If there is not a systematic process for you to check off CPT codes and ICD-9 codes, you're probably losing revenue.
The Devil is in the Details: Finally, take a test sample of days and trace the billing documents for patients from their initial charge to ultimate collection. I bet your findings will surprise you. They will also tell you where to close gaps and reinforce internal controls.
The above analysis will assist you in determining where to place your priorities in bringing the business side of your practice up to speed with your clinical side. For more insight into practice management strategies, visit http://www.texcpa.com.
Dale Cooper is president of Texas-based Cooper Graci & Company, a Texas Medical Association endorsed consulting firm that provides medical practice management services.