SOLVE THE MEDICAL GROUP PROFITABILITY PUZZLE: TRACK THE METRICS THAT MATTER TRACK THE METRICS THAT MATTER Shifting reimbursement models, ballooning regulations, and rising costs are putting the squeeze on growth-oriented medical groups. While it doesn’t take Sherlock Holmes to solve the mystery of the disappearing profit margin, a proverbial magnifying glass can help unearth ways to capture every possible dollar of revenue in order to shore up a practice’s operational and financial health. The key to sleuthing out profitability lies in implementing an effective approach to analytics. Key Performance Indicators (KPIs) provide clues to shortcomings in processes that in turn allow revenue to slip away. Investing time to regularly review robust analytics that bring deficiencies to light creates opportunities to improve a practice’s performance. “...BETWEEN FIVE AND TEN PERCENT OF REVENUE SLIPS AWAY LIKE A BURGLAR INTO THE NIGHT.” It’s common for a medical group to leak money; typically, between five and ten percent of revenue slips away like a burglar into the night. A decade ago, the lost funds might not have been missed, but today’s slimmer profit margins make every collectible dollar count. 2 © 2016 CareCloud. All Rights Reserved. TRACK THE METRICS THAT MATTER REVENUE LOSS SUSPECTS A line-up of the suspects for the five to ten percent revenue loss experienced by most medical groups might look like this: · Poor denial management · High levels of aged accounts receivable or deficient bad debt write-off policies · Poor processes and workflows · Underpayments A variety of factors can contribute to leaving money behind, but a common underlying culprit is the failure of management to consistently measure Key Performance Indicators, which are metrics that reveal clues about revenue cycle management processes. Tracking these numbers and pinpointing related trends can inform decisions about everything from staffing and operations to vendors and information technology. 3 © 2016 CareCloud. All Rights Reserved. TRACK THE METRICS THAT MATTER KPIS DELIVER EVIDENCE ABOUT RCM PROCESSES Medical groups that can access these eight revenue cycle management KPIs have the evidence they need to slow or stop revenue’s vanishing act and recover the money they’ve earned: TOTAL ACCOUNTS RECEIVABLE AGED 120+ DAYS PATIENT ACCOUNTS RECEIVABLE AGED 120+ DAYS TOTAL NUMBER OF DAYS IN ACCOUNTS RECEIVABLE GROSS COLLECTION RATE REVENUE REALIZATION RATE TRUE NET COLLECTION RATE AVERAGE REIMBURSEMENT PER ENCOUNTER FIRST PASS DENIAL RATES AND RESOLUTION RATES Although practices often don’t have ready access to data or dashboards that provide at-a-glance KPIs, it’s possible to extrapolate the critical numbers and tie them to benchmarks for evidence-based decisions. In the absence of accurate KPIs, medical groups remain in the dark about which processes and procedures to optimize in order to add to the bottom line. 4 © 2016 CareCloud. All Rights Reserved. TRACK THE METRICS THAT MATTER CLUE INTO AGING ACCOUNTS RECEIVABLE Typically, accounts receivable are grouped according to age: 30 days, 60 days, 90 days, and 120+ days. The crucial KPI in accounts receivable aging is the amount at 120 days or older. Overall, less than 25 percent of accounts receivable should be older than 120 days; ideally, that percentage should drop to 10-15 percent, depending on the group’s specialty. “THE GOAL IS TO HAVE ALL CLAIMS ADJUDICATED, PAID, AND PURSUED WITHIN 90 DAYS.” But the numbers themselves only tell part of the story. Drill down to reveal whether the oldest accounts receivable are due from payers or from patients. If they’re primarily from payers, it could indicate ineffective follow-up procedures or problems getting clean claims to this payer. According to the Medical Group Management Association (MGMA), fully a quarter of denial and no-response claims are never paid, yet it’s possible to recoup that money through meticulous follow-through. The goal is to have all claims adjudicated, paid, and pursued within 90 days. If the aging accounts receivable are largely patient collectibles, it could be time to put other procedures under the magnifying glass. Properly collecting co-pays and amounts applied to deductibles, conducting eligibility verifications, and submitting pre-authorizations can lower receivables. It’s important to note that the odds of collecting 90 to 120-day patient receivables is 30 percent, and plummets to 21 percent when receivables reach 120+ days. In other words, that delay translates to lost money. 5 © 2016 CareCloud. All Rights Reserved. TRACK THE METRICS THAT MATTER INVESTIGATE NUMBER OF DAYS IN ACCOUNTS RECEIVABLE Knowing the number of days it takes for payments to reach a medical group is a critical KPI – one that can be used to identify slower payers or discover gaps in revenue cycle management processes in order to generate faster payments and mitigate the risk of non-payment. The number of days in accounts receivable can be calculated by taking total receivables and subtracting credits owed by the practice to others. Next, divide the total gross charges for the past year by 365 days to obtain the daily charge amount. Finally, divide the receivables less credits by the daily charge amount. While different specialties have varying benchmarks, a general target is for accounts receivable to stay below 50 days. An optimally healthy practice keeps accounts receivable at 30 to 35 days. It should be noted, however, that this KPI shouldn’t be considered in a vacuum. For example, a medical group that has an aggressive policy about writing off debt when it reaches 60 days will have an enviable KPI, but a closer look will reveal that the practice is opting to turn its back on collectible revenue. NUMBER OF DAYS IN ACCOUNTS RECEIVABLE FORMULA TOTAL RECEIVABLES - CREDITS OWED = RECEIVABLES LESS CREDITS TOTAL GROSS CHARGES TO DATE / 365 = DAILY CHARGE AMOUNT RECEIVABLES LESS CREDITS / DAILY CHARGE AMOUNT = NUMBER OF DAYS IN ACCOUNTS RECEIVABLE 6 © 2016 CareCloud. All Rights Reserved. TRACK THE METRICS THAT MATTER SCRUTINIZE REIMBURSEMENT RATES The number of days in accounts receivable is an important KPI, but the overall financial health of a medical group can be determined only by examining multiple KPIs. Three reimbursement rate KPIs drawn from 12 months of data going back at least 90 days offer important windows into profitability. The first, namely the gross collection rate (GCR), is calculated by dividing payments by charges. Each specialty has a benchmark, and significant variances likely are a reflection of issues with fee schedules. For example, if a GCR is 75 percent, the fee schedule is likely low, while a GCR of 25 percent can indicate that fees are too high. Generally speaking, the goal is consistency. A month-to-month GCR that varies by a point over the course of 12 months is ideal, whereas peaks and valleys of 10 or more points are troublesome. The second KPI to review is the revenue realization rate (RRR), which is the percentage of charges that were collected or written off. This rate is calculated by adding payments and adjustments, and then dividing that number by charges. While the goal is to have an RRR of 97 or 98 percent, it is meaningless without also knowing the net collection rate (NCR), which reveals what is collected versus what could have been collected. In the absence of the NCR, a high RRR could result from timely billing, claim adjudication, and collection practices – or from simply writing off claim denials and uncollected patient balances. The NCR is calculated by dividing payments by charges less contractual adjustments. By only including contractual adjustments – as opposed to charge-offs – a resulting high number reflects exemplary billing, claim adjudication, and collection processes. In contrast, a low number is evidence that one or more systems are faulty. Perhaps the medical group is not following up on claims or billing in a timely manner. It could be that, following claim adjudication, patient balances are slipping through the cracks. Or it’s possible that money – from a variety of sources – is simply not being collected. A fourth reimbursement KPI, the average reimbursement per encounter, can provide practices with high-level intelligence on business performance. Per-encounter averages should be benchmarked by specialty and seen in a historical context. Trends – whether positive or negative – will come to light. For example, a downward trend can signal the need to diversify the group’s practice or payer mix, to assess evaluation and management code utilization, to modify collection procedures, or to review fee schedules. Steps taken as a result of the average reimbursement per encounter KPI can ensure that the medical group stays on the path of profitability. 7 © 2016 CareCloud. All Rights Reserved. TRACK THE METRICS THAT MATTER KEY IN ON RESOLVE RATES Unresolved claims can become a morass of conflicting information and a sinkhole of staff time. The first pass resolve rate KPI measures the percentage of claims that are either paid or transferred to the patient on their initial submission. This KPI can be determined by dividing the total claims submitted during the first pass by the total claims paid. The denial rate is the percentage of claims that require reworking. The targeted first pass resolve rate is at least 95 percent. A lower number should trigger a review of the reasons and categories that claims are being denied. The unexpected claim denial KPI should be less than four percent. If the rate surpasses four percent, it can signal problems in several spheres, including eligibility verification, authorizations, coding, and enrollment or credentialing. This also becomes a critical juncture to review personnel and processes involved in delinquent claim follow-up and checking for underpayments. MGMA notes that fully a quarter of denials are never paid, and that it costs an average of $49 per claim to work on a denial. In other words, it pays for a practice to both track first pass resolve rates and to invest in procedures to ensure that rate is as close to 100 percent as possible. 8 © 2016 CareCloud. All Rights Reserved. TRACK THE METRICS THAT MATTER MINING THE DATA While practice management software should provide all of the KPIs needed to navigate paths to profitability – ideally within an intuitive dashboard – most legacy systems fail to do so. When that’s the case, there are workarounds. For example, by exporting a transaction summary into Excel and inputting formulas for the GCR, RRR, and NCR, it’s possible to generate reimbursement rate metrics. The bottom line is that medical groups should prioritize sleuthing out the data needed to calculate Key Performance Indicators that enable gathering every collectible dollar and rediscovering lost profit margins. ABOUT THE AUTHOR PATTI PEETS Director of Revenue Cycle Management at CareCloud Patti Peets is an expert in revenue cycle management (RCM) with more than 20 years of experience working closely with medical practices to help them improve business processes and results. In addition to working for industry-leading RCM companies, she founded and ran a company for 12 years focused on RCM services for medical practices across the Southeast. 9 © 2016 CareCloud. All Rights Reserved. COMMAND CENTER INSTANT INSIGHTS TO OPTIMIZE PRACTICE PERFORMANCE CareCloud Command Center is an intuitive practice scorecard that puts your key performance indicators (KPIs) at your fingertips, so you can keep a close pulse on your business and take greater control over results. Command Center displays the metrics that matter most to you in a clear, consumable format, so you get the visibility you need – effortlessly. KEEP A CONSTANT PULSE ON PRACTICE PERFORMANCE GAIN GREATER CONTROL OVER FINANCIAL AND OPERATIONAL RESULTS GET QUICK ANSWERS TO QUESTIONS ABOUT YOUR BUSINESS CareCloud is the leading provider of cloud-based revenue cycle management, practice management (PM), electronic health record (EHR) and patient engagement solutions for high-performance medical groups. 1-877-342-7517 ● hello@carecloud.com ● www.carecloud.com
