Cash flow KPIs

Answers in Practice

Rachna Chaudhari

Rachna Chaudhari is the AAD's practice management manager. Her column offers tips in response to common member questions.

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Key performance indicators of a practice’s financial health, defined

Every dermatology practice deals with revenue cycle issues on a regular basis. Whether you are handling patient co-pays, claim forms, or cosmetic payments, your practice needs to be vigilant when handling the complexities of cash flow in a medical practice environment. There are many aspects to cash flow in a practice. Keeping an eye on trends in the following key performance indicators will help you determine your practice’s performance in this regard.

Adjusted collection ratio

This ratio is the amount of cash you receive into your practice divided by your net charges (allowables). Thus, the amount of money you are collecting compared to what you are owed. This is a more accurate and meaningful indicator of your practice’s collection rate compared to a gross collection rate, which simply measures the amount of cash your practice brings in divided by your charges. If you are charging close to your negotiated fee rate, this rate will be close to 100 percent but it won’t tell you if you are actually receiving the money that is owed to you. For example, if you are billing $100 for a visit and receive $95, your gross collection rate would be 95 percent. However, if your negotiated fee schedule allows you to bill $110 for the visit, your adjusted collection ratio would drop to 86 percent which would show that your practice is not collecting the full contracted amount owed to it. You should determine your practice’s ratio and try to increase it to as close to 100 percent as possible. If you are not meeting close to this percentage, you should re-evaluate your payer contracts to ensure you are collecting the correct rates.

Clean claims

This indicator measures the percentage of claims denied on their first submission. Your practice should be working to minimize this percentage as it costs more to submit and appeal one claim multiple times. You want your denial rate to stay under 5 percent as an industry standard. If your denial rate is greater than this percentage, you should investigate automated processes that could deliver cleaner claims such as insuring your practice management system (PMS) is abiding by the latest administrative simplification standards and that you are using an electronic claims processing tool. Additionally, your coding and billing staff should stay up to date with coding education and an internal process should be created to catch mistakes on claims before they are filed. However, if you find that your practice is preparing accurate claims and being unfairly denied, you should review either the explanation of benefits (EOB) or the electronic remittance advices (ERA) accompanying each claim payment or denial from the insurer. This form should contain various codes and rationales explaining why the claim was either denied or adjusted. The AMA offers a free lookup tool for these codes. The billing staff should use this tool to look up the codes and determine exactly why a claim was not paid at the full rate or denied. If an error on the part of the insurer is found, appeal the claim. Read more for assistance with appealing claims. [pagebreak]

Patient collection

In order to maximize collection of co-pays, deductibles, and other forms of payment from patients, it is imperative that you determine what is owed before they leave your office. The opportunity to collect payment during the visit is extremely important. Front desk staff should be aware of each patient’s co-payment responsibility as well as their deductible and/or co-insurance and collect this once the patient arrives. Offer various methods of payment including cash, credit, or check. Ensure your practice has a financial policy and procedure in place that explains exactly how the practice collects payments from patients and whether there are any hardship exemptions. Additionally, you can determine what the patient owes the practice through real-time claims adjudication. This allows practices to find out exactly what the patient owes at the time of service. Several vendors and insurers offer a Web portal that the practice can log into and determine the appropriate patient charge even before they are seen by a physician. Check with your payers to determine if this is feasible for your practice as it will help you not only increase your efficiency but proactively collect revenue.

Financial analyses

Most dermatologists use a PMS in their practice, however many don’t utilize it to its full potential. Take a refresher course on all the financial analytics that are available through the PMS software. Contact your vendor about training opportunities for financial analysis courses. Spend time sifting through all the data available to you to determine common benchmarking figures such as net collected revenue, operating expenses, staff salaries, patient encounters, etc. Compare these figures to national industry benchmarks though the Medical Group Management Association (MGMA). Continue assessing your practice’s performance in these financial analytics on a quarterly basis and your practice will continue on a healthy path.

Regardless of how you assess your practice’s financial condition, it is key to have a well-trained and efficient administrative staff to guide you along the process. Investing in employees with a strong coding and financial background as well as offering continual educational opportunities in these areas will substantially lead to a more profitable practice.