Medical billing is complex, especially in the modern reimbursement era. But to optimize your collections, it’s important to overcome the obstacles and motivate your team to perform at the best of their abilities. The best way to achieve your best results is with a dashboard of key performance indicators.
When you’re putting together your company’s unique dashboard, make sure you include these key performance indicators.
Days in receivables outstanding (DRO)
Measuring days in receivables outstanding is the best way to assess your billing performance. The best way to calculate your DRO is by adding the total receivables that are currently outstanding to your total credit balances. It’s important to adjust for credits because those credits can offset your receivables and hide the true performance.
Divide that sum by your average daily charge. The average daily charge is calculated by adding up the charges for your last three months and dividing by 90. Some companies can determine an average based on annual charges, but using 90 days will better reflect season, growth, and other variables.
You’ll want to see a DRO that’s around 40 to 45 days. If you’re not quite in this target range, don’t worry. There are a few reasons that may cause this. Some of those factors are out of your control, such as having to work with challenging workers comp payers or dealing with a lot of complex patient payment plans. So, even if your operations are running smoothly, some of these situations will impact your DRO negatively.
Improving your DRO results can be done in a couple of important ways:
Pay attention to time-of-service collections.
Diligently and consistently collect co-pays, co-insurance, and any deductibles.
Add pre-service deposits to your billing structure.
Keep an accurate system of insurance verifications.
Receivables outstanding over 120 days
You’ll know if your collection efforts are successful when you look at the aged receivables in your trial balance. Monitor those accounts. The goal, naturally, is to have all of your receivables in fewer than 120 days. However, that’s not always going to be possible. A good standard is to have less than 12 percent in a status that’s more than 120 days.
Remember to exclude those credits when you’re evaluating the receivables that are over 120 days. The same factors might have an impact on whether you meet that 12 percent target.
Net collection rate
The gross collection rate should not be used to measure the way your business is performing. Every medical practice has a different schedule of fees, mix of payers, and established contracts. So, gross collection rates will vary. It’s better to focus on the net, which is also referred to as the adjusted collection rate.
What’s the percentage of dollars you actually collect against the dollars you’re able to collect? Here’s an example. If an insurance company allows you to collect $56.40 on a coded procedure, consider whether you collected the whole $56.40. Chasing down that money and bringing in the contracted rate feeds your net collection rate.
Again, collecting 100 percent is always the goal. Since that’s rarely possible, set a goal between 95 and 98 percent. Consider these important factors:
The two to five percent that you don’t collect is considered bad debt.
Money you’ve written off to a collection agency is also bad debt, as well as other sums you could not collect.
Be wary of rates that seem too good to be possible. Your staff could mis-categorize an adjustment, leaving you to believe you’re collecting money that you aren’t. Issues like a missed timely filing should bring your net collection rate down, but if it’s not categorized as such, you could end up with unreliable data. Your billing must reflect the difference between contractual and non-contractual adjustments.
Cash
Your final key performance indicator is evaluating what you collect weekly – even daily. It’s hard to benchmark cash, but your cash flow should be at or above your previous day or week. Cash is always going to fluctuate. It will increase with new staff or services and it will decrease if bad weather creates a lot of cancellations.
Fixing the problems you’ve identified
Sometimes it just takes time for you to address and fix patient complaints, but when it comes to medical billing and financial health, you need to address each problem with a serious sense of urgency. If things get out of control, you’re going to have a hard time digging yourself out of financial turmoil. This is why it’s so important to evaluate and act on your key performance indicators.
Use your KPI data and work towards landing in the range of industry norms on all of your key indicators. Be disciplined and don’t be distracted by outside influences. Recognize the outer limits of what you’re working with:
Try not to let your DRO go past 65 days. If it does, take action.
Sound the alarm when your receivables over 120 days get to 20 percent.
Evaluate staff performance and create office policies when net collection bottoms out to 90 percent or lower.
Underperforming on some of these KPIs is part of running a medical office. But, if you can create a standard that you refuse to fall under – you’ll be better at keeping your practice and your staff accountable. Look for opportunities to do better.
Don’t get comfortable making or accepting excuses. Your staff can verify insurance before patients are treated, and it’s not difficult to check for hospital and out-patient coverage. Know what you’re working with financially before you provide the service.
You want to identify any setbacks with insurance coverage as soon as possible. Waiting for two months to get an insurance denial will only delay your collection potential. Drive home the collection at time of service policy, and do everything you can to reduce denials. Have a dedicated effort of working accounts every 60 days.
Don’t be misled by credits and categories that can hide how you’re really performing. Payment plans are a common way for medical practices to collect, but make sure you’re categorizing them accurately and separately.
Use automation whenever you can. Automating systems and processes will grow your cash flow. Some things you can automate include:
Insurance verification
Benefits availability
Electronic payments
Remote deposits
Make peace with technology. It can dramatically improve your processes and your KPI measurements.
It’s crucial to see the entire picture when you’re looking at your medical practice’s financial health. When you write off a majority of your uncollected bills, you’ll find that your numbers come into the industry standards that you want, but you’ll be cheating yourself and your business. Inaccurate reporting is worse than no reporting.
Evaluate all of your key performance indicators together on a regular basis. Choose a consistent timeline and stick to it. Don’t let your financial red flags hide – drag them out into the open and deal with them. You’re not just identifying your problems; you’re fixing them.
If you have any questions or would like to hear some of our additional advice, please contact Horizon Revenue Solutions at (408) 444-8845, or email sid@horizonrs.com.