Even with great effort, none of the commonly utilized financial tools necessary for critical practice analysis, including charges or cost per relative value unit (RVU) or work RVU (wRVU), revenue per RVU, break-even fees, practice expense RVU (peRVU) and profitability, may be in line with national benchmarks. There is always room to improve. Most trade associations or specialty organizations publish industry standards that can be used to compare your results with your peers. You have to be careful that you are comparing groups that are identical to yours before concluding that your practice is better or worse than your peers in any one of the benchmarks listed below.
Here are the most common indicators of value to any practice that need to be monitored and compared to benchmarks.
Standard report
A standard report should consist of total charges, dollar amount submitted for payment, amounts paid/adjusted/written off with a breakdown by physician, facility, CPT code, and payer.
Aging report
An aging report with accounts receivables at 30, 60, and 120 days and beyond should be required. Aging by the most recent activity on the account is helpful. If the software allows, a variance report of agreed-upon payment rates and actual insurance payment is also most useful to allow comparison with a previous month or year.
Overhead costs
Overhead costs should be reviewed on at least a quarterly basis, keeping in mind that overzealously trying to reduce overhead may sometimes produce negative results. Investing a little extra expense in staffing to obtain better information or that extra call to a third party payer may be worth a great deal more than saving a few staffing dollars.
Revenue Cycle Performance Measures
Patient access metrics
Metric: % of patients with complete and accurate pre-registration information
Formula: Complete pre-registrations/ total registrations
Compliance with physician authorization requirement
Benchmark: 96-98% compliance
Billing metrics
Metrics
Charge lag time
Formula: Average number of days from date of service to posting date.
Benchmark: < 7 days
Clean claims submitted
Formula: % clean claims/total # claims
Benchmark: >95%
Overturn of denials
Benchmark: 95%
Paper remittances
Formula: Paper remittances/all posted charges
Cash Management Metrics
Gross collection ratio
Formula: Cash received from payers and customers (from cash-flow statement)
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Gross fees (from income statement)
Month’s revenue in accounts receivable
Formula: Accounts receivable (from balance sheet)
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Average monthly gross revenues
Net collection ratio
Formula: Cash received from payers and customers (cash-flow statement)
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Net fees (from income statement)
Accounts receivable/collection
Posting of cash & contractual allowance
Benchmark: <24 hours
Average payment period
Formula: Current liabilities
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(Total expenses – Depreciation)/365
Average collection period or Days in patients accounts receivable
Formula: Net patient Accounts Receivable (from balance sheet)
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Net patient service revenue/365
Benchmark: Median 47.1days
Accounts receivables
Formula: > 90days
Benchmark: median 22.3%
Expenses metrics
Cost to collect
Formula: Total cost of all business related functions
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Total collections
Bad debt expense
Formula: as % of gross or net revenue
Benchmark: <5%
Overhead %
Formula: Total non-physician expenses as % of total = Total non-physician expense
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Cash collections or net revenue Total net revenue
% of patients with complete and accurate pre-registration information
If your practice lags behind standard benchmarks, the billing manager must be able to come up with a performance improvement plan. The plan must be presented to the physician group and approved. Some warnings signs include:
- Claims payment first pass rate <85%
- Paper remittances are >30% of all posted charges
- Charge master has not been updated in more than 2 years
- A compliance plan that has not been reviewed or updated in 2 years
- Insurance contracts have not been reviewed in 12 months
- Cash collections are lower than the previous year
- 35-40% or more of the A/R is 90 days old and 75- 80% of that is either self-pay or patient copay
Bhagwan Satiani, MD, MBA, FACS, FACHE, is President of Savvy-Medicine (www.savvy-medicine.com), a business education consulting organization and Professor of Clinical Surgery, Division of Vascular Diseases & Surgery, Department of Surgery, The Ohio State University College of Medicine, Columbus. He is the author of the 3-volume set “The Smarter Physician” published by MGMA and co-author of “The Coming Shortage of Surgeons: Why They Are Disappearing and What We Can Do About It.”
You can read another article by Dr. Satiani, “Understanding the RVU in Practice Management: Getting the Most Out of Using It in Your Practice” now.
Medical Billing Update: Further Reduction in Reimbursement Proposed for Imaging | Medical Billing Software | Kareo.com said:
[...] Why They Are Disappearing and What We Can Do About It.” He has also written for Getting Paid on Benchmarks for Your Medical Practice: A Vital Part of Critical Practice Analysis and Understanding the RVU in Practice Management: Getting the Most Out of Using It in Your [...]
Wednesday, November 16, 2011 - 2:15 pm
Sherry said:
Do you know where I can get additional information on the benchmarks for medical aged accounts receivable over 90 days. I see the median benchmark in this article is 22.3%. A consultant is telling me that it should not be over 10% and the goal should be 8%. Any help would be appreciated. Thank you, Sherry
Tuesday, January 17, 2012 - 10:33 pm
Kathy McCoy, MBA said:
Sherry, thank you for your good question. One has to careful looking at ONLY aged A/R as a measure of efficiency since a really low % may mean there is a problem making adjustments to charges or reporting charges. Clearly, if charges are not entered, the A/R will be lower. There is great variability on which number to rely on.
For instance, some practices use an A/R which is 1.5 to 2 times the average monthly charge. That being said, Judy Capko a respected consultant says “A good benchmark for accounts receivable aged at 120 days or more should be no more than 15% to 20% of the total A/R.( http://www.transworldsystems.com/TheTruthAboutARbyJudy%20Capko.pdf).
In an unspecified practice it is suggested that anything over 25% for aged A/R > 120 day % calls for a review. (http://www.physicianspractice.com/display/article/1462168/1625301). Yet another opinion is that “For reference, national average of % of AR beyond 120 days is 23.2%.” (http://www.wikihow.com/Measure-Billing-Quality-for-Medical-Practice)
Another variable is the type of practice. For example in a study of a pathology practice, Combs reported a 19% figure beyond 90 days. (Combs F. Accounts Receivable Optimization – A Medical Practice’s Quest to Improve Internal and External Operations. MGMA).
There are several organizations/firms that provide benchmarks depending on the type of practice being analyzed. For most private practices MGMA has good data available.
For Academic Medical Centers, Faculty Practice Health Solutions gathers and reports comparable data. The FPHS benchmark is also in the 20% range. Our own department had a low of 12% for total insured and a high of 36.4% > 90 days for self-pays.
Practice Management agencies also report benchmarks. One such group for example reports % of A/R > 90 days as 15% for medical practices and single specialty Ambulatory surgery centers and 20% for multi-specialty centers. (http://www.ampmbilling.com/blog/category/benchmarking/)
In general, A/R of > 90 days of 15-20% is around average and I reported a median value in the blog post. That implies a 50th percentile benchmark at best and not a best practice number. Certainly best performers try to stay under 10-15%.
Hope this answers your question. Consultants will promise you a lot !
Monday, January 23, 2012 - 10:35 am