Benchmarks for Your Medical Practice: A Vital Part of Critical Practice Analysis

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)

                                                                  ---------------------------------------------------------------------

                                                                   Gross fees (from income statement)

               Month’s revenue in accounts receivable

                    Formula:                         Accounts receivable (from balance sheet)

                                                            ---------------------------------------------------------------------

                                                                Average monthly gross revenues

               Net collection ratio

                    Formula:              Cash received from payers and customers (cash-flow statement)

                                                            ---------------------------------------------------------------------

                                                               Net fees (from income statement)

Accounts receivable/collection
               Posting of cash & contractual allowance

                    Benchmark: <24 hours

               Average payment period

                    Formula:                                            Current liabilities

                                                            ---------------------------------------------------------------------

                                                              (Total expenses – Depreciation)/365

               Average collection period or Days in patients accounts receivable

                    Formula:                Net patient Accounts Receivable (from balance sheet)

                                                            ---------------------------------------------------------------------

                                                               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

                                                            ---------------------------------------------------------------------

                                                                            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

                                       ----------------------------------------------------------------                   -------------------------------------------------------

                                        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