No reputable doctor would recommend treatment without first taking a history and physical, conducting an exam, and perhaps ordering tests. Yet, a lot of very good doctors make bad (and often expensive) business decisions because they lack the same data-driven rigor when managing their practices.
Data-driven decision making starts with well, data. So here are five financial reports that physicians should review no later than the tenth day of every month, for the previous month's activity.
1. Profit and loss (P&L) statement
The P&L, as it's typically called, is a tally of revenue and expenses for a given period, and includes key financial indicators such as gross revenue, net revenue, and overhead. A well-developed P&L displays dollars and percentages for each revenue and expense line item, and compares them against previous periods and budget amounts.
When reviewing the P&L, start with revenue. How does revenue this month compare to the same month last year? Is the practice on track to meet projections?
Then scrutinize expenses. Are they within budget? Comparable to the same period last year? In line with industry data for your specialty? If expenses seem "high," investigate instead of hastily slashing them. We've watched many physicians cut staff to save money, only to see overtime rise and collections drop because there weren't enough people to cover key tasks.
2. Aged accounts receivable (A/R)
The A/R report summarizes your practice's lifeblood: the potential revenue from payers and patients for services you've rendered. That's right: potential — because any number of things can hinder (or halt) payment to your bank account. And that's precisely why physicians must review their A/R on a monthly basis.
Start with "Days in A/R," which indicates the average number of days it takes to collect on an account. [Total A/R ÷ (annual gross charges ÷ 365)]. "Days" of 30 or less is good. "Days" of 50 or more is not so good. And look at the percentage of total A/R in each aging category. More than 10 percent to15 percent in the 120+ days indicates a problem.
If the indicators signal trouble, analyze further. For instance, review A/R by individual payer to determine if specific companies are slow to pay, and identify why by analyzing explanation of benefits (EOB) for denial patterns such as noncovered service, applied to deductible, patient ineligible, or wrong modifier. If necessary, modify your operations or train staff accordingly to minimize denials.
Also known as "write offs," adjustments are the detailed categories to which staff post the amount between an actual payment and your standard fee. These include contractual adjustments and multiple procedure discounts, of course, but also adjustments for denials (such as patient ineligible or a coding error), and A/R clean-up actions (such as bad debt and small balance adjustments).
The report should be several pages long; adjustments are supposed to be granular. If your report contains broad categories such as "miscellaneous" or "insurance write-off," that's a problem. Ask your manager to explain vague sounding categories, as well as large dollar amounts, and request the addition of more detailed adjustment categories if necessary.
4. Credit balances
Credit balances are a financial liability. If they are accurate, you must pay them back to patients or insurers. A six-doctor group thought they could avoid this "unless someone asked," so they did not run a credit balance report for years. When they finally did, it was 65 pages long and had about $74,000 in credit balances — all of which had to be researched, verified, and refunded.
Review and approve the credit balances that staff have researched and verified every month. This report should be as close to zero dollars as possible.
5. Patient balance "trio pack"
Historically, patient revenue has been fairly minor compared to insurance revenue. So if collections slipped, it was not going to put you out of business. Now that patient financial responsibilities are in the stratosphere, they represent real money and need renewed focus. Assess the status of patient receivables using a trio of reports:
• Patient A/R. Generate this by patient account in descending balance order, not alphabetically, so that the biggest balances will be on page one. Ask for a status update on the top 10 accounts, every month. Train staff to call patients, not just send statements and letters, and establish payment plans using automated, recurring, payment-plan software. Be sure front-desk staff ask for past-due balances when patients come in for their appointment.
• Payment plan status. Be aware of those patients who are current and who are not. Train staff how to speak with and assist the noncompliant patients.
• Accounts recommended for collection or bad debt. Some patients simply can't or won't pay. Keeping them on the books for years is foolish financial management and frustrating for staff. Ask staff to prepare their recommendations on which patient accounts should be sent collections, and ask them to provide back-up details. Approve the accounts for bad debt or send them to collections, but get them out of the A/R.
Cheryl Toth, MBA, is a writer and content developer with KarenZupko & Associates, Inc., www.karenzupko.com ,and brings 22 years of practice consulting and training, as well as healthcare technology product and executive management, to her projects.