Measuring the Financial Performance of Practice Managers

In our years of practice management consulting with medical practices, we measure the financial performance of the practice. The same data can also useful to determine the effectiveness of a practice manager.

The helpful tool, the Monthly Financial Report, can be provided to all of the physician practice owners. It provides three measures of the health of the billing and collection process:

A. The Net Collection Percent

B. The Accounts Receivable Aging

C. The Accounts Receivable Ratio

Here is a breakdown of all three.

A. Net Collection Percent

This figure represents the amount of money the staff is collecting out of the amount they have the ability to collect. The “Net Collection Rate” is computed as follows:

Payments $750,000 (Charges-Adjustments) ($1,000,000-$200,000) = 93.75 percent

The “Adjustment” figure is for “contractual adjustments”, i.e., the amount you have agreed to deduct, for the plan, from your regular fee: Copays, Deductibles, and Non-Covered Service Fees

In this example, the practice has not collected 6.25 percent of the moneys they should have. The goal of a support staff is to maintain a Net Collection Rate of 95+ percent. The national average reported for Ob/Gyn practices is 98.16 percent.

B. Accounts Receivable Aging Report

A healthy practice will have not more than 25 percent of its accounts receivable in the above-90 days categories.

C. Accounts Receivable Ratio

This figure indicates how long it takes the practice to get paid by the plans and patients for the care rendered. The goal is 1.5 months maximum.

How to Calculate Your Accounts Receivable Ratio: Your A/R Ratio is your A/R divided by your average monthly billing, using your most recent three months. For example:

i. As of September 1 your A/R = $224,000

ii. Your prior three months’ billings were: August $67,000, July $57,000, June $74,000 = 3-month total $198,000

Divide by 3 for an Average Monthly Billing = $66,000

iii. Divide your September 1 A/R by your Average Monthly Billing

$224,000             

$66,000 = 3.4

This means your A/R Ratio, on Sept 1 is 3.4. The A/R Ratio of 3.4 tells us that our A/R represents 3.4 months (102 days) of business. This is much higher than the A/R goal of 1.5 (months). The high A/R Ratio points to a need for the practice staff to undertake timelier follow-up on outstanding accounts with plans and with patients.

Your reports should be prepared and distributed to the owner physicians by the fifth of each month. Subsequently, at a monthly meeting of the physicians, the manager should review and explain the results of the report. And, the physicians should expect the manager to report the actions planned to improve the any performance short-comings.