4 min read

Peak Practice Performance: Revenue Cycle

Peak Practice Performance: Revenue Cycle

How can your practice maintain a steady stream of cash month-over-month? In this month’s Peak Practice Performance blog series, we will discuss several key strategies that will assist you in collecting every dollar and saving a penny or two, by investigating how the five areas of performance impact your practice metrics. Last month, we discussed the area of finance. Here, we’ll focus on revenue cycle and how to ensure that any pending payments that you are owed arrive at your practice quickly and paid in full.

It’s the start of the new year, a time when many health plans reset patient deductibles. It’s also the time to monitor your self-pay collections when examining your accounts receivable aging. Accounts receivable (AR) is defined as payments owed to a medical practice by patients and payers. In January, many medical practices see this number increase due to various factors:

  • Fee schedules are updated by payers
  • New contract negotiations often reset allowables which can result in changes to cash flow
  • Patient deductibles renew, resulting in the transfer of balances to patient responsibility

To decrease your accounts receivable and increase your accounts paid, focus on two areas of opportunity: patient responsibility and payer responsibility.

Patient responsibility: Are your patients aware of payment due for services rendered?

A recent article in the Jan/Feb 2018 MGMA Connections magazine states “patients are confused by their healthcare responsibility: In a UnitedHealthcare Consumer Sentiment Survey, only 7% of consumers could define terms such as ‘plan premium’, ‘deductible’, ‘co-insurance’ and ‘out-of-pocket maximum.’”  To remedy this lack of patient knowledge, some physician practices are working to educate patients on their coverage and the portion owed for professional services. This education can occur at several touch points before and/or after services are provided via a letter sent to patients, estimates provided during payment plan conversations prior to a procedure or office visits, and/or after insurance benefits have been applied to the procedure or office visit.

In addition to providing patient education, medical groups should ensure that collections of copayments and balances due are completed at time of service. If payments are not collected at time of service, practices should ensure that a payment plan is established to ensure that patients understand that paying for physician time is important.

Payer responsibility: How long is it taking you to receive payment for services rendered?

After sending claims to the payer, you should expect payment within 14-24 days from most payers. If your payments post on the later side of this window, consider factors regarding coding and documentation that may slow the payment from the payers. Calculating your Days in Accounts Receivable (DAR) will allow you to predict the cash flows for your care center based on the date that you post your charges. See a sample calculation below:

  • Calculate the total daily charges based on the last several months
  • 600,000 (total charges 6 months)/182 (days last 6 months) =
  • Divide the total accounts receivable by the average daily charges.  The result is the Days in Accounts Receivable.
  • $100,000 (total accounts receivable) / $3,296 (average daily charges) = 30 Days in Accounts Receivable

Based on this calculation your practice can expect dollars billed on the 1st of the month to be posted to your account by the 30th of the month. This predictability will allow for better financial planning and management.

Payer responsibility: How much of every negotiated dollar are you realizing?

Payers allow a specific reimbursement dollar amount per procedure code billed by your practice. For example, your payer contracts state that for every new patient visit you are paid $100.

Total allowed amount = $100

Payer Covered Portion = $75

Patient Responsibility or coinsurance = $25

In this example, your practice must collect from both the payer and the patient in order to be reimbursed the full amount owed for your services. In recent years, payers have shifted to paying a very small percentage of the allowed amount, leaving the larger share to patient responsibility in the form of a deductible or coinsurance. According to Healthcare Financial Management Association, patient responsibility is growing. “Recent data issued by Kaiser Family Foundation and The Health Research & Education Trust (HRET) point to a roughly sevenfold increase in number of covered workers enrolled in high deductible health plans (HDHPs) since 2006. Today, HDHPs represent almost one-third of the 160 million people covered by employer benefits.”

As a result of this shift, medical practices are now responsible for collecting payment from the insurance company and the patient in order to ensure full payment for services rendered.

To make sure that your collection rate is up to par, compare it to the industry standard net realization rate (the percentage of claims paid) to your practice’s. Current data indicate that yours should be 94% or greater. See the calculation below for more details:

  • Payments / Charges x 100 = Net Realization Rate (NRR) Percentage*

If you find that your next realization rate is lower than 94%, consider implementing an education plan for billers and coders, as well as a sound collections policy with weekly and monthly targets that ensure that patient balances are collected as soon as possible. This will aid in decreasing the Days in Accounts Receivable (DAR) and the amount owed in patient responsibility, allowing your practice to have more cash flow at an accelerated rate. Additionally, consider your:

  • Payer claim alarms and payer follow up communication process — are you issuing regular reminders to patients about their balances?
  • Quarterly and annual billing and coding training for staff submitting claims to payers
  • Reviewing payer bulletin updates with billing staff
  • Establishing payment expectations with patients prior to services rendered
  • Ensuring a sound payment plan process for patients who are unable to pay the full balance due

The tactics offered above should help streamline your current revenue cycle strategy so that your practice can experience improved cash flows. Keep an eye out for our next segment, where I’ll be addressing the topic of physician productivity.

*NOTE: add any recovered dollars to your payments and remove any contractual adjustments from charges to obtain a more accurate payment and charge number. Also, ensure that you calculate this amount using date of service payment information from several months prior to ensure a more accurate percentage.

Tagged in

0 Comments

Leave a reply

Your email address will not be published. Required fields are marked *

*