5 Ways to Regain Financial Control of Your Medical Practice
Presented by
Steven A. Adams, CPC, CPC-H, CPC-I, PCS, FCS, COA
Licensed Instructor by the American Academy of Professional Coders
MAG Mutual HealthCare Solutions, Inc.
A Member of MAG Mutual Group
Consulting, Publications and Seminars for the Medical Profession
7 Piedmont Center, Suite 601
8525 Piedmont Road
Atlanta, GA 30305
770-241-4344
Introduction
Unquestionably, today’s medical practice is more complex than that of only a few years ago. Factors contributing to this complexity include: Restrictive third party reimbursement, managed care, national budgetary deficits, quality concerns, more governmental regulatory controls, increased competition among physicians as well as other health care providers, expectations of patients, computers, and the need for more specialized and effective administrative staff.
Attention to the business aspects of medical practice is a key to long-term practice “success” in today’s climate of uncertainty, complexity and competition.
Some physicians choose to be actively involved in all aspects of their medical practice, while others find that today’s requirements are simply too demanding for them to be actively involved in day-to-day operations. Increasingly, MDs delegate many business responsibilities to their staff.
Consequently, in recent years, medical practice management has become more of a profession/career than merely a means for employees to earn a few extra dollars.
You may not have a problem in your office right now, but the day usually comes when you wish you could figure out what went wrong. The purpose of this seminar is to help you identify what might be going wrong now, and provide you with the information necessary to regain the financial control of your practice.
Regain Control
Each week, we encounter a physician who asks, “Why am I working twice as hard, but making less money?” To answer this question, we investigate 5 basic indicators of financial health:
- Reimbursement;
- Understanding EO(M)B’s;
- Reducing Claim Denials;
- Revenue, Collection and Overhead Ratios; and
- Accounts Receivable.
When the aforementioned basic financial indicators are ignored, the practice will not achieve its potential, and the physician/owner loses control.
Please understand the computer system in your office might not run the reports exactly as they appear in the additional handout. On the same note, your financial statement might not look “exactly” as does our example. Therefore it might be necessary to contact either your accountant or computer software vendor to get the information required to Regain Control of Your Practice.
1. Reimbursement Process
For the last 10 years, consultants have insisted that physicians and office managers review every aspect of a managed care company and their offers prior to signing any contract. However, most physicians ignored that advice and have since signed a number of contracts that have directly resulted in a decrease in reimbursement and an increase in denied claims. This has many physicians shaking their heads asking why.
The good news is that even if you’re a physician in the midst of decreased revenues, it might not be too late. In fact, the same questions we encouraged you to ask prior to signing the contract can still be asked today. For example:
- What are you doing
Top 10-20 CPT codes submitted for reimbursement
Number of denials your practice receives
- What are you being paid
Reimbursement for top 10-20 procedures
Can you afford this contract
Can you renegotiate or do you drop out
- Who are you serving
What percentage of your patient population does this contract represent
If you lost this contract would it put you out of business
- Is everything true
Are you a victim of Silent PPOs
How often does the plan cut reimbursements
- Are you doing everything right
Have you audited your notes lately
Are you missing any billing opportunities – co-pays, etc.
Have you examined a distribution report lately
A pattern of under-coding or inaccurate code selection could be costing your practice thousands annually.
One final point regarding managed care organizations. Make sure all partners accept, not necessarily like, the direction the group is taking. Otherwise, one physician could be assigned HMO patients, with reimbursement rates 50-65% of those covered by traditional plans, while the other partners take all the patients with better insurance overage.
2. Understanding EO(M)Bs
(Explanation of [Medicare] Benefits)
Every private and federal insurance carrier is required to adopt methods for claim review that help assure payments by the Medicare Program are appropriate, accurate, and consistent with Medicare policy. While HCFA acknowledges each carrier has the authority to review any claim at any time, it is also aware that the large volume of claims does prohibit the manual review of each one. Accordingly, the Medicare Carrier’s Manual offers general directives that each carrier’s review program must follow. In summary, these include:
- Prepayment reviews
- Whenever possible, it is recommended these reviews are automated
- The reviews should automatically deny or suspend payment for those services that have a high potential for being noncovered, not medically necessary, or otherwise misrepresented to increase payment
- The postpayment review process shifts to data analysis to target those providers with aberrant billing patterns.
- Place emphasis on the prevention of inappropriate payments (i.e., on the prepayment review).
- How denials occur
Claim doesn’t pass a computer edit
They realize you might not refile or appeal
- Reason codes convey denial information
Duplicate charge we have processed – CO-18
Duplicate charge we are processing CO-18
Information does not support code – CO-50
Beginning April 1, Medicare no longer recognizes this procedure code – B18
Incomplete CLIA number – MA120
Information does support number of services provided time – CO-57
- Don’t overlook the appeals process
Denials are reversed in well over 50% of reviews/hearings
Initial Review – within 6 months, must repay within 30 days
Fair Hearing – in person, by telephone, or based on-the-record - $100
Administrative Law Judge - $500
Social Security Office’s Appeals Council
- Don’t overlook Insurance Commissioner
15 day rule
- Avoid the denial in the first place
3. Decreasing Denials
You might not realize this, but the best way to eliminate your denial problem is to stop creating one. The following technique is used in some practices to handle difficult coding situations and responses for denied claims, requests for additional information, etc. It helps optimize reimbursement, minimize audit exposure, reduce administrative hassles and promote efficiency.
- Trench Work
Weekly reviews must be mandatory
Buck stops with the Physician
Coding Certification – turn this “trench work” into a profession
- Billing staff submits claims for “routine” procedures daily/weekly
EDI with a scrubber – CCI Edits, Black Box Edits, etc.
Update billing software
Visionary, Medisoft, Medic, Medical Manager
- The other 10-15% of claims represent situations where staff may have questions
Never file a questionable claim
Much harder and more time consuming to “fix” a denied claim
5-$10 in manpower/office expense to refile a claim
- Office Manager’s report card
Only one person can affect change clinic wide – You MUST help them
“It’s the Revenue Stupid”
Encourage your staff to minimize denied claims
Improves overall practice compliance
- Every Friday afternoon, coding staff, the OM and a physician(s) meet for 30 minutes
The CPT and ICD-9 manuals are written for you
Language of your business
Make the time
These short meetings will increase reimbursement, greatly improve office efficiency, and significantly reduce claim-filing errors. Additionally, the meetings will grow shorter because staff and physicians learn more about the types of billing problems that can be eliminated. Staff now have fewer claims to question and physicians have learned how to document records to shorten the “Friday meeting.”
4. Revenue, Collections & Overhead
To get a meaningful estimate of your collection efforts, look at more than one month. The longer the period of time, the better (unless unique circumstances skew data). A ratio based upon the most recent 6 to 12 months is best. Comparisons to prior period ratios will help assess adequacy of efforts and effectiveness of new collection techniques.
- To obtain some of the most important financial information about your practice you’ll need 5 pieces of information
- Charges, Adjustments, Receipts, Overhead Percentage, and Accounts Receivable
SET GOALS
Evaluate at least monthly
- Collection Ratios
Gross ratio = revenue divided by charges
Net ratio = revenue divided by (charges – adjustments)
Obtainable gross = 50-60%
Obtainable net = 92-98%
- Overhead Percentages
Financial Statement
Should not be above 50%
Staff is largest expense – monitor closely
- Months in A/R
Total A/R divided by Average Monthly Charges
First, realize collection ratios can be calculated in two ways. One way generally results in a lower ratio, the other method results in a higher ratio.
As an example, assume during a six-month period you billed $100,000 for services; but, you are only allowed to collect $60,000 because all patients were covered by Medicare. That is, you are required by law to write off $40,000 as a mandated “discount” (such discounts are often referred to as contractual adjustments).
Most common method for calculating a collection ratio
Some physicians’ offices calculate the ratio by dividing revenue received by total billings without adjusting for contractual write-offs.
In this case, 60% would be the best collection ratio you can obtain in the example above.
Another method that is more meaningful in many cases
Other offices adjust for the portion of billings representing contractual adjustments since these amounts are not collectable in the first place.
In the example above, $40,000 is not collectable because of government regulations regarding Medicare. Therefore, the most you can collect is $60,000.
If you calculate your ratio this way and actually collect $57,000, your collection ratio is 95% ($57,000 divided by $60,000).
Overhead
When reviewing the Financial Statement, remember your salary is paid only after all other expenses. This is why keeping overhead within acceptable ranges is critical to overall “success.” A high overhead usually indicates:
- Lower than average revenue
- Poor office management
- Too many employees/high staffing salaries
- Poor insurance contracts
- Lack of sufficient budgeting
Every dollar wasted comes directly from your paycheck/bonus. We call your salary - PROFIT.
Work Smarter, Not Harder
Assume your practice generates $1,000,000 in revenue per year. An increase in revenue of 5% or a decrease in expense of 5% will directly result in a 10% increase in profit:
Current Practice
Revenue: $1,000,000
Overhead (50%):$ 500,000
Profit:$ 500,000
5% Increase in Revenue 5% Decrease in Overhead
Revenue: $1,050,000Revenue: $1,000,000
Overhead (50%): $ 500,000Overhead (45%): $ 450,000
Profit: $ 550,000Profit:$ 550,000
5. Accounts Receivable
Establishing fair, competitive fees, selecting codes that reflect the service rendered, and beginning to address your collection and overhead percentages are only half the battle. You must also maximize collection of your fees. Thus, an effective accounts receivable management system is a key to improving practice results. To be effective, your office must stay attuned to collection efforts.
Your net income will suffer, you will have to make other cutbacks, or you will be forced to increase fees inordinately to patients who pay on time if you fail to: obtain adequate credit information from patients, establish systematic collection procedures, strike a balance between too heavy handedness and firmness, monitor effectiveness of your system, and see improvements as conditions change.
Topics
1. Accounts Receivable is Your Money
Best way to avoid an A/R problem is not to create one
Trenchwork, - ask yourself: “Is anyone in my practice responsible for working A/R?” “If so, how effective are we?”
Remember, everyday A/R ages, it is worth less
2. Collection Policy That Works
Starts with the first patient contact
Informs patients and staff of the importance of collections
Lets patients pay at time-of-service – Do you take credit cards?
3. Evaluate Collection Effectiveness
Determine A/R Balance, then Average Monthly Charges
Divide A/R Balance by Average Monthly Charges – Months in A/R
Goal depends on specialty, usually shouldn’t exceed 1.5-2.0 months
4. If A/R Gets High, Ask Why
Are we constantly working the A/R report?
Are denials on the increase?
Are we collecting co-payments?
- Collection Agencies
If things aren’t working, try a collection agency
Pre-collection services
If you’ve done your best, an agency might only get 20-30% of accounts
Revenue Cycle Assessment
Top 10 Services
Charges / Percentage1 / 99213 / $170,610 / 32%
2 / 99212 / $82,192 / 15%
3 / 99231 / $50,967 / 10%
4 / Capitation / $42,345 / 8%
5 / 99222 / $23,870 / 4%
6 / 99211 / $21,320 / 4%
7 / 36415 / $11,596 / 2%
8 / 99283 / $9,545 / 2%
9 / 90659 / $9,435 / 2%
10 / 85610 / $9,144 / 2%
$431,024 / 81%
Top 10 Code Fees
Description / Current / Medicare / High1 / 99213 / Level 3 OV / 55 / 50 / 77
2 / 99212 / Level 2 OV / 42 / 36 / 56
3 / 99231 / Level 1 H F/U / 63 / 33 / 87
4 / Capitation / Capitation / Capitation / Capitation / Capitation
5 / 99222 / Level 2 Admit / 155 / 108 / 217
6 / 99211 / Level 1 OV / 26 / 20 / 37
7 / 36415 / Venipuncture / 13 / 3 / 15
8 / 99283 / Level 3 ER / 115 / 59 / 169
9 / 90659 / Flu / 15 / Internet / 25
10 / 85610 / Protime / 18 / 13 / 22
*For E&M a safe rule is 150% above Medicare
*For Surgery a safe rule is 200% above Medicare
Top 10 Code Fees Analysis
Description / Current / Medicare / BCBS PPO / Aetna1 / 99213 / Level 3 OV / 55 / 50 / $44.40 / $65
2 / 99212 / Level 2 OV / 42 / 36 / $25.00 / $55
3 / 99231 / Level 1 H F/U / 63 / 33 / $52.23 / $70
4 / Capitation / Capitation / Capitation / Capitation / Capitation / Capitation
5 / 99222 / Level 2 Admit / 155 / 108 / $105.01 / $125
6 / 99211 / Level 1 OV / 26 / 20 / $18.32 / $30
7 / 36415 / Venipuncture / 13 / 3 / $5.67 / $20
8 / 99283 / Level 3 ER / 115 / 59 / $60.12 / $110
9 / 90659 / Flu / 15 / Internet / $12.43 / $20
10 / 85610 / Protime / 18 / 13 / $7.83 / $16
Weekly Denial Report
Patient / Code / Denial Code / Description / Resolution1 / Joe / 85610 / C0-B7 / Provider not certified / W/O
2 / Robert / 80061 / C0-50 / Not medically necessary / Correct ICD-9 Code
3 / Helen / 90782 / C0-B15 / Code not accurate / W/O
4 / Will / 81002 / C0-50 / Not medically necessary / Correct ICD-9 Code
5 / Pat / G0101 / PR-49 / Routine screening / Correct ICD-9 Code
6 / George / 36415 / C0-16 / Lacks information / Re-file with G0001
7 / M51 / Incomplete code
8
9
10
Total Number of Denials for Week – 15
Total Number of Services Received – 200
Total Denial Percentage for this week: - 15 / 200 = 8%
*Set a goal to have less than a 5% denial rate on all services
Top Equations
Months in Sample / 12Charges / $575,831.94
Adjustments / $205,421.26
Receipts / $348,668.26
Avg. Month Charge / $47,985.92 / Annual charges divided by 12
Gross Collections / 61% / Receipts divided by charges
Net Collections / 106% / Receipts divided by (charges minus adjustments)
Accounts Receivable
Age / Total $ / Percentage / Goal Percentage/ Average Monthly Charges / $ 47,985.92 /
Goal
Months In A/R / 2.0 / Total A/R divided by average monthly charges / 2.00-30 / $42,636.22 / 47% / 50%
30-60 / $6,541.61 / 7% / 20%
60-90 / $4,424.05 / 5% / 12%
90-120 / $5,510.31 / 6% / 10%
120 + / $31,989.64 / 35% / 8%
Total / $91,101.83 / 100% / 100%
Standard Collection Policy
- Our policy is to collect payment in full at time of service. If we accept assignment for the patient’s insurance, we will collect all co-pays and deductibles at time of service. In addition, each new patient will have a copy of their latest insurance card and drivers license placed in their permanent record.
- If the full amount, deductible, or co-pay is not collected at time of service, the patient will be given a self addressed walk away bill. If the patient fails to pay for the services rendered the following procedures will result:
- Two statements will be sent to the patient showing their outstanding balance;
- After two statements patient will receive first of two collection letters.
- After first collection letter a final collection letter will be sent; and
- If no response to the final collection letter, the patient’s account will be reviewed by our physician and sent to collections.
- If full payment or co-pay is not collected at time of service, another option is to allow the patient to reimburse us on a payment plan.
- The payment plan will be 25% of the total amount due unless otherwise stated.
- Any patient failing to submit a monthly payment on time without notifying this office will have their account will automatically be sent to collections.
- Any patient seen as an emergency must pay in full unless we are a provider for their insurance company.
- Any patient, with a previous account written off to bad debt, must pay outstanding balance or set up a payment plan prior to being seen again.
- Continued failure to pay for outstanding balances might result in our practice requesting the patient find another provider.
- All incoming billing and collection calls and/or questions should be given to the insurance coordinator.
Collection Policy with ARMS
- Our policy is to collect payment in full at time of service. If we accept assignment for the patient’s insurance, we will collect all co-pays and deductibles at time of service. In addition, each new patient will have a copy of their latest insurance card and drivers license placed in their permanent record.
- If the patient fails to pay for the services rendered the following procedures will result:
- Two statements will be sent to the patient showing their outstanding balance;
- After two weeks, if there is no response from the 2nd statement, the accounts will be forwarded to LCA and put in “pre-collection” status - (ARMS).
- LCA will contact our office with the names of patients who have not paid while in ARMS.
- Those outstanding accounts will be reviewed by a Provider prior to sending to LCA as a “pre-collection” account.
- After approval, outstanding balances will be forwarded to LCA as “collection” accounts.
- If full payment or co-pay is not collected at time of service, another option is to allow the patient to reimburse us on a payment plan.
- The payment plan will be 20% of the total amount due unless otherwise stated.
- Any patient failing to submit a monthly payment on time without notifying this office will have their account sent to collections.
- Any patient seen as an emergency must pay in full unless we are a provider for their insurance company.
- Any patient, with a previous account written off to bad debt, must pay outstanding balance or set up a payment plan to be seen again.
- All incoming billing and collection calls and/or questions should be given to the billing department.
Sample Goal Sheet