Mastering Medical Practice Financial Management — How to Start

Originally published October 2017.

With electronic billing and digital medical records, medical practices have a lot of valuable data at their fingertips The key to mastering medical practice financial management is knowing which date to look at, how to find it, and how to put it to use for your practice.

“I am surprised by the number of practices that don’t perform any sort of internal financial benchmarking or performance analysis. Of course, it’s often difficult to know where to start and what measures to track,” says Doug Swords, VP of RCM with Azalea Health.

“Luckily, the data you need to properly measure your performance is easy to get. I always recommend starting small, getting comfortable tracking a small number of important benchmarks, and then growing from there.”

Azalea’s revenue cycle management (RCM) experts suggest six key areas of a practice’s financials to track as part of a basic practice financial report card.

Start with Days in Accounts Receivables

Days in accounts receivable (AR) is the number of days it takes you practice to collect on services provided. The lower the number, the faster your practice is getting paid on average.

Monitoring days in AR gives you insight into payment challenges that may be hurting your practice’s finances.

Days in AR Benchmarks for Medical Practice Financial Management

Industry average: 45–60 days

Good: 40–50 days

Ideal target: < 40 days

Tip: If you see an increase in days in AR, investigate if:

• Claims are submitted quickly enough; an ideal target is to submit claims within 24 to 48 hours of the encounter
• Denial rates too high; target a denial rate of less than 5%
• A specific payer is creating delays

On the flip side, if you see a decrease, don’t automatically assume it’s the result of improvements. Dig in and make sure unnecessary adjustments aren’t falsely improving AR. Looking at payment ratios and adjustment ratios are a good way to catch this.

Look at Receivables Older than 120 Days

Next, look at your receivables and see which are older than 120 days. That means they’ve gone unpaid for more than 120 days. Statistics show that as time goes on, the likelihood that you’ll collect on old receivable revenue shrinks. This metric is a clear indicator of how effective your practice is at securing reimbursements in a timely manner.

Learn best practices for maximizing reimbursements for RHCs.

Finding Aging Receivables

To find the age of receivables, use this formula:

(Total AR >120 days x 100) ÷ Total AR

Industry average: 15–25%

Good: 15–20%

Ideal target: <12%

Tip:  A high or increasing percentage of days in receivable is a red flag. It indicates issues with your practice’s RCM. It could be a sign that your staff is overwhelmed and/or not acting quickly enough when working denials, writing appeals, or following up on unpaid claims that should be addressed quickly.

Patients with Bad Debt

The rise in high-deductible health plans (HDHPs) and patient self-pay complicates the medical practice financial management. And bad patient debt can become an expensive problem. As an account ages, the likelihood of collecting payment  from the patient decreases by as much as 50% every 30 days. After three statements are sent with no activity, the chances that a patient will pay are as low as 6%.

Uncovering Bad Patient Debt for Practice Financial Management

To find patients with bad debt, use this formula:

(Patient-responsible AR over 90 days x 100) ÷ Total patient-responsible AR

Industry average: 25+%

Good: 15–24%

Ideal target: <15%

Tip: If you find bad patient debt, try to improve collections with changes to your time-of-service collections workflows. Providing scripts to the front desk staff and role-playing can help staff prompt patients with past due balances to set up a payment plan or to be prepared to pay at their next visit.

Use your practice management software system to build alerts for staff to identify patients with a history of bad debt. You can also offer online bill pay, payment plans, and credit card on file options for patients. Avoid extra statement costs by sending balances to a third-party collection agency when the balance becomes more than 90 days old, and the patient isn’t trying to pay off the balance.

Average Reimbursement per Visit

Average reimbursement per visit is the average amount your practice collects per encounter or per visit. This metric gives you a sense of whether you’re performing well or could fairly easily be bringing in more money. Tracking this number also helps you estimate future revenue based on expected volumes.

Tracking Average Reimbursement per Visit

The formula to use to track average reimbursement per visit is:

Total reimbursement ÷ the number of encounters in a given tim period

Industry average: There’s is no universal industry benchmark for this metric.

Tip: When tracked over time and compared with historical practice results, average reimbursement per visit gives you a simple, yet powerful gauge of whether your practice is trending in a positive or negative direction. If your trend is downward, you want to take steps to get back on track, perhaps by diversifying your patient or payer mix.

Clean Claim Rate

Clean claim rate is the percentage of claims that are submitted as complete and error free the first time. Clean claim rate is a reflection of your pre-visit process, such as verifying eligibility and maintaining accurate, complete patient demographics. Returned claims not only delay payment, they take valuable time that can be spent on patient care or other practice priorities.

Finding Your Claim Rate as Part of Medical Practice Financial Managment

To find your clean claim rate, use this formula:

Total number of rejected claims ÷ Total number of new claims submitted

Industry average: 90–95%

Good: 95–97%

Ideal target: 97+%

Tip: If your clean claim rate isn’t ideal, take a look at the top five reasons your claims are rejected. Often subtle changes in workflows, such as an improved patient registration process, or adjustements in your practice management software can improve your rate, so you get faster reimbursement and improved days in AR.

How to Set Fee Schedules

There’s nothing worse than leaving insurance money on the table. To prevent that, it’s important to review fee schedules annually or semi-annually to make sure you’re charging a high enough fee to collect the full contracted or allowed amount by each insurance carrier.

One of the important concepts to keep in mind is that no matter what an insurance plan is willing to pay for a claim, they will never pay more than you bill them. So, if a payer is willing to pay $150 for a level 3 office visit, but you bill them $125, they will only pay you $125.

Industry standards:

• E/M services:  2–2.5 times Medicare FFS rates

• Surgeries and medical procedures:  2.5–3 times Medicare FFS rates

Tip: If you get 100% reimbursement of your gross charge for a single CPT is a clear indicator that your fees are too low. Run a CPT level payer analysis using your practice management software to look for specific reimbursements from payers that equal your gross charge for a particular CPT code.

While it may be time-consuming initially, create and maintain a spreadsheet of all your contractual rates per CPT code or at least your most commonly billed codes. By identifying the highest reimbursement per CPT across all payers, you can ensure your gross charge is high enough to capture the full reimbursement.

Targets for Medical Practice Financial Management