Have you ever invested in a stock in the stock market? To protect and maximize the return on that investment, you would research that particular stock. This might include trend analysis, benchmarking, and performance monitoring. Now, consider the relative size of the investment in a particular stock compared to your investment in your medical or dental practice. Given the significant investment in your practice, the tracking of similar key performance indicators (KPIs) would certainly be a warranted and productive activity.
Monitoring performance and trends is important not only to measure progress but also to help with strategic decision-making and to identify areas for improvement. This would be pertinent to both the revenue and expense cycles of the practice. Creating a dashboard using your current software or in Excel for KPIs that align with your organizational goals would be ideal to provide key insights on a timely basis.
As it relates to the revenue cycle of a practice, there are a number of KPIs of importance. Such KPIs would include: net collection percentage, practice work relative value units (wRVUs), payer mix and accounts receivable aging.
Net collection percentage is the ratio of net payments received to charges (net of approved contractual adjustments) x 100. Declining trends in net collection percentage or a net collection percentage below 90% may indicate that some action is necessary to improve upon collecting the money that you are entitled to receive. To root out the problem areas, we would recommend that you calculate the net collection percentage rate by each of your payers to determine if the problem is coming from a particular source. If no particular source is identified, then the problem rests with the internal billing process, such as rejected claims.
Practice wRVUs may be analyzed to determine if a provider is coding services appropriately. Medicare defines wRVUs each year based upon the codes associated with procedures that are performed, i.e. CPT codes. Variations in wRVUs from benchmarks against peers or against prior years may bring to light certain opportunities for providing better services or to increase productivity.
A practice’s payer mix and how it compares to peers and benchmarks from published sources for similar practices and specialties can also be quite useful information. Typically, the private source reimbursement rate is higher and faster than for public source reimbursements. Understanding the payer mix of your practice may aid in strategic decision-making and contract negotiations.
Accounts receivable aging helps to maintain a healthy cash flow in the practice by identifying any potential bad credit risks. Generally, as an account receivable ages to over 90 days, it become less likely to be collected. Ideally, days in accounts receivable should be on the lower end. If accounts receivable aging consists primarily of invoices due within zero to thirty days, collection performance is generally deemed excellent. An acceptable range for the greater than 90 days category would be 10 to 15 percent. Be sure to research the credit balances and add them back before evaluating the aging. Responses that may result from monitoring the accounts receivable aging could be to let patients know they need to pay an old invoice before they can make the next appointment or to adjust payment schedules to suppliers to manage the lag in cash flow.
In addition to KPIs relevant to the revenue cycle, there are also notable KPIs pertaining to the expense cycle. Critical KPIs often provide information relating to provider compensation and overhead. Analysis of provider compensation in relation to wRVUs can be helpful in determining if compensation is commensurate with services being provided. Further, comparing provider compensation to external benchmarks can provide meaningful information about the reasonableness of compensation. Reasonable compensation is often vital information for tax compliance and planning. For example, taxing authorities are particularly critical of insufficient compensation to shareholder-employees of an S Corporation since insufficient compensation may be deemed to unjustly avoid payroll taxes. Additionally, reasonableness of compensation may be useful in demonstrating compliance with certain provisions of regulations such as Stark Laws, Anti-Kickback Regulations and False Claims Act.
With regard to other expense KPIs, trends in the ratio of overhead expenses to total collections, i.e. overhead percentage, can be key to projecting where costs are heading for planning purposes. Expense comparisons to prior years and external benchmarks are often used to gain a broader understanding of the practice’s strengths and weaknesses, highlighting where improvements could be made.
The key takeaway here is that your practice investment is significant. Maximize your returns on your investment by capitalizing on the sources of information available. Set up a dashboard or other method to facilitate routine review of the KPIs that are most appropriate for evaluating your practice’s performance to work toward achieving your organizational goals. Consistent review of and response to key practice indicators may not only help to identify ways to deliver better care to your patients, but may also be your practice investment’s catalyst to profitability, perhaps even rivaling any bull market success story of a single-stock investment.
We can help you identify the most relevant KPIs for your practice and the most appropriate internal and external benchmarks. If you would like assistance with developing this vital practice management tool, please do not hesitate to contact our office.
Article Submitted by – Terri L Marakos, CPA, CHBC