A healthy bottom line means plugging the leaks
November 1, 2001 3 minutes read
A healthy bottom line means plugging the leaks
Here are key flaws to look for
Even if you think your practice is doing well financially, it could still be leaking cash. What can you do to identify and plug possible holes in your cash flow? According to the St. Louis-based accounting and management consulting firm of Stone Carlie & Co., important areas to investigate include:
1. Cash controls. Compare your monthly patient revenues posted in the billing system to the amount posted in the general ledger. The totals should be the same. If not, any differences will have to be reconciled.
If the amount in the general ledger is less than that on the billing report, it could mean there are posting errors in the billing system or that deposits are not being posted to the general ledger, which would affect cash flow.
Next, examine your daily activity to determine whether the total payments per superbills, receipts, and check copies equal the amount posted to the billing system and the amounts listed on the bank deposit slip and on the related bank deposit receipt.
For even more detail, compare your billing system end-of-month numbers with the reconciled bank statement. If you notice a series of discrepancies, this could mean you have "leakage" problems requiring more formal cash management controls.
2. Billing. To ensure proper cash flow, office visit and procedure charges should be submitted to the insurance company within one working day. Hospital and surgery charges should take no longer than five days to submit.
Remember: Some insurers include clauses in their contracts that say they can deny payment if a claim is not is not submitted within a certain amount of time, usually 90 days.
3. Collections. Review collections by payer and type of claim to determine how long it takes to get paid — and how long it takes before your staff start following up on unpaid claims. Make a chart of excuses given by payers for delays or denials so you can review your procedures and install proper countermeasures.
4. Accounts receivable. How do your key accounts receivable indicators such as gross collection rate, net collection rate, accounts receivable ratio, and adjustment rate compare to similar practices of your size and specialty? The Medical Group Management Association in Englewood, CO, is a good source for this type of information.
Here are some critical ratios you should be constantly tracking:
- Gross collection rate: This figure, which is receipts divided by charges, indicates the amount of money coming into the practice in comparison with charges. For most specialties, this rate should be between 70% and 80%.
- Net collection rate: This figure, which is receipts divided by the difference of charges minus adjustments, shows the relationship between receipts and charges once the anticipated adjustments are removed. A rate of more than 90% generally indicates a healthy collection rate.
- Accounts receivable ratio shows how fast charges are being paid. Depending on the specialty, this can range from 1.2 to 2.5 months, meaning it takes an average of 36 to 75 days to receive payment. Ideally, you want no more than 20% to 25% of your accounts receivable to be greater than 90 days old.
- Adjustment ratio indicates what percent of the charges are being adjusted. The lower the percentage, the better. If the ratio is greater than 30%, it would be prudent to look at the amounts in the individual adjustment accounts to determine whether there are any accounts that seem unusually large.
Higher-than-normal adjustment ratios, along with low collection rates, could be caused by inappropriate fees or unnecessary write-offs. Unnecessary write-offs could be caused by a lack of staff knowledge about what the insurance companies should be paying for certain procedures and/or the lack of denial appeal activities.
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