Procure the Best Management Report
Key performance indicators will help you generate a true picture of practice revenue.
by Jim Strafford, CEDC, MCS-P
Since I began my career in revenue cycle management, formerly called accounts receivable (A/R) management, reporting capacity and functionality have increased exponentially. Back then, a billing cycle manager could access a very basic package of reports to measure billing and collection effectiveness. Custom reporting was minimal, and usually required a request to the information technology department and a lengthy wait.
Fast Forward 30 Years
Today’s practice manager is faced with a daunting menu of standard and custom reports from multiple sources, including billing systems and reporting middleware. Yet, practice management/revenue cycle reports are often underutilized and not analyzed effectively.
For example, a practice my company reviewed recently had undergone an expensive billing system upgrade, but was not receiving key reports. We contacted the software vendor and found out that the reports were available, but weren’t accessed by the billing office. In another review, a large, multi-site practice was receiving minimal reporting from the hospital central billing office — despite the hospital having a multi-million dollar billing system.
As a revenue cycle manager or practice manager, you’d probably like a single report to provide the data and metrics you need to determine billing and collection effectiveness and trends. I’ll provide some tips to build this report, starting with basic billing and collections metrics — referred to in 2014 as key performance indicators (KPIs) or the revenue cycle spreadsheet.
Basic Revenue Cycle
The report will track KPI by month. Let’s start with April as the first month, as shown in Table 1. Note that all metrics on this report are by date of entry (DOE). This would be the date charges/payment/adjustments were posted to the billing system.
Table 1: KPI per month
Analyze the Numbers
A/R: This is the total amount of charges that are not yet resolved by payment, adjustment, or write off to bad debt.
Charges: This is the total charges billed for the month.
Adjustments: This is the total charges adjusted from the A/R. This typically represents amounts that will not be paid due to managed care and other payer contracts.
Volume: This is the total volume of services rendered and billed with CPT® or HCPCS Level II codes for a given month. It is sometimes called “services of procedures.”
Payments: This is all payments posted from payers and self-pay patients for a given month.
Collections: This is the amount of unpaid claims, usually self-pay, that have been moved from the active A/R to collections. This should mean these unpaid claims have been moved to a third-party collection agency or internal collections office.
Ending A/R: This is the result of all of the above transactions for a given month (April) on the A/R.
Six Month Revenue Cycle
KPIs give a general feel for the basic practice metrics in a month. Considered alone, they tell the practice manger very little about the revenue cycle performance. To shed light on revenue cycle performance, you must spread these metrics over time. Table 2 shows six months of KPIs.
Analyze the Numbers
Table 2 provides a much more educated representation of what is happening with your practice revenue. Let’s analyze KPI individually over the six-month reporting period.
A/R: There are A/R fluctuations, but no dramatic changes. Research a major increase or reduction in A/R.
Charges: Charges range from a low of $42,000 in May to a high of $71,000 in July. Why is there a $29,000 increase between May and July? It could be because we are the Beachcomber Urgent Care Center, and summer is peak season. If this is the trend every year, this would be expected. But what if your practice doesn’t have those types of seasonal shifts? Could it be that the coding department had a backlog in May, and dug their way out over the summer? Investigate it further.
Volume: Volume of rendered services is relatively consistent with charge trends; however, in May charges were down $8,000 from April, even though volume increased by 100. This could be because the practice sees fewer acute patients in May compared to April. If that isn’t the case, could it be a new provider joined the practice in May, whose documentation isn’t adequate, resulting in a lower average charge? Determine the reasons for the metrics shift and remedy them.
Adjustments: The adjustments, mostly insurance allowances that the practice accepts based on contracts with payers, range from $9,000 to $19,000. Overall, they appear consistent with charges and payments.
Payments: Payments range from a low of $21,000 in June to a high of $37,000 in October. In using a KPI spreadsheet, you can see the impact of increased charges in July and August on payments in August and September. Payments of $21,000 in June appear low based on the charges. Consider drilling down into this metric. There are a few possibilities. There may have been a payment postings backlog in June. Sometimes, large payments come late in a month and are not included in the month-end totals. You might reconcile deposits with payments (do this monthly) to see if this is an issue. Or maybe there was a shift in payer mix. This will require more specific metrics showing payments by payer.
Collections: Accounts that moved to this status ranged from a low of $2,500 in August to a high of $8,200 in September. Collections status needs to be monitored carefully. Often, management controls transfer to collections status, especially in smaller practices. There could be good reason for this variance; for instance, in house collectors are following up and the manager does not want to send the accounts to a more expensive collection agency. The decrease can also mean the person who manages the transfer to collections was busy, and many uncollectable accounts remained in the active A/R instead of being worked aggressively in collections. I have seen this issue many times in our consulting practice.
Ending A/R: From an accounting point of view, the beginning and ending A/R should reconcile each month. With automated systems, this typically is not an issue, but it’s a good idea to continuously watch the A/R to determine if there are major increases or unexplained decreases. An A/R decrease should be a good thing, reflecting collection improvement and efficiency. But that is not always the case: A large transfer of accounts to collections status could also decrease A/R.
Use KPI Spreadsheets to Identify Issues
A KPI spreadsheet allows a manager to spot trends in charges, payments, adjustments, collections, and A/R that can’t be identified by reviewing month-end or year-to-date metrics only. With improvements in databases and reporting, this type of report should be available from most billing software packages. If you’re not receiving one, request it!
These spreadsheets can be very useful in identifying revenue cycle issues, but to pinpoint and resolve issues, more data is necessary. There are many other reports in most billing packages, from “aging” to various production reports. Consider using additional performance indicators to make your KPI spreadsheet the best management report.
Coming up: We’ll look at additional performance indicators and the metrics for average charge, adjustments, payments by payer, and decreased A/R in greater detail in an upcoming issue of Healthcare Business Monthly.
Jim Strafford, CEDC, MCS-P, has more than 30 years’ experience as a consultant, manager, and educator in all phases of medical coding, billing, compliance, and reimbursement. He is published, with expertise in on emergency department revenue cycle and coding issues. Strafford is the principle at Strafford Consulting Services and a member of the Philadelphia, Pennsylvania local chapter.