How healthy is your practice?

| May 16, 2016

How healthy is your practice?

You want to know how to measure the financial health of your practice, but are understandably busy and don’t have time to monitor pages of metrics. Check the “vital signs” of your practice by monitoring the four key financial benchmarks below over time and comparing them to national averages.

“These four measurements are used in my practice every month to give a quick and valuable assessment of our performance:  How productive are the providers, how are we managing our expenses and most critically – how are we doing on our cash and debt collections,” said Kay Tyler, MBA, ACAAI Practice Management vice-chair and chief executive officer at Family Allergy & Asthma. Below, we’ve outlined an action plan for how you can put these four measurements to work in your own practice.

1. Net Collection Rate

What this tells you: Of the money you should collect, how much did you collect?

When you enter into a contract with a payer, you agree to take a contractual adjustment off your gross charges. This benchmark tells you how successful your practice is at collecting the money you are owed.

Calculation: Net collection = (total collections) / (gross charges – contractual adjustments)

Action Plan: Your target net collection rate should be 95% or higher. If the number is lower, you may not be billing out timely and/or you may not be submitting clean claims. In addition, you may not be fully collecting patient payments. To investigate, calculate the net collection rate by payer to see if a particular payer (including patients!) is responsible. You may also need to research your claims submission and denial management processes.

2. Aged-trial balance and Days in accounts receivable

What this tells you: How long are you waiting to collect the money you are owed?

The aged-trial balance (see example below) tells you how much you are collecting in the early stages of billing (0-30 days) vs. how much you may have difficulty ever collecting (> 120 days). Days in accounts receivable (A/R) tells you the average number of days it takes to get paid.

Example: ABC Allergy Practice
% of A/R 0-30 days 68%
% of A/R 31-60 days 14%
% of A/R 61-90 days 4%
% of A/R 91-120 days 4%
% of A/R > 120 days 10%
Days in A/R 34


Calculation: Days in A/R = total A/R / (12 months of gross charges / 365)

Action Plan: Ideally, your % of A/R in the 0-30 day bucket should be 70% or higher. In a better-performing practice, no more than 10% of your outstanding charges should be for services over 120 days old. Days in A/R should be less than 35, but may be higher if you have slow payers. (MGMA reported the 2014 average Days in A/R for primary care practices was 39.6 compared with 23.5 for better-performing practices. Multispecialty practices were slightly higher.) If you’re not hitting these targets, you may want to run this report by payer to see if there is one particular slow-to-pay carrier. Your revenue cycle management process may also need review. Check your charge lag, front-end collection, verification of benefits and denial management processes.

3. Overhead Ratio

What this tells you: For every dollar that comes in, how much goes out in expenses?

This measures the level of expenses in your practice.

Calculation: Overhead ratio = expenses (excluding physician salaries & benefits) / collections

Action Plan: According to MGMA, in 2014 the average overhead ratio for family medicine was just under 60%, which is a good target for allergists. If your overhead rate is higher, review detailed expense categories to look for opportunities.

4. Gross Charges / Work Relative Value Units

What this tells you: How productive is your practice?

Monthly trends in gross charges can give you a heads up on future profitability and cash flow and can give you a sense of whether your practice is growing. Work Relative Value Units (WRVUs) measure physician productivity by assigning a value to each visit or procedure.

Calculation: WRVUs are calculated by multiplying the number of services for each CPT code times the specific WRVU value for that code. Next, add up the RVUs for each provider.

Action Plan: Track each provider’s WRVUs by year and compare to MGMA benchmark. The 2014 MGMA median WRVU for Allergy/Immunology is 4,379. The 75th percentile WRVU for A/I is 5,729. This will give you a sense of how productive each physician is. You may find there are opportunities to schedule more patient visits or that you are maxed out and need to add a new provider.

Source: MGMA DataDive™ Provider Compensation 2015 and MGMA DataDive™ Cost and Revenue 2015. Used with permission from MGMA, 104 Inverness Terrace East, Englewood, Colorado 80112. 877.275.6462. Copyright 2015.