BOO! Determining the overall performance of your billing operations is a scary task. Unfortunately, there is no “silver bullet” to slay (answer) this “Werewolf” of a question.
The Basics of Measuring Practice Billing Performance
Medical practice owners and administrators need to understand their practice billing performance, but doing so is not easy. There is no single measure to give you a complete picture of your practice billing performance. To properly assess performance, there are several key measures that are necessary to evaluate and understand. These measures include, but are not limited to: Accounts Receivable (AR) balance, AR Days Outstanding, Net Collection Percentage, % of AR greater than 120 days old. Over the coming weeks StreamlineMD will review these indicators in a series of blogs to help our clients understand their practice performance, starting with Accounts Receivable in this issue. Below is a simple review of Accounts Receivable (AR).
What is Accounts Receivable?
The simple answer is that AR represents the amount of money a business expects to receive, in the future, based on revenue recognized for services performed on a given date. However, a medical practice is like no other business and its measurement of accounts receivable is a prime example.
Most medical practices use a Cash Basis of accounting, and AR represents the gross amount of charges billed and outstanding. However, much of this balance is due from health insurance companies which, before payment, will deduct a portion of the charged amount based on negotiated contract rates. These deductions are known as “contractual fee adjustments” and are determined during the claim adjudication process and reflected on a document known as an explanation of benefits (EOB). Medical practice AR also includes amounts that are expected to be collected, such as amounts due from post-adjudication patient balances or patients without insurance.
So, the full amount of medical practice AR typically includes a mixture of pre-adjudication gross charges and post-adjudication patient balances. This factor, which is unique to healthcare businesses, causes AR balance to reflect an amount greater than one should expect to collect.
How is AR created?
When a doctor sees a patient, several things must occur to get paid for the service:
Since the practice is not typically paid cash at the time of service, the gross charge amount is recognized as an “account receivable”. However, as discussed above, the practice is expecting the insurance company to deduct a contractual adjustment from this gross charge, and pay the resulting “allowed amount” in the future.
How does AR change?
When the claim is adjudicated by the insurance company, the practice receives an explanation of benefits (EOB) which explains what the insurance company allows for the service versus how much must be deducted as a “contractual fee adjustment”. It further informs the practice of how much the insurance company is paying versus and how much the practice must bill the patient.
When the biller enters the EOB information into the billing system, the AR changes as follows:
AR = Charges, less Adjustments, less Payments
Please note, this is meant to be a simple example of medical claims billing, adjudication, payment and resulting AR. In many cases the process gets quite “spooky” and far more complicated due to various insurance plan formats, partial claim adjudication, deductibles, co-pays, max out-of-pockets, denials, partial payments, requests for additional information, etc. As such, it is important to understand that your practice AR balance over time reflects a combination of both gross charge and partial and post-adjudication amounts.
How often should I review my AR Balance?
During each month hundreds or thousands of such charge, adjustment and payment transactions occur in a practice, and thus the AR balance fluctuates from day to day. It is considered “best practices” to keep an eye on your practice AR balance throughout the month, and review it closely once per month, based on your remaining balance on the last day of each month. Since there are many billing tasks performed on different days and scheduled cycles throughout the month, it makes most sense to conduct your AR review monthly, based on the remaining balance on the last day of each month, comparing your most recent month end balance versus the recent trend of previous months’ balances, taking into consideration changes in your practice patient volumes. As an example, in general, one would expect AR balance to increase over time as patient volumes and practice charges grow from month to month, and vice versa. Keeping these factors in mind will allow you to judge your AR balance on a more consistent, apples to apples basis.
Note: StreamlineMD’s performance dashboard within the StreamlineMD PM+ billing software module allows users to view their practice trends for charges, payments, adjustments, and AR balance and can be filtered by practice provider or location.
In future issues of our newsletter/BLOG, we will review the other key billing performance measures including AR Days, Net Collection Percentage, Denial Adjustments, Bad Debt Write-offs, and Refunds.
We hope you didn’t find this information too terrifying! If you have any questions on this topic, please contact your StreamlineMD client representative.
Happy Halloween from your friends at StreamlineMD.