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Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping, and payroll services.
Healthcare is unique in the limits physicians have to predict practice revenue from a variety of payer models.
Healthcare is unique in the limits physicians have to predict practice revenue from a variety of payer models. As we look to the future of healthcare delivery, medical practices will still contend with these limitations, but they can control at least two things: how well they care for patients and how efficiently they run their practices. On the business side, efficiency can be measured and improved by the right key performance indicators (KPIs).
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The majority of KPIs will address the revenue cycle. As measurable indicators, a medical practice’s KPIs may include, but are not limited to:
· Gross charges
· Net charges
· Gross/Net collection percentages
· Work Relative Value Unit per provider (wRVU)
· Charges per wRVU
· Collections per wRVU
· Accounts receivable aging overall and over 120 days
· Charge entry lag
· Days in accounts receivable by payer
· Denial rate by payer
· Self-pay balances
· Bad debt write-off
· Patient encounters per day
· No-show rates
· New patients as a percentage of total visits
KPIs like these will ultimately answer the question: Is this a profitable practice? If the answer is no, there are certainly areas for improvement that can be monitored and measured through a continued focus on KPIs.
For example, let’s look at wRVUs per provider, which is basically the level of productivity (billable work) expected of each physician relative to compensation. Each physician will have his or her own wRVU benchmark based on past productivity as well as the types of services rendered. Practice groups can determine baseline percentiles by reviewing data published by the Centers for Medicare & Medicaid Services at least annually. Though not without its flaws, such as the inability to measure quality or patient satisfaction, a wRVU is independent of physician schedules, insurance coverage or reimbursement. It can measure the output of each physician-creating an opportunity for setting productivity goals as well as bonuses tied to patient care and quality. It can also pinpoint real barriers to productivity.
According to a presentation by QHR Learning Institute, one of the biggest sources of medical practice loss is productivity levels versus compensation-accounting for 59% of practice losses. Physicians with low productivity who are still highly compensated-loosely defined as spending less time on patient care than on administrative duties-will add to practice inefficiency. Therefore, the most highly compensated physicians should spend a high percentage of their time on direct patient (client) contact while delegating nonbillable tasks to lesser-paid staff.
Without a method for measuring productivity, owners won’t know if they need to boost productivity or if perhaps the practice is underpricing services. Management may also discover a need to hire additional administrative staff so that physicians can spend more time on patient care.
KPIs can also bring to light operational inefficiencies that make a big impact on cash flow. A workshop series prepared by the Institute of Medicine in Washington D.C. in 2009 laid out categories of waste found in the US healthcare system. Ranked in respective order as a percentage of US care spending, they included:
· Unnecessary services
· Inefficiently delivered services
· Excess administrative costs
· Prices that are too high
· Missed prevention opportunities
The report concluded that $6.4 billion could be saved annually in U.S. healthcare costs by reducing clinical and administrative waste in physician offices (about .2 percent of total U.S. healthcare costs at the time). Although this study was conducted more than eight years ago, the identified areas of waste are still relevant today to help practices strive for increasing efficiency.
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Tracking “charge entry lag,” for example, is an area for reducing administrative costs that impact revenue. This KPI shows how soon charges are entered into the system after the date of service. The management team will quickly see that a charge entry lag of even three days can lead to an increasing lag on accounts receivable and cash flow over time.
Best practices dictate that KPIs are reviewed weekly to help practices make improvements over the short-term. This diligence avoids long-term impact on profits. By the time quarterly financial reports come out, it is too late to make adjustments, and you have little more than a historical record to file under “missed opportunities.”
KPIs may vary by type of practice, and it is important for management to identify the KPIs that make the most sense to track. Too many KPIs and oversight is too cumbersome; too few and the data is insufficient for pinpointing improvements. To support this process, there are several dashboard programs on the market that practice management can demo to learn more about creating and managing a healthier practice. Search online for “KPI dashboards for medical practices” and find some examples. The best dashboards offer:
· 12-24 critical core performance indicators that match top organizational goals
· Information organized for quick and easy comprehension
· Integration with daily practice management and culture, so that individual physicians get into the habit of monitoring KPIs.
Don’t expect technology to solve every problem (e.g. EHRs). A better starting point is a conversation with your CPA team, who can review financials and your back office functions to identify potential improvements in processes, staffing, accounts receivables and more.
Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at email@example.com or 972-202-8000.
Yong, Pierre. Punzalan, Michael. Taylor, Erin. “The Healthcare Imperative: Lowering Costs and Improving Outcomes: Workshop Series Summary, Appendix A” 2010. US Institute of Medicine.
Eddy, Sam. “Key Performance Indicators for Physician Practices,” January 2013 QHR Learning Institute. http://qli.qhr.com/2013/presentations/20130124PhysicianPractices.pdf