| END
OF THE YEAR OPPORTUNITIES
It’s
the end of the year and time to review every aspect of the business
of your practice in order to plan for the upcoming year.
Fiscal
Year-End
We recommend that you have your fiscal year coincide with the calendar
year, at least in your practice management computer system. This
allows for somewhat easier calculation of financial performance,
as Medicare and some other payors adjust their fees and payment
policies on January 1 of each year. If your fiscal year doesn’t
correspond to the calendar year, accurate calculations of collection
targets that coincide with government payors is more difficult.
Fee
Schedule Adjustment and Recalculation
The end of the year is the ideal time to regenerate your fee schedule.
As noted in various issues of this newsletter, we recommend that
you develop your fee schedule as a multiple of your local Medicare
Fee Schedule (MFS). If your medical market is heavily dominated
by managed care, simply determine the mode of allowable PPO and
HMO payments and express them in relationship to your local MFS.
For example, in Chicago, the current mode of managed care payments
is at the local MFS. In San Francisco, it is 80% of the MFS, and
in other markets, it may be MFS plus 10% or MFS plus 15%.
If
you examine your payor-mix and find you have a significant amount
of insurance that pays in excess of those multiples, you can go
higher. The important thing to remember is that your fee schedule
places a value on your services. Its two main purposes are to ensure
that you don’t leave any revenue “on the table” (charge less than
the payor’s allowable) and to provide a basis for your assessment
and management of the billing and collections process. Since most
payors these days base their payments on the MFS, using a multiple
of the MFS allows straightforward calculations of expected payments.
Again,
the end of the year is the best time to recalculate your fee schedule
and implement the new fees on January 1.
Business
Structure
If your practice has two or more distinct businesses (e.g., medical-surgical,
contact lenses, optical dispensing, refractive surgery, cosmetic
surgery) and your computer system files are not structured in a
way to easily segregate the financial data (charges, collections,
AR, etc.), the end of the year is the time to make the necessary
changes. This can be done by defining “departments” in your computer
(if the software has this capability), or by identifying each line
of business as a separate location, office, or provider.
Product-Line
Analysis
The end of the year is an excellent time to review the distribution
of services in the practice. Total the frequency of charges and
RVUs by category (e.g., office encounters, refractions, office surgeries,
hospital surgeries, etc.) and compare those figures to the totals
for the previous year(s). You should be able to determine if your
practice is growing or if your service mix is shifting.
Computer
System Set-Up
If your insurance plans are not properly categorized for accurate
management reporting, the end of the year is a good time to recategorize
them. This is especially true if your computer system will only
report the current year’s data once the previous year is closed.
Realigning your insurance plans into classes based on expectation
of payment (if this hasn’t already been done) will allow you to
begin the year with the ability to generate the data to calculate
accurate payor-mix and collection targets.
Payor-Mix
Payor-mix should be tracked throughout the year as it defines the
practice’s customers. The end of the year is a good opportunity
to review the overall payor-mix by charges for the entire 12-month
period and compare it to the previous 12-month totals (assuming
that you’ve not realigned payors since the last year was closed).
Overall
Collection Performance
While this is an assessment that should be performed regularly,
the close of the year is a good opportunity to assess your collection
performance for the year. Remember to match payments to the charges
that generated the payments. If your system can match payments to
charges, generate a report of charges for January through September,
including the corresponding payments against those charges. Remember,
the payments generated by the charges for October, November, and
December will not be completely collected by year-end.
If
your system cannot match payments to charges, the best you can do
at year’s end is to develop a gross collection ratio (GCR) by comparing
total charges to total payments for the year. Unless there have
been significant aberrations in the practice’s business (added or
reduced providers, large changes in reimbursement, interruptions
in the billing process at the beginning or end of the year), the
calculated GCR will be reasonably accurate.
Compare
the GCR to your calculated target. If you are more than 5% below
target, begin an investigation to determine whether the variance
is accurate or possibly a function of inaccurate data or inaccurate
assumptions in calculating the target. If the assumptions and data
are accurate, begin your investigation with AR summaries and move
to a review of business office workflow and practices (e.g., tools
for determining adequacy of managed care payments, pursuit of patient
balances, etc.) and finally, to a review of a sample of accounts
to find unpaid or underpaid claims. The last step is to make sure
that adequate resources are available to track and pursue unpaid
receivables and to manage your relationship with your payors.
Collection
Performance by Plan
Generate a report of charges and payments by individual insurance
plans to determine if each plan is paying according to the contracted
allowable payment levels.
Capitation
Analysis
Review any capitation contracts to determine your income per provided
RVU, comparing that income level to previous years. Remember to
adjust for changes in capitation rates and covered services.
Financial
Policies
The end of the year is a good time to review your practice’s financial
policies as communicated to new patients, including your policies
on collection of copayments at time of service, patient responsibility
for noncovered services, and signed waivers for Medicare patients
for refractions and other noncovered services. Part of your review
should be to assess how effective the staff is at communicating
and enforcing those policies with patients.
Front
Desk Collection Performance
Review the percentage of copayments collected at time of service.
If there are data from earlier years, make sure that your front
desk staff are maintaining a high percentage of copayment collection
at time of service.
Billing
Workflow
Take the opportunity to review your staff deployment as well as
all of the workflow, anti-embezzlement, and monitoring tools in
place in your business office. A useful process is to meet with
the practice’s administrative physician or managing partner for
a brainstorming session to discuss the business office structure
and workflow.
Expense
Analysis
After the fourth-quarter income statement (income and expense by
category) is complete, calculate your overhead cost as a percentage
of income and compare it to previous years. Assure yourself that
your expenses are under control and not creeping up. Also, it will
be important to separate your income and costs by line of business,
such as optical dispensing, refractive surgery, medical-surgical,
etc.
Overall
As in your personal life, the beginning of the new year is an excellent
opportunity to turn over a new leaf and resolve to reorganize your
practice’s business processes, including operations and performance
monitoring. Include this topic in your meeting with your physician(s)
and resolve to implement all of the changes you’ve been thinking
about but waiting for the right time to start. The beginning of
the new year is the right time.
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Ron
Rosenberg, PA, MPH, Author
Irene Chriss, Editor Practice Management Resource Group Director,
AAO Practice
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