10 Key Indicators Of Practice Performance These Numbers Can Help Create An On-the-money Analysis Of Your Facility

Doctors need to know the financial position of their medical or dental practice, but they don’t want to be overloaded with lengthy information reports spewed from their management-information systems. On the other hand, merely looking at the cash balance in the checking account or accountant-prepared financial statements won’t paint a complete picture of health.
Most physician practices prepare financial statements on the cash or income-tax basis of accounting. These are useful, but, viewed alone, they may mask serious fiscal problems that can run a practice into the ground within six months or less.

The following 10 indicators can be easily gleaned from most basic accounting, billing, and collection systems. They should be compiled on a year-to-date basis with comparable year-to-date information from the prior fiscal period. They should be reviewed by the doctors on a monthly basis.

• Detailed Income and Expense Variable Report. This report will quickly highlight individual income and expense account balances that are significantly at variance with budgeted or prior year-to-date amounts, for further follow-up.

• Accounts Receivable Aging Summary. This analysis should be prepared on both the date-of-billing and date-of-service bases. If the aging is significantly different on the date-of-service basis, it can indicate delays in the billing process. It can also indicate untimely follow-up on claims denials. If 15{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 20{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} or more of the account balances are more than 100 days old, you need to find out why and take immediate corrective action.

• Days Billings in Accounts Receivable. This is commonly calculated by dividing a rolling 12 months of gross charges by 365. The month-end accounts receivable balance is then divided by this number to arrive at days billings in accounts receivable. Compare this average with historical and peer group benchmarks.

• Effective Collection Ratio. This is often the most incorrectly calculated and utilized indicator. If utilized properly, it can identify collection problems, fee schedule problems, and problem payers. For the most accurate ratio, divide collections for a rolling six-month period by the sum of collections plus adjustments for the same period. This should be calculated for the practice in total and individually for each major payer. Fluctuations from period to period within the practice should be investigated.

• Accounts Payable Aging Analysis. This report, which is an analysis of bills owed, is often underutilized. Doctors can be misled by cash in the bank and paid expenses “under control,” only to find out that the practice is 60 days or more behind in paying its bills.

• Retirement Plan Contribution/Accrual Analysis. Some practices fund their retirement plan contributions monthly throughout the year. Others don’t fund any until the following year. However it is funded, the annual retirement plan contribution should be estimated and accrued monthly. Doctors should be reminded of the status of the annual retirement plan expense and liability for planning purposes.

• Payer Mix Analysis. This should be prepared on both the gross-charge basis and cash-receipts basis. It tells how much of the practice revenue is derived from specific payers. It is important from a strategic point of view and, coupled with the effective collection ratio, can be significant to fee negotiations.

• Break-even Cash Flow Analysis. This indicator is determined by adding total budgeted expenses, principal debt payments, and capital expenditures paid out of operating cash and subtracting amortization, depreciation, and other non-cash expenditures. Divide this sum by 52 weeks, and you have the average weekly collections required to break even on a cash basis. This is the minimum target for the billing and collections personnel. The actual collections should be compared to this target on a weekly and monthly basis. This target should be reviewed and adjusted as appropriate.

• Provider Productivity Analysis. A year-to-date report of gross charges, adjustments, and collections by provider monitors the contributions each makes to the practice. Some practices use other units of productivity, such as relative value units. It helps identify opportunities for improvement and progress towards organizational and individual goals.

• Patient Activity Analysis. A report of patient encounters, patient procedures, and new-patient visits identifies trends in patient flow and volume. It can identify needs and opportunities in the areas of patient scheduling, practice marketing, and ancillary services.

Utilizing Excel spreadsheets, these performance indicators can be quickly compiled and kept on record for future use. Doctors who utilize these monthly to monitor practice vital signs will make more timely informative decisions and avoid costly, unanticipated surprises.

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers, P.C. in Longmeadow; (413) 567-6101.