7 Steps to Measure Business Success
2019 – 04/09 Accounts receivable (AR) data measures how effectively a business collects the money it is owed. This is meaningful information in all businesses, but holds special importance for healthcare practices where billing can be complex and involves both private and insurance payers. Analysis of AR data provides key performance indicators (KPI) that can be tracked over time to reveal opportunities for improving cash flow and profitability.
AR analysis is ideally performed monthly, quarterly, and annually. It can be conducted internally by your administrator or office manager, or it can done externally by your accounting firm or healthcare consultant.
So how do you get started? Below is a step-by-step process to aid you in completing an analysis.
Step One: Gather the data
Use the reporting tools of your practice management system to collect or export the following data. Pull monthly data for the current and prior year and organize it in a spreadsheet.
- Accounts Receivable Aging (Insurance & Private Payments)
Step Two: Calculate the key indicators
Using the data collected in Step One, calculate the following indicators.
Gross Collections – This ratio indicates how much of the office’s total billing is actually collected. Acceptable averages vary based on fee schedule and are specialty-specific. Refer to national averages from trade organizations for benchmarks for your specialty.
Gross Collections = Payments / Charges
Net Collections – This indicator refines gross collections by taking adjustments into account. The average should be 95% to 105%. A lower figure can indicate a problem with the billing and collection process. In most cases, net collections is a more meaningful number than the gross figure and should be given greater emphasis in evaluating the effectiveness of your billing operation.
Net Collections = Payments / (Charges – Adjustments)
Accounts Receivable Days – This is the average number of days it takes to collect on an account. An industry average is 45 days, but this can vary greatly by payor mix and specialty. Faster collection of revenue means more bank account interest and/or less need for borrowing to cover short-term cash flow needs.
Accounts Receivable Days = Accounts Receivable / (Charges / Days in Period)
Step Three: Compare performance
The three metrics above give you a quick snapshot of the effectiveness of your billing and collections operation for the current month. For greater insight into performance, it is helpful to compare to previous periods. Use a spreadsheet or graph to track trends on a monthly, quarterly and annual basis. It is also beneficial to compare your practice to specialty-specific national averages.
Step Four: Explore variances
As you compare your current data with last month or last year, look for significant positive and negative variances and start asking questions. Why did charges go down in February? Why is it taking longer to collect accounts now versus last year? Why have net collections dropped over recent months? Some answers will be simple – a physician went on vacation, your collections team was shorthanded, your payor mix changed, etc. – but others will merit deeper research.
Step Five: Identify opportunities
By studying variances, you will uncover areas that warrant further investigation and, possibly, corrective action. What’s causing the decline in payments? Are more patients using insurance? Has a major insurer changed its contracted rates? Is a new competitor eroding your patient base? Or is it a staffing or employee performance issue? The answers lie in you practice management system reports.
Step Six: Create a plan
Based on your analysis of recent performance and longer-term trends, you can develop a plan of action to correct any negative trends and foster positive trends. Report these findings to the physicians and obtain their feedback.
Step Seven: Follow up
The final step is often the hardest – implement your plan and follow up every month to see if it is working. If you don’t see improvement, check your processes and personnel to find causes you may have missed. Keep trying changes until the problem is solved.
Also, it’s a smart practice to document events that affect the numbers such as ending the acceptance of new patients, delays in insurance payments, or the addition of a new physician. This kind of information will provide a historical reference and aid in future analysis.
AR analysis can seem overwhelming at first, but it’s worth the effort. We recommend starting small – analyzing the practice as a whole, one month at a time. As you gain experience, focus more on trends and perform the analysis for each physician separately.
If you have questions or need help, contact Bland Garvey’s Healthcare Consultant, Deborah Carroll, at 972-301-9517.