| Five Places To Pinpoint Shrinking Cash Flow |
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Question Our practice's cash flow has been diminishing over the past several months. But our productivity remains the same, if not better, and our billing and collection staff seems to be working hard. Where should I look for problems? Answer There are five primary areas your practice should investigate: cash controls, billing, collections, accounts receivable management and managed care contracts. Cash controls. First, compare the monthly patient revenues posted in the billing system to the amount that is posted in the general ledger. The totals should be the same. If not, the differences should be reconciled. If the amount in the general ledger is less than that on the billing report, it could mean there are posting errors in the billing system or that deposits are not being posted to the general ledger. This would have an obvious impact on cash flow reports. Regardless of whether one report's totals are greater than another, further investigation is required to determine why there is a discrepancy. To do this, look at each daily close and confirm that the total payments per the superbills, receipts and check copies equal the amount posted to the billing system, the amount listed on the bank deposit slip and on the associated bank deposit receipt. You may take it a step further by comparing the billing system end-of-month figures with the reconciled bank statement. Ongoing discrepancies indicate that formal cash management controls should be implemented and monitored daily. Billing. Another area that impacts cash flow is the accuracy and timeliness of billing. Office visit/procedure charges typically should be submitted to the insurance company within one work day. Hospital and surgery charges should take no longer than five days to submit. There are also filing limitations such that if a claim is not submitted within a certain time frame from the date of service (usually 90 days), the insurer will deny payment. Collections. Review collection policies and procedures and monitor your staff's performance for adherence. Find out how long the billing and collection staff waits to begin following up on an unpaid claim. We recommend no more than 30 days. If there is a delay in payment, it may be because the insurer considered the claim not clean, or perhaps it never made it to the insurance firm, or there is some other holdup. Working the claims is a very time-consuming and necessary task -- one that must be done daily to ensure appropriate cash flow. Accounts receivable management. Look at key accounts receivable management indicators such as gross collection rate, net collection rate, accounts receivable ratio and adjustment rate. This information may be extracted directly from your practice management system reports or calculated using data from various system reports. The gross collection rate -- receipts divided by charges -- indicates the amount of money coming into the practice in comparison with the charges. For most specialties, this rate should be 70% to 80%. The net collection rate -- receipts divided by the difference of charges minus adjustments -- shows the relationship between receipts and charges once the anticipated adjustments are removed. This is a truer picture of how much your practice is receiving for each charge dollar. Generally speaking, this rate should be greater than 90%. The accounts receivable ratio shows how fast the charges are being paid. Depending on the specialty, this can range from 1.2 to 2.5 months, meaning that it takes an average of 36 to 75 days to receive payment. Clearly, the staff needs to work toward the lower figure. Usually no more than 20% to 25% of the accounts receivable should be greater than 90 days old. The adjustment ratio indicates what percent of the charges are being adjusted. The lower the percentage the better. If the ratio is greater than 30%, it would be prudent to look at the amounts in the individual adjustment accounts to see if there are any accounts that seem unusually large. High adjustment ratios, along with low collection rates, could be caused by inappropriate fees or unnecessary write-offs. The latter may be due to staff's lack of knowledge as to what the insurance companies should be paying for certain procedures and/or the lack of, or minimal denial appeal activities. Ignored denials will have a negative impact on cash flow. Managed care contracts. One way to investigate this further is to review a group of explanations of benefits from several insurers and compare what the practice is being reimbursed with what insurers should be paying. Discrepancies should be addressed with the insurers immediately. Using the top 20 CPT codes, you also may want to compare what the practice's top five to 10 payers are reimbursing. If any reimbursements are the same as the charge, you should consider increasing the charge to make sure you are getting the maximum amount allowed. This could prove to be an easy way to increase revenues and improve cash flow. Written by: Karen S. Schechter |
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