Physiatry Practice Management Resources

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Significant differences exist in the billing performance of physician group practices in Pennsylvania and New Jersey. Some practices are struggling to maintain a basic level of billing effectiveness while others have made significant improvements in their billing operations. These improvements are evident in rock bottom accounts receivable, a higher collection ratio and decreased billing errors.

New Physician Billing Benchmarks

One of the historical benchmarks for accounts receivable (A/R) has been the target of 60 days of revenue in A/R. The term, "days of revenue" is based on the average amount of charges per day. If a practice averages $10,000 in charges each day, "60 days of revenue in A/R" equals $600,000 in accounts receivable. This statistic may also be referred to as "Days in A/R," or "DGRO" = "Days Gross Revenue Outstanding".

Our work with practices in this region shows that well-run billing departments can do substantially better than this. We have worked with specialty group practices that consistently operate with 35 days of revenue in accounts receivable. These are surgical and other specialist practices operating under fee-for-serve reimbursement without capitation. An A/R of 35 days is significant because specialty practices face some of the toughest billing regulations that may delay payment and drive up their accounts receivable.

Groups that have slashed their A/R frequently see a windfall from collecting cash that was tied up in unpaid accounts. A group that has cash collections of $250,000 per month ($3,000,000 per year) may produce $205,500 by reducing its A/R from 60 days to 35 days.

Efforts to work down A/R often lead to ongoing billing improvements and that means that practices with an A/R at or near the benchmark commonly have a higher overall collection ratio from reduced billing errors such as:

• Pended claims that are never worked.

• Erroneous claims that are not resubmitted.

• Denials for untimely filing.

• Unjustified insurance denials.

• Miscellaneous errors by billing staff.

The collection ratio may be two to three percent higher. While this may not seem like much, in a group with $3,000,000 in annual cash collections a two percent improvement generates $60,000 and a three percent improvement yields $90,000.

A lost claim can cost a specialty practice $500 to $2,000 or more, so the two to three percent improvement may come from collecting a relatively small number (45 to 180) of previously lost claims.

Detailed Accounts Receivable Analysis

Practices with rock bottom A/R have an accounts receivable aging profile that is markedly different from practices with higher accounts receivable. Their A/R differs in two important ways:

• They have significant collections in the 0-30 day aging category, resulting from timely submission of clean claims.

• They have a comparatively low A/R in the 120+ aging category, showing that unresolved claims and self-pay balances do not fall between the cracks.

Following is a detailed discussion of the characteristics of the accounts receivable aging for a physician practice with an accounts receivable of 38 days of revenue.

Accounts Receivable 0-30 Days. In a practice with low A/R approximately 30 percent of a month’s charges are adjudicated within the first 30 days. A group that generates $500,000 per month in charges will have approximately $150,000 of those charges resolved by the end of the first month. This is an important statistic to track because the claims resolved in the first month are an indicator of clean claims and the timeliness of payers.

In Pennsylvania and New Jersey Medicare and the predominant private payers will pay clean claims in less than 30 days. We have seen turnaround times as low as 20 days from the date of service, as measured by comparing the service date to the EOB (remittance advice) date. Therefore, it is reasonable to expect that approximately 30 percent of an average month’s charges will be resolved within the first 30 days.

Accounts Receivable 31-60 Days. In a model practice approximately 84 percent of charges are resolved within the first two months. If a group’s charges are $500,000 per month, the A/R in this aging category should not exceed $80,000.

The accounts receivable in this age range is comprised of claims in process by insurance companies, secondary insurance balances, co-pay and deductible balances and perhaps some claims that have been resubmitted after an initial rejection

A claim that is 31 days old is certainly within normal limits for timely adjudication by an insurance company. But a claim that is 60 days old is becoming overdue. If the amount in this aging category is substantially higher than the benchmark, there are often problems with payers or the claims have errors that cause them to be pended or rejected.

Accounts Receivable 61-90 Days. Over 90 percent of an average month’s charges should be resolved within 90 days. So, following the previous example of a group with $500,000 per month in charges, the total A/R in this aging category should not exceed $50,000.

This category routinely includes self-pay balances or secondary insurance balances, rejected claims not resubmitted by the practice, resubmitted claims being processed by payers, claims pended by insurance companies or those nebulous claims the were billed but "disappeared."

Generally, accounts in this age range are considered overdue and intensive follow-up should begin at 60 days. Some claims such as workers comp and auto accident may appear in this age range without being considered overdue.

Accounts Receivable 91-120 Days. In a model practice with a benchmark A/R, 93 percent of monthly charges have been resolved within 120 days of the billing date. The A/R should not exceed $35,000 in a group generating monthly charges of $500,000.

The accounts that will appear in this aging category will include some self-pay balances, litigation accounts and problem insurance claim.

The A/R balance and the percent of average monthly charges in this aging category are generally a measure of the extent of the billing errors in the practice. This category shows the frequency of claim errors and the lack of follow-up. The rationale for this assertion is that clean claims and effective follow-up will resolve claims within this time frame.

Accounts Receivable 120+ Days. This aging category is the "catch all" bucket for all unpaid claims or self-pay accounts. The only two non-problem types of accounts that appear in this bucket are litigation accounts and self-pay payment plans. All other accounts in this aging period should be considered problems.

In a high-performing practice the balance in this aging category may range from 22 percent to 28 percent of a month’s charges. In part, this range is derived from a rule that accounts in the 91-120 day aging category should be definitively resolved with 90 additional days of follow-up. Final resolution of accounts should include collection and bad debt write-offs.

Benchmark Statistics

With the claims processing turnaround times we are seeing from the major payers in the region, we believe that the benchmark of 35-40 days of revenue in A/R is a reasonable goal for private specialty groups. Furthermore, we believe it is realistic to achieve the following profile for accounts receivable aging:

• The total accounts receivable in the 0-30 day aging category should not exceed 70 percent of monthly charges.

• The A/R in the 31-60 category should not exceed 15 percent of monthly charges.

• The A/R in the 61-90 day category should not exceed 10 percent of charges.

• The A/R in the 91-120 day category should not exceed seven percent of charges.

• The A/R above 121 days should not exceed 25 percent of monthly charges.

These parameters are based upon a true aging from the date a service is billed. Many billing systems will re-age an account or claim if it is transferred from one payer category to another. This is not a true aging, and it skews the aging to younger aging categories.

Exceptions to the Rules

The benchmark A/R of 35-40 days or revenue is not attainable by all practices. Academic practices or hospital-based specialists will usually have more days of revenue in A/R than private practices. The revenue cycle in academic and hospital based practices is more complex with additional billing steps and built-in delays that drive up the A/R. These practices face increased rejections, more erroneous claims and longer turnaround times because of factors such as numerous duplicate patient accounts, slower turnaround times from Medicaid and Medicaid HMOs and difficulty in obtaining accurate referring physician information.

Practices with a high portion of Medicaid or Medicaid HMOs or those with a significant number of workers compensation, injury and legal cases will also have an accounts receivable higher than the benchmark.

On the other side of the benchmark, highly capitated primary care practices often beat the 35-40 day benchmark.

Insurance Contractual Allowances

It is possible to achieve an A/R of 35-40 days of revenue, but the challenge is to do this while simultaneously minimizing write-offs. Write-offs fall into two categories: insurance contractual allowances (C/A) and write-offs taken by the practice.

A variety of errors can occur with insurance contractual allowances and, for some practices, these errors represent the largest amount of lost reimbursement. The most common errors in contractual allowances include writing off rejected services as contractual allowances rather than resubmitting the claim and accepting partial payments from payers and writing off the balance as a contractual allowance.

A specific example of an erroneous contractual allowance involves a service that is denied by an insurance company as "not medically necessary." A payment posting clerk may interpret this rejection as a contractual allowance when actually it is a claim error that could be corrected. The rejection often stems from a non-specific or inadequate diagnosis, rather than a payer’s benefit limitation. The claim is often reimbursable if an adequate diagnosis is reported. This type of error may go undetected for a long time because both the payment posting clerk and the billing manager may not know all of the diagnosis edits used by each payer.

There is no universal benchmark for contractual allowances. The level of contractual allowances varies by payer, service mix and the practice’s fee level. Each practice should develop its own contractual allowance benchmarks by payer. The payer-specific benchmarks should be derived from a reasonable sample of adjudicated clean claims. It is important not to overlook co-pays and deductibles or other variables such as procedure code that are not covered by a particular payer. Some billing systems facilitate this process with "transaction analysis reports" that show payments and contractual allowances by payer.

In spite of the lack of a universal benchmark for insurance contractual allowances, there is an informal benchmark. The fee schedule in many specialist practices is set based upon Medicare reimbursement or Medicare RVUs. Practice fee schedules for surgical and diagnostic procedures generally range from 150 percent to 300 percent of Medicare reimbursement. In our region HMO and PPO reimbursement is less than Medicare reimbursement for most services, and this has the effect of increasing allowances. Blending the Medicare and private payer contractual allowances yields a "rule of thumb" contractual allowance range of 60 percent to 70 percent of charges.

Once the benchmarks are set, procedures need to be implemented to continuously monitor contractual allowances and write-offs. More importantly, every practice should have procedures to prevent unjustified contractual allowances and write-offs.

Written by: Thomas W. Reinke & Timothy C. Hilbert, CPA

The media tells one story after another of patients who were either denied insurance for a life-saving treatment or received the approval too late. While these stories may be true, they represent only a small portion of insurance-claim outcomes, industry experts say.

In reality, they point out, when faced with a claim denial, a physician can usually facilitate a fair and timely appeals process by following the rules, having a cooperative attitude, taking the time to document everything and utilizing regulatory information.

The first step is "selective contracting," says William J. DeMarco, president of DeMarco and Associates, a healthcare consulting firm in Rockford, Ill. Before signing a contract, he advises physicians to investigate the plan fully. "How many complaints, on an ongoing basis, does this plan have against it, and how many of those complaints have been ruled in favor of the plan as opposed to the patient?" he asks. You can find this information through the state insurance commissioner, he adds.

Responding to a Denial

Once a claim is denied, the appeals process for most physicians begins with a phone call-usually made by a member of the physician's staff-to the health plan responsible for the denial. The purpose of the call is possibly to clear up any simple misunderstandings or errors, sometimes avoiding a formal appeal, or simply to gain a better understanding of the reason that the claim has been denied.

Because this initial phone call may preclude a lengthy appeal process, a staff member should not only be familiar with the plan's claims procedure, but also have a good rapport with the person who handles claims at that plan. "If you can build a good working relationship with that person, it's probably going to benefit you and you might want to go directly to that person every time," says Tammy Tipton, president of Appeals Solutions in Lewisville, Tex., a company that assists physicians in processing appeals.

Having experienced little difficulty with claims, Dr. Bruce Bagley, a family physician in Albany, N.Y., and president-elect of the American Academy of Family Physicians, is satisfied that his staff maintains a good working relationship with health plans, and files claims correctly and on time. "I have an army of people doing things like looking at claims and referrals," says Dr. Bagley, who deals with only three or four health plans. "We have very little trouble getting things done for patients."

In fact, when experiencing a significant denial rate, the first thing a physician should look at is his or her staff, according to Barry S. Scheur, president of the Scheur Managing Group in Newton, Mass. Many physicians and their staffs fail to follow the rules of each particular plan, he says, adding, "That means the staff needs better training." For example, physicians can send their office manager to meet with the claims department of the health plan where they're having trouble, he suggests.

If a denial stands after the initial phone call, a physician or staff member should have a clear understanding of the reason for the denial, then decide whether or not to file an appeal. One of the greatest mistakes physicians make, says Ms. Tipton, is not pursuing more appeals.

"Generally, they do not realize that almost every claim can be appealed," she explains. "Typically, physicians understand that they might want to appeal medical-necessity denials because they've got a very definite opinion on that and can readily write a letter citing the medical reasons for the continuing need for the level of care. But they might want to consider other types of denial."

Stressing the financial consequences of appealing only some types of claim denials, she says: "Physicians are now beginning to understand how important it is to really take a close look at their accounts receivable to see what effect denials are having on their bottom line." She urges physicians to pursue less clinically oriented claims, such as those denied for pre-existing conditions or not filing within the appropriate time period. Although they do not individually represent the same financial loss, they can add up.

Once a physician or a staff member decides to challenge the denied claim, a letter of appeal must be written. It is important to review and include all relevant documentation. Physicians and their staff need to pay close attention what they did, how they received authorization, whether the number of visits was authorized, whether the number of hospital days was authorized and any other questions they can answer through documentation, says Mr. Scheur.

Documentation is especially important in situations where there is a suspected diagnosis of a potentially life-threatening disease, says Mr. DeMarco. "The physician should document this everywhere they can-in the medical chart as well as in a letter to the medical director and a letter to an appeals board, saying, 'This person needs to have this approval as soon as possible. We need to know yes or no.'"

Persistence Pays Off

In conjunction with documentation, the most important tool a physician can utilize when preparing an appeal letter is regulatory information, says Ms. Tipton, including state and Federal insurance laws and regulations. "That's really the key to writing an effective appeal letter-citing some regulatory information to support your argument for payment," she explains.

In preparing an appeal letter for a client, Appeal Solutions, Ms. Tipton's company, investigates and provides the relevant regulatory information. But this information is available to everyone. You can find a reference for regulatory information, or the information itself, at your state's department of insurance, Ms. Tipton says.

The appeals process does not usually end when you mail your first letter of appeal. "Often we find that unless your case is really solid, it takes a number of appeal letters to get something overturned," Ms. Tipton says. "You will find that you have a more successful appeals program the more persistent you are." She suggests following up with a phone call a few weeks after sending any and all letters to make sure the process is still in motion.

The medical director, or assistant medical director, typically does not get involved in the first round of appeals. However, says Ms. Tipton, "if you aren't able to successfully overturn the denial with the initial appeal letter, you can certainly call up the carrier and find out the name of the medical director and direct your next appeal to that person."

Especially when a claim involves more complex clinical information, says Dr. Bagley, "it behooves a doctor to talk to the medical director so it's physician-to-physician." In that situation, he adds, "I've had very little trouble getting something done."

External Reviews

Some states have mandated that health plans add an external-review process to their appeals procedure, and physicians should be aware of whether or not this is the case in their state. If you have not been able to get a denial overturned with the carrier, and you have the option, says Ms. Tipton, "you may want to specifically request an external appeal on it."

Because it is likely external reviews will eventually be mandatory everywhere, some plans, such as UnitedHealth Group, have created an external review program even though they are not yet required to do so. Again, each plan's external appeals process differs slightly, but UnitedHealth provides a good example.

The goal of UnitedHealth's external review procedure is to gain an additional, expert and objective judgment on an appeal that has already been rejected by the plan's internal review board. Independent review organizations are used, and independent physician reviewers with expertise appropriate for the area in question conduct the external appeal.

"In 99 percent of the cases, the internal-review process works well for both parties," says Dr. Lee N. Newcomer, senior vice president of UnitedHealth Group. Hopefully, the external review will settle any additional concerns over coverage decisions, thereby avoiding the unnecessary cost and lengthy delays involved in litigation, he explains.

Beyond an external review, a physician can file a complaint with the state department of insurance. And there have been certain situations where providers have successfully brought suit against health plans for denying claims, says Ms. Tipton, but that has to be decided on a case-by-case basis, and involves retaining a lawyer.

Ultimately, having a cooperative attitude is paramount in dealing with health-plan claim denials, says Dr. Bagley. "Not only the individual physicians, but also medical societies and large groups have had an adversarial approach to insurance companies," he explains. "Some of it is warranted, of course, but I think the only way we're going to get anywhere is to have a cooperative relationship or partnership."

Written by: Megan J. Rieder