Let's say you're shopping at the corner grocery and accidentally break a bottle of Coke.
No big deal, right? Wrong. The owner of the store, who sells Cokes for 95 cents each, just 2 cents above cost, must now sell 20 more Cokes to break even.
This was the analogy Practice Management Consultant Paul Vanchiere used at the PCC Users' Conference to show that even a little revenue loss can have a big impact on a pediatric practice.
Practices that take a systematic approach to collecting and analyzing their variable and fixed costs make the most informed budget decisions, Vanchiere advises. Using Excel spreadsheets to run expense reports and accounting software, such as Quickbooks, can aid in spotting problems quickly, before they become major financial consequences.
Paul Vanchiere, founder of the Pediatric Management Institute, was among the guest instructors invited to teach courses on the final day of the 2014 PCC Users' Conference at the Burlington Sheraton Hotel & Conference Center"How do you respond to an uptick in overhead? As soon as possible," Vanchiere says. "Run an expense report to know what you spent money on in the last 35 days. Accounts need to be quick and nimble."
Labor and vaccines, especially, should be the most closely monitored, as they represent the largest operating expense for some doctors. Like the corner store's Coke inventory, the profit margin on vaccines is very small. If money is lost on one vaccine, it could mean administering a lot more to break even.
Vanchiere says there are four Key Performance Indicators (KPI's) that all pediatricians should follow on a monthly basis to stay on top of their practices' financial performance:
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Accounts Receivable Turnover
This shows your collections for a given period compared to your total accounts receivable balance.
Why is this important?
This is a barometer of how well you are bringing in the money owed to you. In a perfect world, the A/R will turn rapidly. During times of increasing charges such as flu season, this amount will be much different than during the spring. That is why comparing the month of January to the month of May is misleading. Practices should compare same months when running this analysis.
Formula:
Provider or Practice AR ÷ Provider or Practice Average Monthly Collections
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Clean Claim Rate
This shows the number of “clean” claims submitted compared to all claims filed with managed care plans.
Why is this important?
A “dirty” claim is a claim that will have payment delays. More billing systems attempt to catch claims that may be missing important pieces of information before sending to the managed care company for payment. “Dirty” claims should be routed back t the person responsible for the claim not being clean so they can learn why their actions could have caused a delay in payment. This feedback is a learning process to ensure your staff and providers seize the opportunity to avoid similar mistakes going forward.
Formula:
Clean Claims ÷ Total Claims Submitted
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Cost Per Encounter
This shows your practice cost per encounter.
Why is this important?
This KPI is important because it helps you ascertain the cost to provide care for each patient you see. This becomes a valuable statistic when you are negotiating with managed care companies so you know what it costs you to provide care to a child, especially in capitated contracts.
Formula:
Total Operating Expense ÷ Office Encounters
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Net Collection Ratio
Shows total collections as it relates to expected contracted reimbursement rates from payers.
Why is this important?
While a practice many charge $300 for a series of CPT codes, the managed care company may have a contract to pay you $210 when you add up the combined allowables for the billed CPT codes. Many practices use the Net Collection Ratio to examine the amount of payments compared to the negotiated rates.
Formula:
Total Payments ÷ (Total Charges - Contractual Adjustments)
