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.
"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:
This shows your collections for a given period compared to your total accounts receivable balance.
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.
This shows the number of “clean” claims submitted compared to all claims filed with managed care plans.
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.
This shows your practice cost per encounter.
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.
Shows total collections as it relates to expected contracted reimbursement rates from payers.
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.