Black Watch Blog




3 Steps to Speed Up your Revenue Cycle
By Michael T. Finch, CPA

Believe it or not, there are simple ways to speed up your Revenue Cycle and reduce the buildup of the hardest AR to collect - patient AR. Your successful competitors are already using these methods, so your patients will not be surprised or offended by adding these simple steps to your process. We can teach your staff to implement these steps, and maintain the discipline and consistency. Unless your staff is willing to enforce these processes every day for every patient, they will fail and your staff will resist sustaining these policies.

Train Your Front Desk to Understand your Payers

Your staff needs to know what your payers will require for a clean claim. Most of this information is easily learned from your billing group, especially if you have an outsourced biller with dozens of clients. This extends beyond knowing what codes are bundled and when to add a modifier into being able to advise patients about their coverage from time to time. Most patients have no idea what their plan covers, and many will not know if their deductible has been met. A knowledge staff is perceived as a resource to your patients, and will keep them coming back and referring their friends and family to you. When your staff can mitigate the confusion and uncertainty about their plan, your practice is a trusted advisor for more than their health.

Payment: Easier Is Better

Making the payment system easier for your patients will do wonders for your bottom line. Interacting with the healthcare system is already a complicated experience for your patients but paying for services doesn’t have to be. Offering an online payment solution or cost saving measures such as prompt pay and minimum payment requirements is a win-win for both parties. It allows your patients to pay for services in an environment they are comfortable with and saves them time. It also cuts the hours your staff uses to collect payment.

Be Organized

An organized front desk not only helps patients, it will help your staff understand their roles and improve employee retention. They need to understand how important it is to have a clean and easy process for your patients to make payments. Document your processes so they can be referred to regularly, and ask your staff how well they are working. Monthly staff meeting with the providers will build this bond and align your needs, and eliminate the barrier to collecting directly from the patient.

Your Revenue Cycle will have choke points unless you address the process from beginning to end. Consistent communication, training, and documentation will speed up your collections and improve the morale of your patients as well as your staff.

5 Key Financial Metrics Physicians Should Analyze Every Month
By Michael T. Finch, CPA

In my business of helping medical practices, I create metrics for a very broad set of measurable values early on, and as time goes by we are able to determine which are the most valuable. Some metrics are ALWAYS valuable, but not as often used.

1. Net Collection Ratio: This figure is the percent collected of allowable charges. A good billing office should collect 95% of allowable (contractually collectible) charges, including amounts that were written off. If you don’t include the amounts you write off, the number is higher (98% or 99%), depending of course on your write-off policy. This is a much superior method of measuring your AR collections than an AR-Days calculation. First, you must determine the period over which you intend to measure – for instance, are they collecting 95% of collectible charges when given six months to collect, or twelve months? Most of the time, this is measured after a six-month period. Knowledge of this factor will lead to the question of “where is the rest of the money?” With this metric, you know exactly what is being left behind, whether it is a consistent level, and then you have the opportunity to dig deeper and surgically address the issues you find.

2. Percent Collected Each Month of Specific Months: More simply put, how much did your billing office collect this month that you billed in June? July? Etc? This should be measured as a percent of allowable charges. You will find that a good billing office collects somewhere around 30% to 35% of the allowable charges in the month billed. The following month is higher – somewhere around 40% to 45%. Then the drop-off is considerable – 8% to 10%, then 5%, then a trail of <1% to 2% months. Figure out your baseline and measure your billing office on a monthly basis compared to new goals.

3. Patients Seen per Day – Each Physician: Rare is the office of several physicians who actually see the same number of patients each day across the group. Usually, when asked, a group will say they are the exception. Analysis finds discrepancies that were unknown, and is a valuable tool for beginning the conversation to determine the reason – and a course outlining corrective action if appropriate. Among certain practices, it is also valuable to measure the number of procedures or tests that each physician orders per patient. It may be that certain physicians do not understand the approved criteria for valuable procedures, and they will show up as outliers in this measurement. Measure and report this monthly, and I promise the result of this analysis will surprise you.

4. Percent of Total AR due from Patients: The level of “patient responsibility” AR in your total balance is always going to be high, but there are many ways to manage the figure. The problem with the many ways to manage patient AR is that they are usually cultural – your practice is either tough about it or not. Diligence and discipline are required to keep these processes going, or they will quickly become legacy practices. Set a level to target as your percent of AR from patients, and keep waving the flag to your staff, or they will happily quit pestering your patients to pay their portion of the bill. “What is not measured is not enforced.”

5. Total Professional Staff Hours per Physician: In the constant struggle to determine the appropriate level of staffing for a practice, I have come to the conclusion that there is not a magic number or ideal benchmark. You practice the way you want to practice and with the support levels you prefer. However – that does not release you to allow your staffing to just “run its course.” It must be measured, benchmarked internally and managed. The Professional Staff FTE per Physician is not particularly manageable on a constant basis because you do not hire and fire staff monthly (at least most people don’t). You can, however, measure and manage the number of hours your staff works. Without laying off staff, you can furlough or you can offer part-time positions to full-time employees. By choosing to manage your staff costs this way, you can truly manage this monthly and even adjust for seasonality without layoffs.

The 5 Most Important Issues to Consider During the Sale of Your Practice
By Michael T. Finch, CPA

There is a national and growing trend toward practice integration with hospitals, and the transition from private practice to hospital employed physicians. This is likely to be the most stressful and trying periods in the careers of all involved. Of the many important decision-points and considerations, the five below are universal to all integrations, and addressing them early and with critical attention to detail will improve the process.

1. Negotiate for post-integration seat at the table

It is a difficult transition from partner to employee. While hospitals are in the business of managing a hospital, they are not primarily in the business of managing practices. There will be unforeseen issues that you will not manage to get into your employment agreement, and a joint operating committee with both hospital and physician representation is crucial.

2. Pricing

Depending on many factors, you should target 6 to 8 times practice cash flow. Calculate the total compensation package to the partners of your most recent fiscal year. Then calculate the total asset purchase price plus compensation to the same physicians over the term of the agreement, not including a renewal period. Assuming no mitigating factors, this compensation package should equal 6 to 8 times your compensation in the most recent full fiscal year.

3. Get the best legal representation

Your CEO and CFO may be excellent negotiators, but they are insiders and will be perceived as such by both sides of the negotiations. The temptation will exist even among the physicians that their perception is skewed one way or another, and this will surface at the tough negotiation choke-points. There are firms that have integrated dozens of practices, even in your specific specialty, whose perspective of market expectations will be incredibly valuable to the physicians, and will be respected by the hospital.

4. Keep your employees as updated as possible

Clearly, certain confidentiality will apply, and your employees should not be privy to the challenges along the way. However, your best employees will immediately begin looking for other jobs as soon as they recognize that their future is uncertain. You will need them before and after integration. There will be few secrets, as hard as you try. Rumors will be considered Gospel truth in the vacuum of official communication from the management of the practice.

5. Be patient

Negotiation and closing is likely to take at least a year. There will still be months of credentialing and other detailed steps that need to be completed even after you have an agreement in principle or even signed agreements. Good financial planning is necessary to survive the period during negotiation. It is very likely that the practice will take its eye off the ball, and productivity may slow. Keeping the practice in good financial condition during negotiations will be critical to avoid panic, or weakened negotiating tactics or positions.

Six Great “Step 2 ” Cost-Saving Changes to Make Dramatic Cash-Flow Improvements
By Michael T. Finch, CPA

According to MGMA, 2008 was the first year when practice revenues in their surveys actually declined. Most practices would say they felt a decline before then. While we are all in the process of searching for ways to enhance revenue streams or add revenue streams, we have also been trimming costs where the opportunity exists. This article is for those who have completed that step, and are now ready for the more substantial and strategic adjustments to costs that require more work and creativity.

1. Staff Furloughs. This is a challenging initiative that when done properly, can enrich the culture of your office. The key to this process is creating the proper metrics to know when you are technically over-staffed for the designated period. There are benchmark metrics for each specialty that you can use to help determine when you have more staff than your patient appointments would dictate. By using these metrics, along with analysis of your schedule several weeks ahead, you can compress your schedules and close the office for a day, or tell certain staff they do not need to come in on those days due to a light schedule. This step comes after right-sizing your staff to today’s revenue expectations. Your staffing probably has an assumption of full days every day, or at least the contingency of a full day. Spending some time considering your schedule will likely cause you to realize that you could accumulate a handful of 80% days into fewer 100% days. Another key to this plan is to help staff to manage their sick or vacation days in this process. The tendency is for staff to take those days on their furlough days, but you want to make furloughs a consistent strategy. Don’t let them leave themselves without vacation or sick days. Is this a tightrope? Sure, but your staff has likely seen layoffs, and would prefer to adapt to a furlough scenario than look for a job in this market.

2. Put a new eye on all service agreements. Appoint a new person to review the monthly invoices from all service providers. Today, your controller or AP staff is looking at all the invoices to ensure the bill should be paid, but not with the creative eye that an “outsider” can provide. Ask a trusted and energetic administrative staff member to look at all the service invoices each month, and provide feedback. Every time I have given this opportunity to someone, they provide surprising feedback ranging from “we don’t even use this” to “we did this differently at my last job.” Provide some incentive, even if it is as simple as the trust to do the project. The “Cost Committee” concept can create a “witch hunt” fear among staff, and finger-pointing on the committee. A singularly focused staff person can feel free to target an expense and find a solution themselves with less concern about stepping on the wrong toes.

3. Creative or hypothetical layoff. Force yourself to consider a handful of layoffs, and decide what you would have to do in order to make it work. The results may surprise you, and you may find your way into developing more interesting and fulfilling job descriptions for certain key people who would love to have some leadership. Restructure work flow to accommodate your new vision, and reflect your changes in a new org chart. The new roles and the new energy can lift up the whole organization, even if you don’t choose to lay anyone off. The leadership displayed can earn easier buy-in for other initiatives.

4. Implement and enforce overtime rules. Every office has someone who incurs more time than necessary, and often they are paid by the hour. The psychology of the employee who targets their overtime hours as their personal 50% raise is noticed by other staff. Not only does it cause division in the office, but you are probably being taken advantage of.

5. Benchmark and investigate causes of deviation. The accountability that is created in a benchmarking exercise spurs creativity. Most of the time, the areas where a practice is deviating from benchmarks comes as a surprise, and is the result of the “this is how we have always done it” mindset, or “our docs can’t manage in an environment that doesn’t provide this” mindset. If you find the right benchmarks and drill down far enough, you will know exactly what drives costs in your practice, and where your “luxuries” exist. They key, however, is to find the right benchmarks that reflect your practice. Otherwise, you can set yourself up for failure or the perception of inability to manage costs.

6. Manage turnover. Well, of course, right? This takes effort, but will reap rewards that can and cannot be measured. This is the kind of task that most often requires outside resources to achieve. The easiest and most effective turnover-shrinking maneuver I ever implemented was to clarify roles and increase performance pressure. People quit jobs when it becomes a clock-punching exercise. They become energized and look forward to their role when it becomes a goal for success. Team or department managers should be in the business of nurturing people to the level of success that would qualify them to be promoted or leave the company for advancement if it is not available in yours. This is difficult and threatening at times, and can only be successfully implemented in a systematic manner. Create a system of documentation, evaluation, and reward. Do not venture to become the coach of the entire team. Coach your direct reports to coach their own direct reports, and get out of the way.

Five Cash-Flow Generators Most Practices Can Implement Within Three Months
By Michael T. Finch, CPA

The business climate for medical practices today is challenging in ways never seen before. Amid increased costs, reimbursements are under attack and physicians are suddenly forced to adapt to changing conditions at a pace that most administrators can’t manage. There are ways to stay ahead of the curve.

I have identified and implemented numerous cash-flow generating activities to several practices. Here are five that are relatively simple to implement and integrate, and won’t overwhelm your practice.

In-house Pharmaceutical Dispensing

To me, this is the biggest “no brainer” in the group. Believe it or not, you are already doing it for free. When you hand out samples, you are acting as a “Dispensary.” An in-house “Pharmacy” is legally classified as a “Dispensary” with only a few steps added to your current process. With some diligence on the part of your staff, you can start filling prescriptions and charging your patients a co-pay. There are pharmaceutical dispensing companies that create a turn-key dispensary in your office, in some cases a self-service dispensary for maximum convenience. These companies provide software, inventory management, labeling standards, and bulk purchase buying power – creating an easy revenue stream from a patient convenience. Not only are your patients thrilled to be able to fill a prescription at their physician’s office, but this can produce in the range of an additional $20,000 of cash flow per provider.

Consolidation of Services

In this environment, the businesses that provide the most tangible benefits for their customers not only survive, but thrive. Family Practice or Internal Medicine practices are beginning to offer “Aesthetic Medicine” services to their patients. This is a domain previously controlled by Plastic Surgery or Dermatology, but there is a piece of this offering that can be easily provided in the same place as an annual physical. Anecdotally speaking, I don’t believe this represents an intrusion into the Plastic Surgery or Dermatology patient base. A number of these patients would not cross the psychological line of seeing a Plastic Surgeon for Botox or Dermal Filler, but would seek it from their Primary Care Physician. As another example, Cardiology practices often refer patients to Pulmonologists for sleep studies. Upon a positive result, the Pulmonologist refers the patient into their sleep lab. But the Cardiologist could have easily provided the sleep study without referring the patient outside of their office. Watermark Medical provides guidance, recording devices, and sleep study readers, enabling the Cardiology practice to send patients home for an overnight study and create revenue. Each study can generate $150 to $200 for the practice.

Patient Credit Cards on File & Prequalifying Visits

Physicians can no longer be the last ones paid. Health care is the most valuable service that your patients receive on a regular basis, yet many of them wait for up to a year to pay you – if they ever do. Patients are already experiencing PCPs, specialists and hospitals getting tougher about collecting fees, and they are coming to expect it. Sending patients to a collection agency is no fun, but we all do it. This can be avoided by providing patients the opportunity to keep a credit card on file with your practice and having them agree to regular charges of balances. The key to patient AR is to strike while the iron is hot and to treat it as though there is no Plan B. There are hurdles to clear to do this appropriately. TransEngen (pronounced "Transengine") is a vendor that I have used to successfully implement this process.

Another value-added service offered by TransEngen is that they can assist in calculating a patient’s outstanding deductible and co-pay. Based on the nature of the visit, the front desk can calculate a patient’s estimated charge and collect any amount due on the day of service. If a payment plan is necessary, the patient can authorize a series of charges to the card over time.

Finite Measurements of Billing System

With the complex revenue cycle of medical practices, every practice has inefficiencies or lost money somewhere along the way. The only way to find the source of the bleeding is to measure every single step in the process. Most practices that internally manage their revenue cycle are covering the bases pretty well, but can always identify a handful of steps that they are doing poorly. Finding the right metrics to follow over the course of several months will allow you to monitor progress and results. This forces the discussions that reveal the gaps, identifies the weaknesses and leads to a plan for improvement.

Research Studies

I haven’t come across a practice yet that couldn’t find a few research studies in which they could enroll some patients. The fees vary from study to study, but it is not particularly challenging to generate an additional $10,000 per physician in research study income. Creating and maintaining a pipeline of research studies is driven by outreach with pharma and device companies, and requires an accountable individual to make it successful.

These can be good first steps to adapt to the new, more challenging environment. By coupling new revenue streams with efficiencies in administrative costs, scheduling, hospital arrangements, and effective leadership, your practice can emerge from the turmoil of this environment profitably.