INCREASE CASH FLOW BY MANAGING ACCOUNTS RECEIVABLES, PARTS I AND IIby Robert ChiffelleThis is a two-part article dealing with techniques of managing of Accounts Receivable for physician practices. This first part will explain the concept of managing receivables through the use of an Aging Report, and key items to look for in evaluating data. In the next issue, part two of this article will discuss the use of sampling techniques for problem identification and intervention.
Physician practices have an opportunity to speed up cash flow and maximize income from health plans and patients by managing their accounts receivable (A/R) using techniques that are standard in commercial business and the hospital industry. The aggressive management of outstanding bills will provide the physician with (1) an understanding of how the billing function is working, (2) a check on health plan compliance with contract terms, (3) an early alert to potential contract payment problems, and (4) a tool for early intervention to resolve problems. The Aging Report as a Primary Tool for Managing Accounts Receivable Some of the most frequently voiced concerns in physician practices deal with the amount of outstanding A/R. Is this amount standard for similar practices, or is it too much? Is this a crisis, or a manageable problem? What is causing it? Can it be reduced? Much of the confusion about A/R comes from billing reports that are not adequate to assess and manage receivables. Frequently physicians are given extensive reports relating to cash collections, but these provide only a "snapshot" of cash that has come in for the immediate period of time covered by the report, and compare it to similar periods of time a year ago. These reports are fine for the purpose of short-term cash accounting, but do not provide the data necessary for assessment and management of A/R, which requires a "long term" look at financial performance. The basic tool for such a long term look is an Aging Report. All medical practices that agree to bill third party payors will have a certain percentage of their billings tied up in A/R that stretches from 0 - 180 days in length. The usual breakdown of A/R is measured in 30-days increments, and a percentage of total A/R is calculated for each category. The report is run monthly for (1) all plans (a "summary"or "roll-up" report), and (2) for each individual plan by patient.
Aging reports are easily produced by mainstream billing software. The effective use of such reports will permit the practice to identify problems early, prioritize, and concentrate efforts on resolving the "big ticket" items first.
The following is an example of an Aging Roll-up report for a small medical group. The numbers are hypothetical, and are intended to illustrate issues in analysis.
This report shows the medical group has a total of $292,000 in outstanding A/R, of which $65,000, or 22%, is less than 30 days old. When reviewed on a cumulative basis, slightly over half of the group's A/R, or 56%, is less than 60 days old. In assessing the data, it is important to keep in mind two critical factors. First, A/R is calculated on billed charges, not "collectable revenue." Collectable revenue is usually estimated based on prior practice-specific experience. For example, if collections are historically 60% of billed charges, then actual collectable revenue for the above example will be roughly $175,200 (60% x $292,000 total A/R). The second critical factor is that days outstanding for A/R should be calculated starting the date of service, not the date the health plan or patient received the claim. Most health plans promise to pay within 30 days of receipt of a clean claim. Assuming it takes several days (3 to 10) to get a bill to a billing company and process it, it is reasonable to expect most bills to be paid between 31 and 60 days from the date of service. Some billing software systems permit the user to choose how the A/R is calculated, based either on (1) the date of service, or (2) the date the claim is posted by the biller. Ensure A/R is calculated from the date of service; if it is recorded from the date of posting, you will not be able to identify delays in getting the claim from the physician to the biller.
The roll-up report is limited in that it does not show specifically where problems are occurring. For this reason, it is supplemented by aging reports for each major payor. These reports list each patient and the amount outstanding in each aging category. The following examples look at (hypothetical) Plans A and C from the roll-up report: The more detailed plan-specific reports show that Plan A has a cumulative 75% of it's A/R in the under 60 days category, but Plan C has only 37% in this category. The data shows that Plan C is a slow payer, as evidenced by the fact that fully 42% of it's total A/R is in the 60-90 day category, while Plan A has only 15% in this category. In addition to highlighting the problem with Plan C, the plan-specific reports identify exactly which claims are slow in paying. The next step for the practice is to "work" the A/R by contacting the health plan to find out the reason selected claims are past due. The best strategy is to address the largest outstanding claims first, starting with those in the 60-90 day category. For example, in Plan A, the report shows that "Patient E" has an unpaid balance of $4,000, which accounts for 27% of the total A/R in this category. Resolving this claim would be a first priority for the practice. Key Issues in Evaluating A/R Reports 1. Comparison of community average days in A/R by category for similar practices. It is important to determine if (1) these aging patterns are standard for a similar practice in this geographic location, and (2) if this pattern has changed significantly over time. There are different percentages for each type of practice, and the amount in each category will vary significantly if the practice is hospital-based (General Surgery) or office-based (Family Practice), and if the mix of payors (Medicare vs. Commercial Insurance) is different from the community average. A number of data sources are available that provide "rule of thumb" averages, but they are rarely location-specific; at best these serve as rough guidelines. Generally, the best measurement will result from comparing the practice current data to historical operating experience. 2. Identification of unfavorable trends. It is important to compare this month's data by plan with past performance, not only of the immediate 3 months, but of the same time period last year. Is the percentage of A/R in the 0 - 30 and 31 - 60 day periods increasing, or decreasing? A decreasing percentage of A/R in these time periods means more A/R is being paid at a later date, a potential cash flow problem for the practice. 3. Validation of data and identification of anomalies. If an unfavorable trend is identified, it is important to determine if this is the result of one or only a few unusual bills. Are these bills outstanding do to denials or ineligible patients? Is one poorly-performing plan skewing the data for all plans? The practice must ensure that all A/R is truly Collectable. Once a managed care claim is paid at the contracted amount, the remaining "billed charges" should be adjusted off the aging report. If this is not done, the uncollectable balance will remain on the report and weight the data toward an unfavorable, misleading image of plan performance. 4. Determine the true size of the problem in dollars. Again remember that A/R are always stated in terms of billed charges, not collectable revenue. In most cases, the percent of collectable revenue to billed charges is between 50% and 65%. Receivables in the $1.00 to $50.00 range, when measured in terms of revenue that will be paid by the health plan at the contractual rates (usually equating to 50% - 65% of billed charges), may simply not be worth the effort to collect. 5. Prioritize your efforts in working A/R. First address the biggest outstanding bills, starting in the 60-90 day category. This is the most "collectable" category of billings, as enough time has elapsed since the date of service for the bill to have been submitted and paid. In general, the earliest time to start calling on the status of bills is 45 days after the date of service, as most health plans promise to pay within 30 days receipt of an error free or "clean" claim.
In the next issue, Part Two of this article will explain the use of sampling techniques to identify problems in billing and conformance to managed care fee schedules. Part Two MANAGING ACCOUNTS RECEIVABLE - SAMPLING AS A METHOD TO IDENTIFY BILLING PROBLEMS This is the second part of a two-part article dealing with techniques for increasing physician practice cash flow by managing accounts receivable (A/R). The first part of this article dealt with the use and interpretation of aging reports in managing outstanding bills. This second part addresses the use of sampling techniques to enable physician practices to identify problems early, monitor the effectiveness of billing operations, and conformance to managed care fee schedules.
The use of random sampling is considered one of the most effective techniques for identifying problems and ensuring compliance with managed care contract terms. True random sampling is very accurate, but does require a significant time commitment for the involved staff. In the case of high-volume specialties such as Family Practice, the sample size required for a true "95% statistically significant confidence interval" may be too large to handle efficiently. Focused Sampling For this reason, a limited sampling of accounts receivable (A/R) that focuses on key plans and large bills is preferred for the majority of medical practices. The use of such focused sampling corresponds to what is referred to in the management literature as "management by exception." Management by exception works by identifying major problems and concentrating efforts on resolving problems with a high return. Sampling is prioritized as follows: 1. Sampling of major payors only. 2. Sampling of high volume, high reimbursement procedure codes. 3. Concentration on one payor per month (or other defined time period). In order to sample, the practice needs to use a simple format for the collection of data. For retroactive review of billings, the physician will select two or three patients once a month from a selected payor. The physician will fill out the top part of the sampling report (patient name, plan, date of service, CPT code) at the time of the procedure, and give it to the billing operation 45 days after the date of service. The biller will fill out the remaining area, and return it within an agreed-upon time period - usually 5 -7 working days. The sample can also be used to review key outstanding bills listed in the Aging Report, and is filled out in the same manner. The following is an example of a typical sampling form:
SAMPLE REPORT Date of Sample : _____________________
1. Patient Name: ___________________________ 2. Patient SSN: ____________________________ 3. Date of Service: _________________________ 4. CPT: __________________________________ 5. Payor: _________________________________ 6. Date Encounter Form received by Billing: _______________ 7. Date Bill submitted to Payor: ____________________ 8. Expected Payment: ______________________ 9. Payments to date: ________________________ 10. Days in A/R to date: ______________________ 11. Explanatory Notes (if required): Key Issues in Reviewing the Sample 1. Time intervals. Are there excessive time delays between the date of service, the date the biller received the paperwork, and the date the claim was submitted? Look for problems resulting from in-office processing of paperwork. 2. Expected payment. Does the expected payment correspond to the fee schedule set by the payor? 3. Payments to date. Was the co-pay collected, and was it in the correct amount? 4. Posting of charges and payments. Were all charges and collections posted in a timely manner? After 100% of the contracted rate was paid, were the remaining billed charges adjusted in the system? They should be dropped, and no longer show up as receivables. 5. Were Uncollectable accounts identified? Was the cause for non-collection identified? Was a recommendation forwarded to the practice to drop them or send them to a collection agency? 6. Working Accounts Receivable. If the bill is 45 days or more in A/R, have any contacts with the payor been made? Were they done in a timely manner? Was a problem identified, and if so, was it corrected? Working Accounts Receivable Interface with the payor or patient, referred to as "working the A/R," is the single most important action a practice can take to resolve unpaid bills. Understanding the payment patterns identified in the aging reports will permit a practice to determine the optimum time to start working the A/R for each payor. For example, if an office-based practice generally submits claims electronically within 24 hours of the date of service, and the payor's contract indicates they will make "best efforts" to pay a clean claim within two weeks of date of service, the appropriate time to check on a late claim will be when it moves to the 31-60 day period in the aging report. Most insurance claims processors put claims with "problems" in a pending area, and work on them as time permits. Often these problems are simple clerical errors relating to social security numbers, prior authorization numbers, etc..., instead of eligibility or treatment issues. In such cases, immediate contact with the plan can clear up the issue and speed resolution of the claim. Some billing operations automatically send a second bill if payment is not received in a defined time period, usually 45 days from the date the claim is sent in. They rely on this as a substitute for personal contact with the plan. Often times, this simply slows down the process, as the plan now has a record of two bills for the same service, and computer edits deny all payment until one claim is deleted. In addition, this does not help the biller to identify and correct common problems in coding or processing the bills, and the same mistake is repeated on subsequent bills. Frequently Encountered Problems The following is a list of problems frequently encountered, which were identified by the use of aging reports and sampling technique.
• Excessive delay in getting the encounter form from the physician to the biller. The use of Aging Reports and Sampling techniques for working A/R will help the practice to increase cash flow and maximize income by identifying problems at an early date and prioritizing management time to resolve the largest problems first.
Robert L. Chiffelle is a consultant with Wolfe Consulting Group, Ltd., in Phoenix, Arizona. He specializes in reimbursement issues affecting physician practices. Robert can be reached at (602)-266-8700 or email
robertc@wolfecon.com
|
