Connections for Success

 

12.13.21

Five Financial Strategies To Improve Your Practice’s Profitability

The COVID-19 pandemic negatively affected many physicians’ practices in 2020 — and even continued into 2021. As medical practices begin to rebound, this is an especially good time to evaluate your financial strategies to determine what is still working and what needs to be improved.

Related Read: Proactively Overcoming Industry Challenges

Is there room for improvement?

Here are five steps you can take to improve profitability going forward:

  1. Collect and Analyze Benchmarks
    To understand how your practice is doing, you have to have some metrics to provide objective financial performance measures. Anything can be measured, but key financial benchmarks include accounts receivable (A/R), days in A/R, claim-rejection rate and denial rate. See the sidebar: “Key Benchmarks for Better Financial Management” at the end of this blog for more details about these important metrics. You may identify other benchmarks that are significant to your practice.
  2. Ensure That You and Your Staff Understand Payer Contracts
    Each contract is unique in terms of prior authorizations, medical necessity, filing timelines and other details. Physicians and staff need to understand what is in these contracts. In addition, it is important to review and, if necessary, renegotiate payment rates. Also, confirm that the payments you receive are at the rates negotiated in your contracts. Sometimes practices are accidentally under or, less frequently, over paid.
  3. Communicate Payment Expectations to Patients
    Patients must understand what they are going to be required to pay when they arrive at your office. Your staff needs to know this and communicate it early in the visit, or even better, before the visit, so that the patient is not surprised during the visit.

    If the patient cannot pay, the practice needs policies on how to proceed. This can be an uncomfortable topic for staff, but it is essential. You may also consider customizing how you communicate with patients — whether by phone, text, portal or app. Customizing patient communication is generally viewed as a significant way to improve compliance with billing and payment. Bear in mind, of course, that patients may have a preferred method of communication and that these should be accommodated to the extent possible.

    Payment via your patient portal can significantly simplify and speed payments. Keep in mind that transparency about these matters is important for staff involved in collecting money from patients. Understanding patients’ eligibility and benefits is empowering and provides staff members with the right tools to do their jobs.

    Related Read: How to Handle Collections Reasonably and Compassionately

  4. Create a Positive Culture
    Understand what your practice’s mission is and, from the top down, create a culture that reinforces that mission. Everyone in the practice needs to understand and buy into what that mission is so that this sense of purpose gets transmitted to patients.

    To help generate a positive culture, begin with behavior modeling — in other words, it all starts at the top. Staff will follow the physicians’ examples. In addition, open and transparent communication about methodology and taking steps to increase employee engagement in their jobs are helpful. But empowerment does not just happen. Staff need opportunities for training and continuing education. They also need room to take initiative and receive constructive feedback.

    Related Read: Six Ways to Motivate Your Employees

  5. Do Not “Manage Neglect”
    Sometimes physicians operate under a belief that if they see more patients, profits will go up. This is true, but only up to a point. One problem with this strategy is that it actively courts burnout.

    In addition, an increase in the number of patients seen per day may lead to a decrease in the quality of care. Are you managing patients or treating them? And, if you are treating them, are you focused on only a small segment of each patient’s pathology or are you treating the whole person? You may be falling short of optimal care, happier patients — and even making more money — by managing neglect.

    What is success?

    A successful physician practice both excels at treating patients and operating as a profitable business. By better handling the business side, and by leveraging profit-building approaches such as monitoring metrics, analyzing contracts and not leaving money on the table, you will be better able to offer high-quality patient care in an effective, satisfied workplace with a strong bottom line.

    Related Read: A Good Business Plan Can Help Your Practice Thrive

    Sidebar: Key benchmarks for better financial management

    You can measure anything that you can quantify. Examples include patients seen per day, amounts received per patient visit and revenue generated per staff hour. As mentioned above, these key benchmarks should be top priorities for your practice:

    Accounts Receivable (A/R) Report
    Billing software typically places outstanding revenue in divided time buckets. There are national benchmarks against which you can measure your practice’s performance:

    Percentage of Claims             Days in A/R
    52.5%                                                 0–30

    16.8%                                                 30–60

    7.5%                                                   60–90

    5.5%                                                   90–120

    17.7%                                                  120+

    If your practice’s numbers are much different from these, there is a problem in your system. Possible reasons include poorly worked claims, missing proper claim modifiers, eligibility errors or untrained billing staff.

    Related Read: Should You Outsource Billing?

    Days in A/R
    How long does it take for your average claim to be paid? This number helps you evaluate your entire revenue cycle management process. Ideally, your practice should fall below 50 days to get a claim paid. If your days in A/R is greater than 50, there is likely a bottleneck somewhere in your system. The formula for A/R is:

    (Total A/R divided by gross annual charges) x 360

    Claim-Rejection Rate
    This refers to claims that are immediately rejected by the clearinghouse on the front end. Potential reasons include straightforward demographic errors, claim data errors or a missing diagnosis. Claim-rejection rates should be lower than 4%.

    Denial Rate
    Like claim-rejection rates, claim denials are claims that have been accepted by the clearinghouse but denied by the insurer. Reasons can vary significantly, but are typically associated with authorizations, eligibility issues and medical necessity. Claim-denial rates should be below 8%.

    Related Read: Keys to Improving Your Revenue Cycle

    For more information, contact Larry Sophian at 312.670.7444. Visit ORBA.com to learn more about our Health Care Group.

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