Healthcare Technology Featured Article

August 03, 2016

Improving Practice Profitability: Three Questions to Ask

As medical practices continue to face ongoing challenges with rising costs, declining reimbursements and regulatory transitions, there is no question that in order to thrive in today’s environment, practices need to closely monitor their financial and operational performance. Practices must carefully and fully examine each stage of the revenue cycle to optimize and grow their business. These three questions can help practices understand their current situation and uncover ways to improve profitability: 

What Do Analytics Reveal about the Practice’s Financial Performance?

Revenue cycle improvement requires constant focus. The practices that closely study revenue cycle issues, assess their own organization, implement changes for improvement and focus consistently on monitoring the revenue cycle are on the right path to achieving profitability. The right Key Performance Indicators (KPIs) will illuminate the effectiveness of the practice’s Revenue Cycle Management (RCM) and reveal areas for improvement. Surprisingly, many practices find it difficult to easily access the detailed analytics necessary to really operate their business effectively. Often, the only metric they can report is Days in A/R, but that one statistic by itself isn’t enough to give them a comprehensive view. Establish and monitor the following KPIs to provide a complete view of practice performance:

  • Calculate Days in A/R down to the payer level and really determine which payers are slow to pay. 
  • Analyze Total A/R by responsibility and determine what percentage of your Total A/R is due to insurance vs. patient.  Compare patient A/R to benchmarks for that A/R that is over 90 or 120 days old since statistically it is less than a 30 percent chance of collecting patient A/R that is over 90 days old. 
  • Look at A/R over 120 days as a percentage of total A/R and determine if you are slow to collect and analyze why. 
  • And most importantly, look at all three reimbursement rates, Gross Collection Rate, Revenue Realization Rate and Net Collection Rate over time to determine if money is going uncollected. 

Practices need analytical tools to put metrics front and center on a regular basis: knowledge is power.

What Are the Current Billing and Collections Processes and Are They Effective?

Knowledge also has a big impact when it comes to billing and collections processes. This is especially true given this game-changing shift in the industry: the amount of revenue from patients used to be 10-12 percent just six or seven years ago, but is now approaching a staggering 35 percent. Healthcare reform has increased deductibles across the board and patients pay more out of pocket than ever before. Automate as many front-end processes as possible, such as precertification, referrals and check-in procedures, to help improve efficiency and reduce administrative errors.  And most critical is that practices collect the patient’s responsibility at the time of service.  Incorporating credit card payments and keeping credit cards on file is critical to making this as successful as possible.  Data shows that improving these processes will increase all metrics across the board. 

What Does It Cost to Run the Practice?

Running a medical practice is expensive; it’s vital to know where the money is going and if it’s spent effectively. Two key expenses to target are technology and staffing. If the practice uses legacy EHR and practice management systems, the cost of maintenance is undoubtedly high. Most legacy systems are client-server, meaning that the practice must maintain hardware in-house. With a cloud-based platform, hardware maintenance costs are totally eliminated. Conducting a comparative analysis between current costs for technology and the costs of a new solution can reveal potential savings.  There is no doubt that truly moving to the cloud will be a huge cost savings to the practice.

Closely tied to the costs of technology are the costs of staff. It’s important to look at current levels of staffing, including roles and responsibilities. Are resources focused in the right areas?  More cost-effective administrative processes and a modern, automated platform may support a reduced level of staffing.  For example, legacy systems can require IT staff for tasks like clinical template maintenance and client-server system hardware maintenance. Another area to examine is revenue cycle management. Would it be more cost-effective to outsource the often cumbersome back office collections process? Comparing the costs of the current system with a newer system should take into account potential reductions in both administrative and technical staff.

It is very common to see practices leaving anywhere from 8-12 percent of collectible money on the table. If practices are operating at reduced profitability while leaving that much potential revenue on the table, it’s no wonder many physicians are looking to merge or sell their practices. To avoid such a dire step and improve practice profitability, use these three questions to take a hard look at what’s really going on, and leverage technology to address the issues that are uncovered.  The best place to start is by evaluating current performance and using analytics to establish and monitor KPIs. Review staffing and technology costs, and consider potential savings with modern systems. Delve into billing and collections processes to determine where problems exist and what changes can be made. Digging deep into how the practice is run is well worth the effort; the result will be an action plan that leads to more profitable days ahead.

About the Author

Patti Peets is the Director of Revenue Cycle Management for CareCloud. She helps ambulatory clinics & hospitals improve financial performance through process improvement, automation and service.  She has 28 years experience using best practices developed by MGMA, other professional societies & own experience.

Edited by Alicia Young
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By Special Guest
Patti Peets, Director of Revenue Cycle Management, CareCloud ,


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