Practical Strategies to Improve Laboratory Financial Performance

Transcription

1 Slide 2 SML1 Sunrise Medcial Labs, 04/09/2008 Practical Strategies to Improve Laboratory Financial Performance Executive War College 2008 Miami, Florida May 14 th, 2008 Martin Colucci, CFO Sunrise Medical Laboratories 1 SML1 Agenda Sales Insurance Allowance (Reserve for 3 rd pty) Bad Debt Costs Accounts Receivable Management Tools Strategies for Improving Financial Performance Benchmarks Questions 1

2 Definition of Sales Third Party Reserve Gross Sales (at Lab s fees) 3 rd Party Reserve (insurance allowance) Net Sales (at contracted or expected fees) Bad Debt (expense or reduction in sales) Net Collectible Revenue Third Party Reserve the variance between lab s fees and contracted (or expected) fees. Measured as % of Gross Sales Should be reviewed for each billable party with significant volume Ex. Blue Shield Gross Sales averages $100,000/month while cash averages $25,000/month. Third Party Reserve for Blue Shield = 75% Expected return on Gross Sales = 25% Booking Sales Bad Debt Most large laboratories book sales based upon contracted rates (what they expect to receive from insurance carriers). NET SALES Is Bad Debt an expense or a reduction in Sales? Most laboratories book Bad Debt as an expense. HOWEVER should be looked at as a reduction in revenue when analyzing business since you never see the cash. Net Collectible Revenue Net Sales less Bad Debt. 2 3

3 Costs Costs: Labor Identify costs as: Fixed Variable (incremental, direct) Must use variable costs when evaluating new business. Note: some costs are not 100% fixed nor 100% variable. Need to determine %. Warren Buffett in a recent interview was asked what industries he s staying away from. His answer? Any American industry that has high labor cost because American labor is not competitive in the global market! Costs Costs: Labor Know your cost for: Tests: (Supplies and Labor) both average cost per test; and individual cost for high volume tests. Billing: - What does it cost to send out a bill? (including labor costs) Transportation What is the cost to bring specimens to the laboratory. Specimen Prep and Data Entry Reference Testing Should be built into financial system. Labor is the Lab s most significant cost! Develop labor tracking reports to measure efficiencies in each department. Automate, automate, automate! 4 5

4 Costs: Labor Rule Week AVERAGE VOLUME Day Technician TOTAL $ COST/ACC ACC / HR. TOTAL HRS. HOURS WORKED O.T. HRS O.T. $ PTO/SICK/HOL HRS PTO/SICK/HOL $ Labor Report 2/10/ ,500 $18, $ $ $1, /17/ ,750 $18, $ $ 1, $1, /24/ ,000 $19, $ $ 1, $1, rule applies: Majority of accessions have all information to bill. Bills are processed and paid correctly with minimal effort. (Clean-claims) Anyone can do it! Must Work Unbillables Quickly To Meet Submission Deadlines. Must Work Denials Until Payment Is Received. Remember All additional collections flow to the bottom-line! Impact on Bottom-Line AR Management has a SIGNIFICANT impact on Lab s profitability. Example: Sales = $10,000,000 EBIDTA = $ 2,000,000 % = 20% Cash receipts is improved by 5% Sales = $10,500,000 EBIDTA = $ 2,500,000 % = 24% Assumes no increase cost for billing. Unbillable Claims Unbillable Claims Missing or incorrect patient demographics Missing or incorrect diagnosis codes Must have systems to work unbillable claims. Must have tools to manage unbillable claims. 6 7

5 Unbillable Claims Missing Patient Demographics: Use History search on patient for repeat patient. Send letters to Clients Call Clients Get Sales Rep involved Use databases to obtain addresses Diagnosis Codes: Must have edits to check for correct codes tied to medical necessity rules for various insurance carriers. Must have systems in place to obtain correct codes from clients. Unbillable Claims SURVERY RESULTS LABS Hospital Ind. Lab Yes, strong system 39% 45% Yes, needs improvement 38% 45% No formal system 23% 10% Source: Laboratory Economics, February 2008 Unbillable Claims Does your lab have a system for identifying and then educating/training physician offices that chronically submit test orders with missing or inaccurate information? SURVEY RESULTS. Medical Necessity Rules Must have medical necessity edits in place to suspend billing without correct diagnosis. Medicare national and local rules AND private insurance rules. Make sure your system splits the claim and suspends only those tests that fail medical necessity rules. 8 9

6 Medical Necessity Rules Must educate clients on policies Send updates on policies Distribute policy guide Have links to policies on various carriers on your lab s website available to clients. Denied Claims Percentage of Outreach Lab Claims Rejected on First Submission: Medicare HMO Medicaid Fee For Service 12.1% 11.7% 10.7% 9.8% (Laboratory Economics Billing & Collection Survey, Feb 2008) Denied Claims Must review all denied claims and paid claims for line-item denials (tests). Determine when claim (or test) can be resubmitted to carrier for payment or when patient can be billed. Non-covered tests may be billed to patient. Survey 800 physicians were recently asked what the chief problems they were having with Quest and LabCorp. The #1 complaint.. INACCURATE BILLING!!!!!! Lab Industry Report Survey February,

7 Management Tools Management Tools UNBILLED REPORTS Reason for unbilled status Client Include reason to identify solutions Medicare diagnoses Include both missing dx and non-payable dx Quantify by using Medicare prevailing rates (expect) PAYOR ANALYSIS Use gross charges for a specific month Volume for that month Cash receipts for charges for that month regardless of date of receipt of cash. Determine collections % of PAID gross charges for that month Determine collections % of total gross charges for that month. Management Tools Management Tools CLIENT REPORTS Payor Analysis Volume Gross Sales (PPA) Cash Collections (CPA) Trends Bad-debt and unbilled Payor Medicare Medicaid UHC October 2007 Data as of Feb 2008 Charges Cash $ 20,000 $ 3,200 $ 9,000 $ 1,500 $ 18,000 $ 2,600 Paid Charges $ 16,000 $ 7,000 $ 13,000 % Paid Charges 20% 21% 20% % Total Charges 16% 17% 14% Balance $ 4,000 $ 2,000 $ 5,

8 Strategies to Improve Profit: Unprofitable Accounts Identify Unprofitable Accounts Low price per accession (PPA) High percentage of unbilled claims High percentage of reference testing High patient bad debt % High volume of unprofitable insurance carriers. Determine what needs to be done to improve profitability If nothing can be done STOP SERVICE!! Strategies to Improve Profit: Managed Care Contracting Many carriers are demanding discounts off the Medicare fee schedule. What are some options? Strategies to Improve Profit: Reference Testing Most reference test reimbursement is below cost! Determine the testing volume required to bring testing in-house. Negotiate higher pricing for managed care contracts Negotiate lower prices with your reference lab Strategies to improve profit: Managed Care Contracting Proposed tier pricing Lower fees for routine testing higher fees for complex testing Proposed carve-outs Identify those tests that have significant additional costs and negotiate fees for those tests. Offer additional services to justify higher fees such as provision of clinical data

9 Benchmarks Revenue per Accession, and FTE Cost per Accession and, FTE Profit per Accession, and FTE Profit Margin Days Sales Outstanding (DSO) Bad Debt Benchmarks: Revenue per Accession & Test Academic MC Hospital Lab Ind. Lab (routine) PPA $35.00 $43.14 $43.81 TPA PPT $14.58 $13.07 $14.60 Laboratory Economics Billing & Collection Survey, February, 2008 Revenue OP Profit Benchmarks: Financials by Accession Quest LabCorp $6,101 $4,068 $ 993 $ 827 Benchmarks: Revenue per FTE Both Quest and LabCorp had staff productivity of $156,000 Sales per FTE at the end of 2007.* Accessions Revenue/Accession $42.08 $37.92 OP Profit/Accession OP Margin $ 6.85 $ % 20.4% Laboratory Economics, March 2008 * Lab Industry Report, March

10 Benchmarks: Days Sales Outstanding (DSO) 2007 DSO results: Quest 49 days LabCorp 56 days Bio Reference 115 days Benchmarks: Accounts Receivable Aging AR Aging Results as of 2007: LabCorp Bio-Reference 0-30 days 42% 41% days 22% 14% days 11% 10% Note: Mix of business impacts DSO. Lab Industry Report, March 2008 More than 90 25% 35% Laboratory Economics, March 2008 Benchmarks: Bad Debt 2007 Bad Debt results: Quest 4.5% LabCorp 4.8% Bio-Reference 13.9% Note: Mix of business impacts Bad Debt. Lab Industry Report, March 2008 Summary Know your costs! Develop management reports to help manage your business Identify unprofitable accounts Know how you re doing compared to the industry know the benchmarks. Don t underestimate the impact of billing! 18 19

11 Questions & Answers 39 Thank You! Contact Information: Martin Colucci Sunrise Medical Laboratories Hauppauge, NY