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1 Welcome To The Digital Learning Center Presented by Your Partner In Building High Performance Practices Today s Presentation Analyzing the Financial Health of Your Practice Course Faculty R. Thomas (Tom) Loughrey, MBA, CCS-P Chairman, CEO & Co-Founder of Economedix Certified Coding Specialist BS Degree from Pennsylvania State University Earned an MBA in Health & Hospital Administration from the University of Florida Former Hospital Administrator Former Owner of a Medical Billing Company Consultant to Physician Practices & Medical Societies Member of Various Professional Organizations Dealing with Medical Practice Management Developed and Presented Thousands of Seminars & Workshops Dealing with Practice Management 1

2 ACCME Disclosure R. Thomas (Tom) Loughrey, MBA, CCS-P In accordance with the policies on disclosure of the Accreditation Council for Continuing Medical Education, presenters for this program, except for any noted below, have identified no personal relationships with a health care product company which, in the context of their topics, could be perceived as a real or apparent conflict of interest. No conflicts were disclosed Course Overview Key Productivity Measures Non-Financial Productivity Measures Benchmarking A Case Study Downloads Summary Key Productivity Measures Gross and Net Collection Percentages Accounts Receivable Ratios Resource Based Relative Value Unit Measures Cost Accounting Methodologies Payer Analysis 2

3 Gross Collection Percentage Compares payments to charges Very good way to compare the practice from one time to another or different aspects of the practice. Not a very good way to compare one practice to another One practice charges $100 and collects $75. Another charges $150 for the same thing and collects the same $75. Which is the better practice? Gross Collection Percentage Gross Collection Percent equals Total Payments divided by charges Measurement should include a minimum of three months data and preferably six months. A moving average based on the most recent twelve months, six months and three months will be the most informative Gross Collection Percentage Charges: $100,000 Payments: $60,000 Gross collection Percent = Payments Charges Gross collection Percent = $60,000 $100,000 Gross Collection Percent =.60 = 60% 3

4 Net Collection Percent Net Collection Percent equals payments divided by adjusted charges. Net Collection Percent = Payments (Charges minus Adjustments) Better measure for comparisons Can now compare one practice with another Net Collection Percent Measurements should use same time periods as the gross collection percentage 3 months, 6 months and 12 months A moving average of all three will provide the most information Net Collection Percent Net Collection Percent = Payments (Charges Adjustments) Example: Payments = $60,000 Adjustments = $35,000 and Charges = $100,000 $60,000 ($100,000 - $35,000) = 92.3% 4

5 Accounts Receivable Ratio Measures the number of months of charges in the accounts receivable A/R Ratio = Total A/R Average monthly charges Total A/R = $90,000 Average monthly charges = $30,000 A/R Ratio = $90,000 30,000 = 3 There are 3 months of average charges held in the A/R Accounts Receivable Ratio Average monthly charges should be based on at least three months data A moving average of the previous twelve months will be the best measure The A/R Ratio can be expressed in terms of days by determining average daily charges instead of monthly charges Most published benchmarks are based on months A/R Aging The total A/R can be broken into groups based on the age of the individual accounts Most commonly, the aging is based on 30 day increments <30, 31-60, 61-90, , 121> Aging should start from the date of service not from the posting date The amount over 90 days is the delinquent A/R 5

6 A/R Aging Current Total $31,000 $24,000 $12,000 $8,000 $25,000 $100,000 31% 24% 12% 8% 25% 100% RBRVS Measures Resource Based Relative Value Scale Relative Value Units Based on: Physician cost Practice overhead Malpractice cost Assigns unit values to each component RBRVS Measures CPT Description Physician Cost Overhead Malpractice Total Office visit T&A CABG

7 RBRVS Measures RBRVS can be used as basis for cost accounting First requirement is to measure total RVUs for the practice Second step is to divide the desired parameter by the Total RVUs RBRVS Measures Example General Surgeon produces 15,000 RVUs per year Total non-physician cost of the practice is $225,000 Cost per RVU is $225,000 15,000 = $15 Office visit is worth 1.66 units = 1.66 x $15 =$24.90 RBRVS Measures Example Cardiovascular surgeon produces 15,000 RVUs per year Total non-physician cost of the practice is $150,000 Cost per RVU is $150,000 15,000 = $ CABG is worth units then the cost to provide this is X $10 = $

8 What Is Your RVU Cost? Total RVUs = 10,000 Total non-physician costs = $180,000 What is your cost per RVU? 1. $90 2. $18 3. $ $9 Using RVUs Instead of total cost any parameter can be measured: Occupancy cost per RVU Physician cost per RVU Non-physician labor cost per RVU Facility A costs vs. B costs Time period 1 vs. Time period 2 Or any other cost measurement Using RVUs Instead of total cost any parameter can be measured: Occupancy cost per RVU Physician cost per RVU Non-physician labor cost per RVU Facility A costs vs. B costs Time period 1 vs. Time period 2 Occupancy Cost $30,000 15,000 = $2.00 per RVU Labor Cost $105,000 15,000 = $7 per RVU Facility A vs. Facility B $18 per RVU vs. $21 per RVU 8

9 Payer Analysis Compares various payers based on performance measures Payers can then be ranked on various parameters Problem payers can be easily identified Makes it easier to focus collection efforts Payer Analysis Plan Charges Payments Adjustments Gross Coll % Net Coll % RVUs Medicare $125,000 $50,000 $75,000 40% 100% 1300 Blues $90,000 $55,000 $30,000 61% 91.6% 1000 Foundation $60,000 $33,000 $10,000 55% 66% 700 IPA $90,000 $30,000 $55, % 85.7% 950 PPOs $200,000 $120,000 $85,000 60% 104.3% 2000 Labor Analysis Staff Ratios Full Time Equivalent Employees (FTEs) per doctor FTEs per pay period Example: Total hours worked by all employees last month: 1,100 FTEs = (1,100 x 12) 2,080 = 6.35 FTEs 9

10 Labor Analysis If there are two doctors in the practice: 6.35 FTEs for 2 doctors = 3.18 for each doctor If 100 of the hours paid were for overtime:.57 FTEs were expended doing just overtime work. Paid at time and one-half: it is the equivalent of.86 FTEs Benchmarks Medical Group Management Association MGMA Annual Cost Survey Doing Your Own Benchmarks Based on ideal income Based on desired payer profiles Based on historic actuals 10

11 Key Benchmarks Gross Collection Percent Based on charges at 2 times Medicare allowed 60% Net Collection Percent 95% + and not less than 90% A/R Ratio Less than 3 Delinquency Rate Less than 20% not to exceed 25% Financial Analysis Example ABC Sample Surgical Group Gross Net Name Months Charges Payments Adjustments Collection Collection Percent Percent A/R Days in A/R 120 plus A/R Over 120 day percent Dr A , , , % % 74, , % Dr B 12 1,012, , , % 84.96% 70, , % Dr C , , , % % 78, , % Dr D , ,486 65, % % 6, , % Dr E , , , % % 87, , % Dr F , , , % % 130, , % MLP , ,451 82, % % 7, , % A MLP B , ,206 11, % % 1, % MLP C , ,699 20, % 87.70% 7, % MLP D , ,151 16, % 96.77% 2, % Totals 5,571,841 2,852,354 3,046, % % 467, , % Average 933, , , % % 88, , % ABC Physician MGMA 1,263, , , % 98.21% 188, , % Last Year 6,437,565 3,003,487 3,606, % % Variance from (865,724) (151,133) (560,209) Last Year Financial Analysis Example ABC Sample Surgical Group ABC MGMA Variance Charges 933,994 1,263,083 (329,089) Payments 429, ,382 (289,110) Adjustments 569, ,252 (72,335) Gross Collection Percent 46.0% 52.6% (6.61) Net Collection Percent 117.9% 98.2% A/R 88, ,237 (99,905) Days in A/R (16) 120 plus A/R 26,513 34,146 (7,633) Over 120 day percent 30.0% 18.1% FTEs (includes ASC) (1.34) Staff cost per physician 111, ,769 (56,553) Operating Cost 329, ,852 (3,762) Overhead Percentage 64.5% 44.3% 20.2% Physician compensation 183, ,481 (75,342) - Procedures per Physician 6,341 7,972 (1,631) 11

12 Financial Analysis Example ABC Sample Surgical Group 2009 ABC MGMA Projected for 2011 Salaries 134, ,769 Occupancy 46,470 56,213 Clinical Supplies 7,857 10,111 Clerical Supplies 9,090 13,059 Meetings, dues, journals, entertainment 4,917 Promotion 6,007 5,267 Legal/Acct 3,597 Insurance 33,678 15,921 Taxes 22,833 Interest 1,394 Employee Benefit Plans 32,126 31,909 Bank Fees 1,812 Laundry 945 Auto operation 447 Computer support 1,879 13,733 Misc 8,875 Subtotal 307,847 Pension Plan Contribution 31,631 Total 339, , ,090 Financial Analysis Example ABC Sample Surgical Group Balance Sheet ABC MGMA Variance 47,286 74,745 (27,459) Assets Liabilities 51,479 45,741 5,738 Equity (4,193) 14,499 (18,692) 2009 Dr A Dr B Dr C Dr D Dr E MGMA Physician Compensation 160, , , , , ,481 Physician Benefits 11,273 15,282 21,171 10,357 17,724 34,718 Total 172, , , , , ,623 Profit/Loss (10,926) (10,926) (10,926) (10,926) (10,926) 1,181 Grand Total 161, , , , ,879 Projected Dr A Dr B Dr C Dr D Dr E Total Physician Compensation 103, , , , , ,968 Physician Benefits 10,080 10,834 27,622 10,314 21,274 80,124 Total 113, , , , , ,092 Profit/Loss 43,946 43,946 43,946 43,946 43, ,729 Grand Total 157, , , , , ,821 Variance (no pension contribution in 2009) (4,063) (10,202) 1, ,341 Percent of Total Compensation 15.8% 20.0% 21.7% 21.5% 21.0% 100% Percent of Gross Production 18.2% 21.7% 20.6% 19.1% 20.5% 100.0% Trend Analysis Gross Receipts 2,804,236 2,848,684 2,874,902 3,003,487 2,852,354 Officers Compensation 719, , , , ,697 Financial Analysis Example ABC Sample Surgical Group Budget Dr A Dr B Dr C Dr D Dr E Total Net Income 131, , , , , ,250 Expenses 330, , , , ,000 1,650,000 Cash Requirement 461, , , , ,000 2,481,250 Collection percent 48% 48% 48% 48% 48% 48% Charges Required 960,938 1,052,083 1,052,083 1,052,083 1,052,083 5,169,271 Available Days Daily Production Requirement 8,816 6,081 6,081 6,081 6,081 6,454 Net income from hearing aids, NP and CAT 100, , , , , ,000 Gross Compensation 231, , , , ,000 1,331,250 12

13 What About Overhead? Can be misleading when looked at as a percent Need to focus on bottom-line profitability in dollars not percentages High overhead practices can be very profitable Low overhead with small volumes may be unprofitable Summary Sophisticated practices and practice managers manage their decisions based on data Most data comes back to charges, payments, adjustments, A/R, patient contacts and RVUs A simple analysis paves the way to a sophisticated analysis Thank you for participating in this seminar presentation from Economedix! Please direct questions to tloughrey@economedix.com To earn CME credits for this course please complete the Evaluation / CME Form and FAX it back to Economedix within 7 days of the teleconference. 13