1. Determine the collection rates for significant payers and products.
Collection percentage, or rate, is the amount collected divided by allowed sales, and it is the only metric that matters with regards to billing performance. Everything else is a distraction.
Readers may believe that limitations in their existing billing software make collection rate impossible to calculate. The data is in billing database, but there may not be a canned report in the user application that provides it. Providers can use Excel, MS Access, or other data tools to query information from the billing software's database to produce a consistent collection rate analysis each month.
At MiraVista, we analyze collection rates by payer and product every month for our clients using our X-RAY Analytical Service. Using our comparative data, we coach executives to ask clear questions and get straight answers from their billing departments. Together, we craft policies and controls that promote qualified sales to eligible patients and collaborate with marketing staff to land referrals rich in payers that convert well based on their existing operations. Imagine that! Getting more with less strain and strife.
Determine the average sale price.
The same analysis that illustrates collection rates can also present average sales prices for payers and products; simply multiply the allowed sales amount by the average collection rate and divide by number of units sold for the period. Unlike an insurer's published allowable for the product or service, average sales price considers the company's historical performance and provides a much more realistic multiple for budgeting and forecasting.
Moreover, changes in the average allowed sale price can signal external changes rapidly. In a recent management call with an X-RAY client, the founding partner blurted out "There is no way that our sales are that low with that referral source! We have been doing business with them for years." After digging into the details, we discovered that one of the best physicians had retired from the practice and the younger doctors were referring poorly qualified, low-yield patients.
Calculate gross margin on significant payer-product combinations and eliminate the losers.
The Pareto Principle, also known as the 80/20 Rule or Law of the Vital Few, is a rule of thumb often cited in business. It states that 80% of value comes from 20% of effort. Every business has its bread and butter product or customer or third-party payer, as it were, that creates most of the profit. In many cases, it creates enough profit to subsidize the other 80%. Reimbursement cuts, unfortunately, have eaten the bread and the butter subsidies.
Using the average sales price prices for payer-product combinations above, it is relatively straight-forward to match revenue with the costs of product to calculate gross margins. It is important to do more than just suspect the winners and losers; providers must prioritize those sales that contribute to the operating costs and profit requirement of the organization. If certain non-contributory items cannot be eliminated, managers should use these detailed analyses to negotiate better reimbursement rates with third-party payers.
Reduce operating costs.
Precise gross margin forecasts clarifies the upper limit of the operating budget. If increasing the expected gross margin by increasing sales is not realistic, managers must reduce operating costs to preserve profit.
The real difficulty in cutting operational costs is letting go of the devil one knows in exchange for the devil one does not know. It lies in doing away with comfortable processes and payers and products that simply do not contribute adequately. It is saying no to a significant referral source, and worse yet, no to a patient in need. It is parting ways with good people in positions that do not contribute more than they cost. No spreadsheet makes that easy.
In conclusion, no amount of precise reporting will solve problems. Good information, however, can guide management to solve those problems with thoughtful decisions that reduce the risk of change.
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