In the 30 years of my physician practice consulting career, I have learned a number of ways to diagnose and treat cash-flow problems. Some problems were easy to diagnose and others a bit more difficult, with many “differential diagnoses” along the way. While providing practice assessments to my clients, I developed various strategies that I consider productive. People in revenue cycle management may find some of the techniques I am suggesting part of their everyday routines. However, if you are a practice owner, an office manager who is not a professional financial manager, or a veteran billing and practice management staff member, you may be helped by these strategies.
The basic steps in the revenue cycle are (1) entering correct and accurate patient information in the electronic medical record, (2) verifying insurance, (3) precertifying services as needed, (4) completing the charge capture for both office and hospital services, (5) transmitting clean claims, (6) working claim exception reports, (7) ensuring correct posting of receipts, (8) managing denials and appeals, (9) follow-up of pending insurance accounts, and (10) collecting overdue balance amounts directly from patients.
Strategy #1
Recognize that the revenue cycle has at least 10 basic steps and ensure that all steps are covered by accountable internal staff or external billing company. The basic steps in the revenue cycle are (1) entering correct and accurate patient information in the electronic medical record, (2) verifying insurance, (3) precertifying services as needed, (4) completing the charge capture for both office and hospital services, (5) transmitting clean claims, (6) working claim exception reports, (7) ensuring correct posting of receipts, (8) managing denials and appeals, (9) follow-up of pending insurance accounts, and (10) collecting overdue balance amounts directly from patients. In many practices, not all these steps in the revenue cycle are covered by internal or external staff. Neglecting 1 or more of these steps will have a negative impact on cash flow. For example, consider a practice that does not have time to verify the patient’s insurance and, as a result, has an inordinate number of denials to review. The potential revenue collection or appeal of those denied claims needs human intervention, which is costly. Another example is a billing service that is not contracted to do follow-up work on outstanding claims. The company may be processing claims productively, but the contract is silent or does not assign accountability on how pending accounts are to be worked. Making certain all these steps are covered will reduce or eliminate cash flow problems.
Strategy #2
Track the lapse time in the revenue cycle. The old adage “time is money” is pertinent in this strategy. The longer uncollected revenue sits on the practice books, the more difficult it is to collect. I investigated a severe cash flow problem in an oncology practice with 6 physician members because the practice was not meeting payroll. As part of my investigative strategies, I reviewed the time frames for office charge capture and claim submission. The average time between these 2 steps in the revenue cycle was 14 days. It emerged that 3 of the 6 physician members were not closing notes in a timely fashion, which led to a lag in charge posting, which then led to a lag in claim submission. Best practices demonstrate that this time lapse should be only 1 to 2 days. In addition, in the same group, hospital charges lagged by an average of 30 days. When I explored why this lapse was even longer than their office charge lag time, I discovered that the physicians rotated at 4 different hospitals and did not close notes in the various hospitals at the end of their rotations. Some were closing notes only when they were at the hospital location during the next rotation and some only upon demand from the hospital. These 2 long lapses in the revenue cycle prompted me to explore whether other areas in the revenue cycle were deficient. As you may have guessed, I found that because claims were not submitted in a timely manner, a high volume of claims was not paid. All of these issues were negatively affecting the practice cash flow.
To treat this problem, 3 things had to happen: physician behavior had to change, the practice had to have a written policy for reducing lag times in the revenue cycle, and the policy needed to be enforced. I created policies for closing notes in the office and in the hospital and developed a chart that showed best practices for revenue cycle activities and time lapses.
Best Practices for Revenue Cycle Time Lapse Management:
- Time between office charge entry and office charge posting: same day or next day
- Time between hospital charge generation and entry into the computer system: <1 week
- Time between charge posting and claim submission: <1 to 2 days; preferably same day
- Time between claim submission and first payer follow-up: <35 days
- Time between first insurance follow-up and contact with the patient: <45 days
Fortunately, the physician owners of this practice took the initiative to follow my “treatment plan” because none of them wanted to meet payroll using their credit line for the third time. This practice successfully reduced their time in receivables and cash flow issues were significantly reduced.
Strategy #3
Review the collection comments and notes that the billing/collection team has entered into the computer. By adding this strategy, you can determine if accounts are actively being tracked and collected. If you find no comments or notes on outstanding balances greater than 60 days in delinquency, you have your answer. Exploring this problem with the staff responsible is key. It allows you to set expectations for the staff while identifying obstacles that may exist and what prohibits them from adequately addressing this issue. You may learn that they are not given adequate time to work on the accounts, they have poor time-management skills, or you do not have enough staff to cover follow-up and collections. Treating this issue involves a number of factors including considering outsourcing billing and collections or hiring additional staff.
Strategy #4
Determine if the front office staff is collecting all payments that can be collected at the time of service. You may be surprised to learn that this area can use some help. Often, staff have been inadequately trained in collections at the time of service. If the front office staff does not have an accurate idea of what they should be collecting, they may not collect it, or they may collect amounts that are insufficient. I once assessed a practice that was found to be consistently waiving coinsurance on Medicare patients. The front office had been told that they did not have to collect coinsurance (20% that Medicare does not pay). Unfortunately, this misinformation can impact cash flow and is also a compliance issue. Again, treating this problem starts with a policy, behavior changes, and enforcement. Providing adequate education on what to collect from each type of insurance payer is crucial for effective collections by the front office. This information should be written out in a format that can be easily referenced by all front desk employees.
Strategy #5
Review the practice mail at least once a week if you do not typically open the mail. All kinds of noteworthy information, including denial letters, explanation of benefits, and payer correspondence, can be found in the mail. This strategy can give you information on what is being denied, audited, paid, and pended. It is also an opportunity to explore the staff problems that may be encountered when billing.
Strategy #6
Understand that cash flow problems may not be billing-related at all. Once the most common cash flow predictors are considered, the expense side of the practice must be considered. Common problems in this area are numerous and can sometimes be exceedingly difficult to diagnose, especially if the accounts are not specifically categorized but are lumped together in a general category. Examples of a categorizing issue are grouping contract labor in the payroll category or placing medical insurance in the general insurance category along with malpractice insurance and liability insurance. With poor categorization, identification of the problem is difficult. To be classified correctly, the major categories on the practice general ledger should be subclassified. It is really the only way they can be assessed because some categories are excluded when calculating an overhead expense ratio. Expense problems can range from excessive payroll expenses to the cash being drained routinely by an owner or owner’s spouse. Sometimes unplanned or unexpected expenses happen, such as natural disaster, illness of one of the owners, the sudden departure of a high producer, or excess spending on practice credit cards. In addition, poor planning, such as not accruing funds for periodic malpractice insurance payments or retirement funding, can cause cash flow problems.
To diagnose expense problems affecting cash flow, it is important to have all expense categories broken down and categorized correctly and to have a benchmark to work with. The Medical Group Management Association has a number of publications that can be used for benchmark comparison and a DataDive tool that can be helpful. If the benchmark suggests that payroll expenses for your specialty should be 23% to 25% of overall expenses, and an investigation shows it is 35%, then the situation merits an operational review to determine how the practice is staffed and if it may be overstaffed. Keep in mind, however, that understaffing can be just as expensive as overstaffing. Some practices use contract workers on a day-to-day basis to fill in for missing staff or if the practice is not staffed appropriately. All of these issues should be considered when looking at overall practice expense.
Strategy #7
Remember numbers do not lie. Use your metrics to calculate key practice indicators that can influence cash flow either up or down. Some of these key indicators are gross and net collection ratios, staffing ratios per full-time equivalent physician, accounts receivable ratio, and overhead expense ratio. These indicators are commonly used to diagnosis and treat cash flow problems:
Strategy #8
Find out what has been charged on the practice credit card(s) and who has access and authority to use them. I learned this strategy when a trusted manager in one of our client practices had access to the practice credit card. She was authorized to use the card for practice-related expenses such as clinical and office supplies. The physician owners never looked at the monthly credit card statements. Sifting through them, I noticed that some months were missing and periodically some months showed substantial amounts ($2000-$3000) paid to a local university. At first, I thought that these were continuing education payments for the staff or physicians. On further review and in collaboration with the practice’s certified public accountant (CPA), I learned that the trusted manager was charging her son’s school tuition on the practice credit card. She confessed that it had been going on for 3 years and promised to pay it back. The physicians did not want law enforcement involved in the case. My recommendation to the physicians was to terminate her employment and have their attorney secure a payback arrangement with consequences should she not make regular payments. If you own the practice, you should review the credit card statement regularly. No monthly statements should ever be missing.
Strategy #9
Do you have proper checks and balances set up to avoid being embezzled? Nobody likes to think about this when dealing with cash flow problems, and physicians and other providers tend not to think forensically when there is a shortfall of practice cash. You should think forensically. When we speak of proper checks and balances, we mean separation of accounting duties, preparation of daily payment reconciliation reports that match to the deposit tickets, and third-party oversight of accounting functions. Most CPAs provide basic services to their clients, which involve preparing tax reports, income and expenses statements, and payroll tax reports. Although these tasks are important, it is also important to engage your CPA or an outside bookkeeping expert for third-party oversight. This means that you have someone not employed by the practice who does bank account reconciliations, oversees payroll and payroll reports, checks the general ledger, and oversees your accounting program. Some CPA groups will offer this type of service, but many do not. If you are setting up a practice and are using a particular CPA group, you may want to see if the group offers this service and get it added to your contract. Third-party oversight is never too expensive if it prevents serious practice losses through theft.
Cash flow problems in your practice are like the weather, totally unpredictable at times, but they may be identified by implementing some of these strategies. Diagnosing and treating cash flow problems in your medical practice is not rocket science; however, it may be a foreign language to some. Learning the language and educating yourself is the first step. A practice consultant and/or a CPA can always provide a great start.
