Keeping a close eye on the financial health of your medical practice is essential, but it also can be time consuming. Instead of sifting through reams of data, it can be useful to identify metrics that will alert you to important issues early on. Here are some key financial metrics to consider emphasizing in your practice.
Net Collection Ratio: This metric tells you the percent of allowable charges that have been collected. Divide payments (net of credits) by charges (net of approved contractual adjustments) for a specific period, for instance, three months, and then multiply by 100. A practice with an effective billing office should collect about 95% of allowable charges.
Accounts Receivable Collections: It’s common sense that the sooner you are paid, the greater the value of that payment. That’s why measuring the average time it takes to collect one day’s worth of gross charges can be so helpful. Do the calculation by dividing total accounts receivable by your practice’s average daily charge amount. A number above 35 days may require your attention.
Date of Service Versus Date of Charge Entry: This metric lets you see how long it takes to enter a charge into your billing system. The more time it takes for a charge to be entered into your system, the longer it will take to get paid. This period generally should not be greater than two days for a high-performing practice.
Denial/Reject Rate: As you know, when an insurer denies or rejects a claim, that claim is bounced back to your practice. Unpaid claims diminish your practice’s cash flow. Moreover, a high rejection rate can be costly in terms of the additional staff time required to review and resubmit a claim. A typical practice should not have a reject/denial rate greater than 4% to 5%.
Pass-through Rates: Privately insured patients may pay between 20% to 30% of the cost of medical services upfront in the form of a copay. That money can be an important source of cash for your practice. Consider putting a mechanism in place to track pass-through rates from quarter to quarter.
The professionals at CIG Capital Advisors can help you identify, calculate, and analyze key financial metrics in your private medical practice. For a confidential consultation with a CIG Capital Advisors
medical practice advisor, email Brian Lasher.