© Economedix, LLC 2000 - 2007 - All Rights Reserved Welcome To The Digital Learning Center Presented by … Your Partner In Building High Performance Practices.

© Economedix, LLC 2000 - 2007 - All Rights Reserved

Welcome To The Digital Learning Center

Presented by …

Your Partner In Building High Performance Practices


Analyzing the Financial Health of Your Practice

Today’s Presentation


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


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 Templates and Spreadsheet Downloads


Key Productivity Measures

Gross and Net Collection Percentages Accounts Receivable Ratios Resource Based Relative Value Unit

Measures – Cost Accounting Methodologies

Payer Analysis


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 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



Charges: $100,000 Payments: $60,000

Gross collection Percent = Payments ÷ Charges

Gross collection Percent = $60,000 ÷ $100,000

Gross Collection Percent = .60 = 60%


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



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 = Payments ÷ (Charges – Adjustments)

Example:Payments = $60,000 Adjustments = $35,000 and Charges = $100,000

$60,000 ÷ ($100,000 - $35,000) = 92.3%


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, 90-120, 121> Aging should start from the date of service

not from the posting date The amount over 90 days is the delinquent

A/R


A/R Aging

Current 31-60 61-90 91-120 120+ 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 costPractice overheadMalpractice cost

Assigns unit values to each component


RBRVS Measures

CPT DescriptionPhysician

CostOverhead Malpractice Total

99213Office

visit.92 .71 .03 1.66

42820 T&A 4.17 3.11 .31 7.59

33536 CABG -4 48.32 18.11 5.44 71.87


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 = $10 33536 CABG is worth 71.87 units then the

cost to provide this is 71.87 X $10 = $718.70


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. $180

4. $9


Using RVUs

Instead of total cost any parameter can be measured:Occupancy cost per RVUPhysician cost per RVUNon-physician labor cost per RVUFacility “A” costs vs. “B” costsTime period 1 vs. Time period 2Or 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


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 AdjustmentsGross

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 $55,000 33.3% 85.7% 950

PPOs $200,000 $120,000 $85,000 60% 104.3% 2000


Labor Analysis

Staff RatiosFull Time Equivalent Employees (FTEs)

per doctorFTEs per pay period

Example:

Total hours worked by all employees last month: 1,100

FTEs = (1,100 x 12) ÷ 2,080 = 6.35 FTEs


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 – MGMAAnnual Cost SurveyPhyscape – comparative

benchmarking www.mgma.org www.physcape.com


Doing Your Own Benchmarks

Based on ideal income

Based on desired payer profiles

Based on historic actuals


Key Benchmarks

Gross Collection PercentBased 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

Name Months Charges Payments AdjustmentsGross

Collection Percent

Net Collection

PercentA/R Days in A/R 120 plus A/R

Over 120 day percent

Dr A 12 848,683 426,631 695,619 50.27% 278.73% 74,282 31.9 27,090 36.5%Dr B 12 1,012,415 456,470 475,114 45.09% 84.96% 70,438 25.4 14,861 21.1%Dr C 12 960,486 442,247 590,651 46.04% 119.58% 78,474 29.8 5,654 7.2%Dr D 12 171,797 122,486 65,098 71.30% 114.80% 6,463 13.7 2,762 42.7%Dr E 12 891,929 405,490 533,876 45.46% 113.25% 87,983 36.0 22,354 25.4%Dr F 12 956,455 415,524 554,327 43.44% 103.33% 130,481 49.8 62,608 48.0%MLP A 12 220,318 150,451 82,703 68.29% 109.33% 7,702 12.8 2,486 32.3%MLP B 12 134,356 127,206 11,484 94.68% 103.53% 1,834 5.0 - 0.0%MLP C 12 250,935 201,699 20,948 80.38% 87.70% 7,805 11.4 850 10.9%MLP D 12 124,467 104,151 16,840 83.68% 96.77% 2,394 7.0 - 0.0%

Totals 5,571,841 2,852,354 3,046,659 51.19% 112.96% 467,857 30.6 138,664 29.6%Average ABC Physician 933,994 429,272 569,917 45.96% 117.91% 88,332 34.6 26,513 30.0%MGMA 1,263,083 718,382 642,252 52.57% 98.21% 188,237 51.0 34,146 18.1%Last Year 6,437,565 3,003,487 3,606,868 46.66% 106.10%Variance from Last Year (865,724) (151,133) (560,209)

ABC Sample Surgical Group



ABC Sample Surgical GroupABC MGMA Variance

Charges 933,994 1,263,083 (329,089) Payments 429,272 718,382 (289,110)

Adjustments 569,917 642,252 (72,335) Gross Collection Percent 46.0% 52.6% (6.61)

Net Collection Percent 117.9% 98.2% 19.70 A/R 88,332 188,237 (99,905)

Days in A/R 34.6 51.0 (16) 120 plus A/R 26,513 34,146 (7,633)

Over 120 day percent 30.0% 18.1% 11.88

FTEs (includes ASC) 3.38 4.72 (1.34)

Staff cost per physician 111,216 167,769 (56,553)

Operating Cost 329,090 332,852 (3,762)

Overhead Percentage 64.5% 44.3% 20.2%

Physician compensation 183,139 258,481 (75,342)

-

Procedures per Physician 6,341 7,972 (1,631)



ABC Sample Surgical Group2002 ABC MGMA Projected for 2003

Salaries 134,795 167,769 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 339,478 332,852 329,090



ABC Sample Surgical GroupBalance Sheet ABC MGMA Variance

Assets 47,286 74,745 (27,459) Liabilities 51,479 45,741 5,738 Equity (4,193) 14,499 (18,692)

2002 Dr A Dr B Dr C Dr D Dr E MGMAPhysician Compensation 160,834 205,190 203,716 213,945 159,081 258,481 Physician Benefits 11,273 15,282 21,171 10,357 17,724 34,718 Total 172,107 220,472 224,887 224,302 176,805 287,623 Profit/Loss (10,926) (10,926) (10,926) (10,926) (10,926) 1,181 Grand Total 161,181 209,546 213,961 213,376 165,879

Projected - 2003 Dr A Dr B Dr C Dr D Dr E TotalPhysician Compensation 103,092 144,564 144,268 160,044 144,000 695,968 Physician Benefits 10,080 10,834 27,622 10,314 21,274 80,124 Total 113,172 155,398 171,890 170,358 165,274 776,092 Profit/Loss 43,946 43,946 43,946 43,946 43,946 219,729 Grand Total 157,118 199,344 215,836 214,304 209,220 995,821 Variance (no pension contribution in 2003) (4,063) (10,202) 1,875 928 43,341 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 1999 2000 2001 2002 2003Gross Receipts 2,804,236 2,848,684 2,874,902 3,003,487 2,852,354 Officers Compensation 719,763 813,040 933,026 942,766 915,697



ABC Sample Surgical Group

Budget Dr A Dr B Dr C Dr D Dr E Total

Net Income 131,250 175,000 175,000 175,000 175,000 831,250 Expenses 330,000 330,000 330,000 330,000 330,000 1,650,000 Cash Requirement 461,250 505,000 505,000 505,000 505,000 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 109 173 173 173 173 801 Daily Production Requirement 8,816 6,081 6,081 6,081 6,081 6,454

Net income from hearing aids, NP and CAT 100,000 100,000 100,000 100,000 100,000 500,000 Gross Compensation 231,250 275,000 275,000 275,000 275,000 1,331,250


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 …

[email protected]

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.

Please direct questions to …

[email protected]

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.

© Economedix, LLC 2000 - 2007 - All Rights Reserved Welcome To The Digital Learning Center Presented by … Your Partner In Building High Performance Practices.

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