Welcome To The Digital Learning Center

1. Welcome To The Digital Learning Center Presented by … Your Partner In Building High Performance Practices

2. Today’s Presentation Analyzing the Financial Health of Your Practice

3. 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

4. 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

5. Course Overview • Key Productivity Measures • Non-Financial Productivity Measures • Benchmarking • A Case Study • Templates and Spreadsheet Downloads

6. Key Productivity Measures • Gross and Net Collection Percentages • Accounts Receivable Ratios • Resource Based Relative Value Unit Measures – Cost Accounting Methodologies • Payer Analysis

7. 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?

8. 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

9. 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%

10. 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

11. 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

12. 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%

13. 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

14. 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

15. 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

16. A/R Aging

17. RBRVS Measures • Resource Based Relative Value Scale • Relative Value Units • Based on: • Physician cost • Practice overhead • Malpractice cost • Assigns unit values to each component

18. RBRVS Measures

19. 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

20. 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

21. 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

22. What Is Your RVU Cost? • Total RVUs = 10,000 • Total non-physician costs = $180,000 • What is your cost per RVU ? • $90 • $18 • $180 • $9

23. 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

24. 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 Using RVUs

25. 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

26. Payer Analysis

27. 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

28. 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

29. Benchmarks • Medical Group Management Association – MGMA • Annual Cost Survey • Physcape – comparative benchmarking • www.mgma.org • www.physcape.com

30. Doing Your Own Benchmarks • Based on ideal income • Based on desired payer profiles • Based on historic actuals

31. 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%

32. Financial Analysis Example ABC Sample Surgical Group

33. Financial Analysis Example ABC Sample Surgical Group

34. Financial Analysis Example ABC Sample Surgical Group

35. Financial Analysis Example ABC Sample Surgical Group

36. Financial Analysis Example ABC Sample Surgical Group

37. 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

38. 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

39. 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. 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.