5 Financial Numbers You Can’t Ignore
As nephrologists, we are all about the clinical numbers: BUN, creatinine, anion gap, electrolytes, blood gases and on and on. Focusing on these numbers is how we make our living; it’s what distinguishes us from our colleagues. It’s what makes us different; special. We are the experts, and patients depend on our knowledge and expertise. We know how these numbers can dramatically impact a patient’s outcome. But do we know or pay attention to another important set of numbers that can impact our practices? These are the financial numbers; the numbers managed by others. These numbers can mean the difference between a successful practice and a failing one. These numbers can impact our ability to put food on our tables.
Knowing the numbers that influence the financial health of your practice can mean the difference between good and great. A thorough understanding of some key metrics can help you assess whether your practice is operating at peak performance or whether there is room for improvement.
1. Days in Accounts Receivable
The days in accounts receivable (DAR) is the average number of days from when a claim is entered into a practice management system until the claim is paid. The national average is 45 days; the longer a claim is in limbo, the higher the risk of it not being paid. In order to be paid in a timely manner, it is important to have the right processes in place or you will be leaving money on the table. Like any responsible business owner, you must delegate practice management to competent individuals with specialized skills.
2. Revenue Realization Rate
The revenue realization rate (RRR), also known as the net collection rate, is simply the percentage of claims that are paid to your practice. The higher this percentage, the more cash flow your practice is driving. When claims are denied or go unpaid, someone in the practice must address it in a timely manner. If you wait too long, you will miss your window of opportunity for payment.
Consider this example: An RRR of 85 percent means you are making only 85 cents on the dollar—yikes! That along with other practice income erosions (risk contracts, Medicare, Medicaid and commercial cuts) could put you in more trouble than you may realize.
3. Denial Rate
This term describes the percentage of claims denied by the payor. The industry average is 5 to 12 percent. Numbers beyond this range usually stem from challenges with billing procedures (i.e., your billers are doing a poor job). Billing correctly the first time will speed up cash flow and reduce work on the back end (and save you money).
A good practice management system can detect coding errors and missing information early on (this is called scrubbing of claims). Reworking a denial claim is costly. The Medical Group Management Association (MGMA) found the average cost to rework a denied claim is more than $25! One hundred denied claims cost your practice $2,500 in administrative costs. Additionally, MGMA says 50 to 65 percent of denials are never reworked. Do you know how many of your claims are being denied? Reworked? Again, more financial opportunity lost.
4. Missed Billing Entries or Slips
This refers to tracking patient encounters and/or services you provide. Encounters that are not tracked immediately following the patient visit (or misfiled) can result in payment delay or a missed payment opportunity. Educating your staff, revising your procedures and having a good practice management system in place are a few ways to help manage this.
5. Overhead Percentage
A well-run nephrology practice has an overhead percentage (OH) of approximately 42 percent. Each practice is unique and there is a bell-shaped distribution of OH costs. Your OH percentage does not necessarily mean your practice is successful or failing. Some practices with a high OH are very successful (maybe their OH is due to costly deliverables or equipment), and simply having a low OH does not guarantee success (a low OH could be due to measures such as cutting back on staff who could deliver more of your billings). What is important is to track this number over time, know what it represents and understand its positive or negative impact on your business.
We are entering a new era in the business of medicine: an era where the professional management of our businesses has become a much more attractive option to nephrologists, if not a necessity. Successful management can drive our bottom line and send the savings directly to the practice. It is important for us all to pay attention to these numbers to make sure our practices are as cost effective as possible.