Medical Practice Boot Camp Body of Knowledge Series

Financial Management

Managing AR, Bad Debt and Benchmarking

Presented by

Karen Ann Millard, CMPE

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Understanding Your Revenue Cycle

Complex process which includes multiple payers, disparate fee schedules, different rules and regulations, compliance requirements, and many additional obstacles to impede full payment for services.

Fee Schedules that are based on contracted negotiations. Include discounts or reductions from practice fee schedule.

Denial management – Billing staff needs to be well trained to follow up on all denials and payment reductions to maximize practice income.

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Skills required to manage medical practice financial health

Management of front operations – scheduling, insurance verification, authorizations, self-pay balances and time of service payments.

Medical record documentation, charge capture and coding activities.

Managing the Charge Audit process

Submitting claims and edit resolution

AR Follow up and refunds

Monitoring and reporting Key Metrics

Analyzing Reimbursement and contract review

Managing and negotiating Payer Contracts

Managing Charge Masters and payment schedules

Managing Payer Credentialing

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Coding

OIG and CMS require documentation of all services. No documentation/No billing.

Codes from Current CPT and ICD-10 publications

HCPCS codes are used for new services, DME, Injections, screening services

Modifier utilization

NCCI Compliance – (National Correct Coding Initiative – CMS program designed to prevent payments for services

that should not be billed together.

Proper selection of Evaluation and Management codes

The practice needs to ensure that the correct codes are chosen for the services rendered

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Charge Capture

Policies need to be set to ensure that all bills are accurate

Pre-numbered encounter forms are used by some practices

EHR Systems can provide an electronic encounter form

All codes in groupings must be on the encounter form (i.e.99211-99215)**Compliance Issue

Hospital charges, SNF charges (Offsite billing) present a challenge to charge capture. Good system is imperative to minimize lost charges.

Some hospital systems allow the transfer of charges through an interface. Otherwise a paper method is used.

Procedure charges also need to be tracked carefully

Multiple methods for charge capture – what works best for your practice.

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Payer - Commercial

Commercial Payers – 1850 1st Commercial payer –Franklin Health Assurance Company of Massachusetts. 1943 – tax laws allowed employers deductions for supplying insurance for their employees which were not considered part of their salary.

Blue Cross/Blue Shield is the largest provider of health insurance. They insure approximately 1 in 3 Americans.

Commercial covered lives are normally younger and healthier, contributing less to the medical practice bottom line

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Payer - Managed Care

Developed as a means to control cost

Discounted Fee schedules, capitation, w/wo risk arrangements

Implemented policies for care designed to reduce cost for members including: Outpatient surgeries, drug formularies, same day admissions, referrals, pre-auths and medical necessity reviews and utilization restrictions

HMO – provides comprehensive medical care to an enrolled population through shared financial and delivery risk models. Payment is usually a per member per month payment. Usually no out of network benefits.

PPO – selected provider network for covered individuals. Patients may go out of network but will have a higher out of pocket.

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Payer - Government

Medicare was signed into law in 1965 by President Lyndon Johnson

Part A covers hospital/technical services, Part B pays for professional services. Railroad Medicare covers Railroad Retirees.

Medicare + Choice plans were developed in 1997 allowing commercial payers to carry a Medicare product. They can be fee for service, HMO or PPO Varieties. Practices have to contract directly with Medicare + Choice Plans.

Medicaid – Began 1/1/1966. Was originally designed to cover children and pregnant women. The payer of last resort.

Tricare covers active Military

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Payers - Miscellaneous

Worker’s Compensation – Regulated by each state with requirements designed by that state.

Auto Insurance – Mandated for drivers to have. Is the primary payer when an auto is involved.

Self Pay – When a patient has no insurance and is wholly responsible for their bill.

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Reimbursement and Payment Models

Traditional Fee for Service – Indemnity policies allowed the practice to set their rates and then collect from the insurance company and then balance bill the patient. There could be a reduction based on the usual and customary for a specific service.

Discounted Fee for Service – To control costs, managed care carriers would negotiate for a reduced fee. The practice expected steerage in return for the reduction.

Capitation – Insurance and practice would negotiate a fixed prepaid rate per member per month for a given set of services. (Less services delivered, more profitable).

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Reimbursement and Payment Models

Resource Based :Value System – 1992 Medicare implemented the RBRVS system as a payment method for services. Each CPT is assigned a Relative Value. This value is made up of three components: Physician Work, Practice Expense and Malpractice Expense. The value is multiplied by a conversion factor announced by CMS.

Practices can use this method to measure productivity, allocate costs, assign staff and determine charges for a procedure.

Total Relative Value Units = Total Procedures Performed X Value Units

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Reimbursement and Payment Models

Contractual Allowances – Difference between the charged amount and the contracted allowed amount.

Silent PPOs – Attempt to use another contracted carrier’s fee schedule without negotiation.

Pay for Performance – Payment for Outcomes – In 2007 Medicare implemented their PQRS system. This has now been replaced with MIPS and MACRA

Third Party Payers – Commercial carriers that supply an EOB or ERA with their payment. Payments should be validated through either fee schedules loaded into the billing system or a bolt on system to monitor the payments in comparison to the practice contracts.

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Denial Management

Effective Management of denials is imperative to a practice bottom line. Denied claims are accompanied by a Reason or Remark code. These codes can be found on the Washington Publishing Website. (CARC)

Root cause analysis and education are imperative to reduce the number of denials. Denial codes can also show problems in the transmission of claims to the carriers. Denial reduction will not only increase cash, but also reduce labor for claim rework.

Denial analysis is also imperative when negotiating insurance payment rates. Payers that create a lot of work for the business office should pay a higher rate. Profiling a payer is important.

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Follow Up / Unpaid Claims

Practices should set a time period for unpaid claims – Medicare pays 14 days after receipt of a clean claim.

Staff should be assigned to daily payer reports to validate that all claims were sent. Then monitoring of initial claim denials 270,271 reports from the carriers to ensure proper transmission of claims.

Secondary Insurance – Many patients have multiple insurances. After primary payment, claims should be filed to the secondary payer with the primary EOB. Medicare will crossover claims if they have the information from the patient. Do not depend on this strategy. If the claims are not paid timely after Medicare payment, they should have follow up performed.

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Follow Up / Unpaid Claims

Auditing of Payments for correct reimbursement

4 steps for structuring Audit Process Organize contract files

Contracts are assets and need to be kept in a safe place

Identify and monitor key indicators from the contract

Financial and operational

The ability to electronically monitor payments is advantageous

Track and document discrepancies

Include monthly reporting for inaccurate payments and rate of appeal wins

Prepare to mediate, arbitrate or litigate

Not desirable, but possible. If no resolution with payer, contract termination is an option

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Financial Policy for Patient Payments

The practice should set their financial policy and supply a copy to all new patients.

Require copayments at Time of Service

Clearly state policy for unpaid balances including consequences

Require past due balances within 30 days

Provide Payment Plan opportunities and options

Describe terms of discounts for uninsured patients if applicable

Handle all precerts and prior auths

Identify non-covered services and how they will be handled

Identify all patient due portions for payment responsibilities

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Financial Policy for Patient Responsibility

Charity Care – Yes or No for your practice If yes – things to consider

Income level for charity care consideration

Under what circumstances the practice will see charity care patients

What portion the practice expects charity care patient to pay.

When carriers do not cover claims Is prior notice required to bill patients? Do you have an appropriate ABN on file?

This applies to both Medicare and other contracted carriers.

Internal and External Collections Internal Collections – statements at 30,60,90,and then call or collection letter

External Collections – This could be either early out for self pay balances or a collection agency for past due balances.

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Accounts Receivable Overview

Three key indicators in Revenue Cycle

Days in AR –This represents how quickly the practice collects cash.

Outstanding Accounts Receivable/(Gross Charges/Days in Period)

Gross Charges/Days in Period – Average daily charge

Industry standard for calculation is 1 year. Many practices use three month to understand current dynamics.

A high number in Days in AR could indicate:

Failure to perform timely follow up on overdue accounts

Clean Claim failures

Failure to work denials

Long Charge Lag

Failure to collect copayments/Coinsurance at time of service

Failure to turn overdue balances to collection

Credentialing or Contracting issues

Carrier problems

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Accounts Receivable Overview

Accounts Receivable Aging – A/R is divided into buckets based on Aging category.

Normal buckets include: 0-30,31-60,61-90,91-120 and >120 days. The largest area of concentration is in the >90 days or >120 days.

High dollars in these categories indicate a problem with timely resolution of claims and delayed cash. Causes for delay: Follow up staff not prioritizing work effort, not working effectively, not

turning self pay balances to collection after specified period.

The categories with high balances under 90 days may also indicate some areas of concern: Charge Lag, TOS Payments small, denials or a seasonal lag during deductible

season, contract issues.

Credentialing can also contribute to large $ in any bucket.19

Accounts Receivable Formulas

Gross Collection Ratio = Net Collections/Gross Charges – used in predicting cash and can also be used to validate fee schedule. Reduced Gross collections could indicate: Payers underpaying, denials being written off

instead of worked, Payer Fee schedule decrease.

Net Collections = Gross Collections-(Refunds + Return Checks)

Net Fee for Service Revenue per FTE Physician=Net Fee for service revenue/Number of FTE Physicians - For cash based practices, Net Fee for Service Revenue should = Net collections. For accrual base practices, will vary.

Total Medical Revenue per FTE Physician = Total Medical Revenue/Number of FTE Physicians

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Accounts Receivable Balance

AR Balances are either tracked at their gross or net balance.

Increase to the AR balance can be caused by both good and bad reasons. Some of them include: Increased volume, changes in fee schedule, untimely follow up, increase

Claim Denial Rate can negatively affect A/R Balances if there is an increase. Monitoring claim denial rates can quickly identify new trends.

Charge Lag – Days between service and charge posting.

Seasonal trends – Understanding seasonal trends allows the practice to make good cash decisions.

Month End Close – when to close

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Accounts Receivable Balance

Credits – need to be identified and worked timely.

Federal regulation regarding Medicare and Medicaid credits – 60 return after identification

Can be misleading when reviewing A/R Balance

Root cause analysis is necessary to understand credit creation

Drill down capabilities

Ability to drill down to the service line or department can help pinpoint problems or trends within the department

Ability to drill down to the carrier can help pinpoint changes with the carrier. This is valuable at contract negotiation time.

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A/R Measure and Management Systems

A/R is the practice’s most important financial asset. It is uncollected cash. Delayed collections can cause for timely file denials making A/R uncollectable.

Inaccurate tracking of AR impedes the process of forcasting for the group.

Benchmarking is very important in the financial management of the practice.

Total days in A/R

Net vs Gross Revenue

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Regulatory Agency Contract Guidelines and Mandates

Centers for Medicare & Medicaid Services – CMS

Regulatory oversight of physicians who participate in Medicare and Medicaid

CMS payment policies often set the criteria for private insurance policies.

Failure to follow CMS guidelines can result in fines, civil or criminal actions and possible expulsion from the Medicare program.

This agency is also responsible for oversight of HIPAA administrative transactions and code sets, health identifiers and security standards.

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Regulatory Agency Contract Guidelines and Mandates

Private Insurances – All carriers have individual reimbursement, coding and billing policies, including timely billing guidelines. The rules are not consistent, but rather individualized by carrier.

Contract Cancellation, network exclusion, civil and criminal prosecution are possible penalties for not following the guidelines

State Regulations

Regulate business practices of insurance companies doing business in the state

Regulates corporate practices of businesses in the state

Compliance with the regulation that is most strict (State vs Federal) is required.

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Healthcare Effectiveness Data and Information Set

NCQA developed HEDIS. HEDIS is a tool that consists of a set of performance measures for Managed Care companies.

Health plans must have their HEDIS results validated by independent auditors.

NCQA establishes standards of quality in managed care plans and reports the outcomes to the public.

This organization can not levy fines, but can withhold accreditation.

Joint Commission on Accreditation of Healthcare Organizations (JCAHO) evaluates and accredits more than 20,500 healthcare organizations in the US.

Goal – To improve the quality, care and safety for our patients.

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Coding Systems, Guidelines and Resources It is the practice responsibility to adhere to all coding and insurance guidelines. Not following

the guidelines can cause issues with overpayments, underpayments and claim denials.

Coding Elements:

CPT-4 – Authored and maintained by the AMA. Identify services performed. Includes modifier requirements and usage detail.

HCPCS – codes for professional services, procedures, drugs and supplies. There are no RVUs assigned to HCPCS codes. They are paid at a flat rate.

ICD-10 – Maintained by the National Center for Health Statistics and CMS Diagnosis coding

CCI and Bundling Guidelines

Attempt to standardize Medicare payment policies across the all regional carriers.

Reduce cost to Medicare program by bundling services that are considered part of the same procedure

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Evaluation and Management Coding

Physician Visit services that bill for Office Visits, Hospital Visits, Consultations, Emergency Services, Critical Care, Home Visits, etc.

There are 5 levels of care for each type of service ranging from self limited to complex.

Documentation Guidelines – 1995 and 1997 guidelines are still in effect.

There are seven components for E&M Coding. They include:

History, Exam, Medical Decision Making, Counseling, Coordination of Care, Nature of presenting problem and time.

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Charge Capturing & Billing

Charge capture is complex and error prone. Also, due to the multiple sites for charge capture, there is a challenge of lost revenue.

Encounter forms - electronic or paper are efficient ways for the provider to capture the procedure and diagnosis codes for claim submission. The encounter form can also serve as an order for ancillary testing or as a receipt.

Month End Close – Closing the books for the month. All entries after the close go into the following month.

Electronic Claims Processing – Today this is a given. Beginning in 2005, Medicare required all claims to be electronic.

Additional benefits of electronic claims include: Pre-claim edits, increased efficiency, reduced costs, faster turn around time.

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Collection Systems

Collection Agency Policy – Each practice needs a formal collection policy to have consistent operations, avoid claims of discrimination and improve cash flow.

Before referring to a collection agency consider: whether accounts will be collectable, fees to collect, customer attitude.

Collection Agency considerations – Financial integrity, commitment to customer service, net recovery rate, reporting functionality, prompt payment, health care familiarity, references, fees.

Collection Agency reporting – monthly review, productivity report, aged trial balance and unpaid balances.

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Collection Systems

Practices should develop a specific protocol for balances which are post insurance and remain unpaid after a specific billing cycle.

Create protocols for payment plans

Train staff on collection protocol.

Collection Letters – short and to the point, sent on small accounts, keep letters simple.

Telephone collection – can be more effective than letters

When patients return for an appointment, request payment for past due balances.

Develop charity policy for those patients facing hardship.

Follow industry standards for considering outstanding AR uncollectable.

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Collections

Disputes – Develop written protocol for patient disputes.

Bankruptcy – The practice must suspend billing upon receipt of a bankruptcy notice. It cannot bill for services that are dated after the bankruptcy notice date until the discharge date. Services outside of those dates can be billed.

Settlements – Practice may decide to pursue balances in the court of law.

Budget Plans – offered to patients with a good credit history to split payments for an outstanding balance over a time period.

Write-off for collection balances – Not a good practice, unfair to paying customers, consumer’s view of practice

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Contracting

Payor contracting is one of the most important aspects of revenue cycle. Contracts should be read carefully.

Contract Management – Five steps Preparation- position in market, referral satisfaction, referral process,

Negotiation – Remove risky language from contract, Types of plans, med necessity requirements, Auth requirements.

Have your data, know your services, meet face to face, know objectives and goals, define deal breakers, be innovative.

Implementation –

Provider credentialing can take from 1-5 months.

Operations

Auditing

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Revenue Cycle - KPIs1500 ClaimsSummary of DashBoard Indicators

2017 Goals

a) Days in A/R - Gross <32 Days

b) Gross Patient Revenue / Billed Charges- Net Patient Revenue / Payments Allowed

c) Total Gross Denials (835 1st Pass)- Total Denial Writeoffs (Final Denials)- Gross Denials (835 1st Pass) as a % of Gross Patient Revenue- Final Denials as a % of Gross Patient Revenue <1.5%

d) Cash Collections Posted- Cash Collections Target- Cash posted as a % of Actual vs Target >100%

- Collection Ratio as a % of Gross Patient Revenuee) Up-front Cash Collections

- Upfront Cash Collections as a % of Net Patient Revenuef) Patient Balance (Early-Out) Performance >60.0%

- Total Balance billed to Patients- Cash Payments from Patients

g) Progress Report1) Total A/R

- Total Medicare A/R only2) Total A/R $ > 90 Days

- as a % of Total A/R <20.0%

- Self-Pay A/R $ > 90 Days- Insurance A/R $ > 90 Days- as a % of Total A/R- Medicare A/R $ > 90 Days- as a % of Total A/R3) Total A/R $ > 120 Days

- as a % of Total A/R- Self-Pay A/R $ > 120 Days- Insurance A/R $ > 120 Days- as a % of Total A/R4) Medicare A/R $ > 60 Days

- as a % of total Medicare A/R <10.0%

h) Bad Debt Recoveries- Total Bad Debt Self Pay Placements- Bad Debt Recoveries as a % of Bad Debt Self Pay Placements- Net Bad Debt Self Pay Placements as a % of Gross Patient Revenue- Total Bad Debt Reserves- as a % of Net Patient Revenue <2.40%

i) Charity W/O- as a % of Gross Patient Revenue / Billed Charges- Charity as a % of Charity and Bad Debt Placements- Uninsured Gross Patient Revenue / Billed Charges

j) Amount ($) in Unbilled Status - 1st of each month- Average Daily Revenue (3 months rolling avg)- Days in unbilled status (<3 days)- Number of claims billed per month- Charge lag days <6 days

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Additional calculations

Overhead Ratio Total Operating Expenses(minus provider salaries and benefits)/Total collections.

Individual Category Expense Ratio Individual Expense (By category)/Total Collections

Staff Ratio Total FTE Employees/Total FTE Providers

Average Revenue by Patient Total Monthly Collections/Total Monthly Patient Visits

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Bibliography

MGMA. (2015). Financial Management (3rd ed., Vol. 2). Medical Group Management Association.

Reprinted with permission from MGMA, 104 Inverness Terrace East, Englewood, Colorado 80112. www.mgma.com. © 2015

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