8 tips to help optimize financial efficiency in your practice

By Faiza Wasif, MPH, manager, practice management, February 1, 2020

Financial efficiency is desirable to all practices no matter the size or practice model. There are several steps you can take to ensure that your practice is not only financially compliant, but also financially successful.

1. Understand your practice’s overall revenue and expenses

Begin by understanding your overall expenses and revenue as well as defining what it means to be financially efficient for your practice. Each practice will vary in terms of how it defines financial efficiency but there are some common measures that can help gauge that including:

Collections
Patient deductibles, copays, and coinsurance amounts may add up to many dollars of lost revenue if efforts are not made to collect these out-of-pocket expenses. Practices may outsource past due amounts to collection agencies, but this is considered the least-effective way to receive reimbursement. The longer a bill is past due, the less likely it is to be collected and the more money it costs the office in time and payroll hours. Also, do not forget that most collection agencies make their profit by charging the practice a percentage of the debt collected.

Productivity
Exceedingly productive practices focus on high-quality care while reducing costs and streamlining administrative efforts. It is also important to consider productivity levels versus compensation which play an important role in the efficiency of a practice. As a best practice, the most highly compensated physicians should spend a large percentage of their time on direct patient care while delegating non-billable tasks to lesser-paid staff. Also, be sure to engage the right technologies to enhance efficiency and minimize physician burnout.

Accounts receivable days
Account receivable (AR) days are the average number of days it takes to collect the payments due to the practice. To calculate days in AR, add up the average daily charges for the past six months and divide by the total number of days in those months. Then divide the total accounts receivable by the average daily charges to get the AR days. Typical benchmarks for AR are as follows:

• High performing: 30 days or less

• Average performing: 40-50 days

• Below average performing: 60 days or more

Accounts payable days
Accounts payable (AP) is the aggregate of money owed by a medical practice to its contractors, suppliers, and employees. Medical offices need the timely payment of accounts payable to have the necessary cash flow to continue to conduct their business.

Expense reports
Various expense reports help keep a tab on the overall financial health and future of the practice. At a minimum, these reports include a monthly financial report which includes key indicators such as collections and productivity and an annual report which includes greater details and shows long-term trends.

An efficient way of getting to these measures is by establishing or enhancing a practice dashboard that captures all the above and other key financial reports such as appointment analysis and physician summaries. The main takeaway: Assess how your bottom line and financial practices match up to these measures and develop a plan for improvement.

2. Manage and mitigate risks

Every practice has financial risks. Assess your practice to identify where the risks lie, including risks related to regulations, investments, personnel, insurance coverage, technology, and disaster recovery. Below are some common risks to watch out for:

Data/cyber breach
A breach is the theft, loss, or unauthorized access of PHI (protected health information), and in the event of a breach your practice could pay hefty fines. In order to protect yourself and your practice, consider purchasing cyber security insurance and stay on top of compliance requirements. Visit the Academy's Practice Management Center for more information.

Fraud and abuse
The Office of the Inspector General has set out guidelines for small practices to adopt compliance plans to assist practices working with Medicare and private sector carriers to avoid mistakes in billing and coding. The OIG’s guidelines suggest that the dermatologist focus on their most likely risk areas which include coding and billing, reasonable and necessary service, documentation, improper patient inducements, and kickbacks and self-referrals. Fraud and abuse can cost your practice substantial fines and possibly lead to jail time. To get more guidance on how to maintain compliance in dermatology, grab a copy of the newly revised Maintaining Compliance in Dermatology: Safeguarding Against Legal and Financial Risks manual.

Medical malpractice
Medical malpractice occurs through a negligent act or omission that causes an injury to a patient. The negligence might be the result of errors in diagnosis, treatment, aftercare, or health management. Medical malpractice insurance protects physicians and other licensed health care professionals from liability associated with wrongful practices resulting in bodily injury, medical expenses, and property damage as well as the cost of defending lawsuits related to such claims, according to the National Association of Insurance Commissioners. Be sure you know what your policy covers and read more about how to get the most out of your malpractice insurance.

Once you have identified the risks, either eliminate them or outline policies and procedures to address them if they occur.

3. Collect payments at the time of the visit

Asking for payment at the time of service saves staff time spent on billing paperwork and helps patients understand their financial responsibility. Yet, many practices wait to collect, which leads to inefficient billing and poor revenue cycle management. Have easy-to-understand and convenient options (such as electronic payment and keeping a credit card on file) for patients to make payments quickly so that you do not have to send out numerous bills and reminders after the fact. This will save time and money in addition to ensuring your revenue is on track on a regular basis. Ask your practice management software vendor if they have real-time claims adjudication, or check with your private payers to see if they offer a service where you can determine the patient’s financial responsibility at the time of service.

4. Code accurately

The accuracy of coding and documentation contributes to an efficient revenue cycle and decreases the likelihood of raising red flags for an audit.

Some of the key coding issues include:

• Improper use of codes

• Lack of proper documentation to support incident to billing by non-physician clinicians

• Inappropriate use of modifiers

• Inaccurate reimbursements

• Missing or incorrect information such as physician notes without signatures

• Insufficient data to support use of code

• Using outdated codes

Ensure your coding practices are up to date, accurate, and comprehensive so that you are getting reimbursed quickly and equitably. For more help, check out the Academy’s Coding Resource Center.

5. Submit insurance claims promptly

Submit claims as soon as possible after the date of service to help avoid delays in payment. Most payers have a timely filing limit (TFL) that varies from one payer to the next, so ensure you are aware of the TFL for each payer and submit claims accordingly. Outline your office’s claim processing workflow in your policies and procedures manual to ensure continuity and adherence.

6. Reduce overhead

Identify opportunities for reducing expenses, which are typically tied to overhead costs. Some of the common areas where overhead costs could be evaluated include your practice premise/location, office and medical equipment and supplies, staff (salaries, benefits, etc.), technology, and marketing (website, social media, etc.). Look for opportunities to make small cutbacks which can add up to big savings in the long run. However, be sure to evaluate the cutbacks carefully so that you are not cutting corners that will impact the quality of patient care or an optimum work environment. Check out the Academy’s preferred vendors and discounts to save money on practice expenses.

7. Conduct routine internal audits

Regular internal audits on your coding and billing patterns give you feedback that confirms whether your medical record documentation supports your CPT and ICD-10-CM coding. It gives you assurance that your Medicare and private payer claims are being submitted to all payers correctly. It can also provide your practice with a consistent check of the health care payer over- and under-payments, accounts receivable and patient collection activities, as well as a quick way to identify any reimbursement inaccuracies and/or irregularities or problems before any or all of these affect your quarterly or annual financial bottom line. Internal audits also provide assurance to external payer auditors that you have a system in place to deal with any coding issues that arise in a professional, systematic process.

8. Consider outsourcing, if needed

If appropriate, outsource your revenue cycle management altogether. Often, smaller practices do not have the time or the expertise to manage their revenue cycle in house, so many of them turn to outside companies to manage this process for them. According to Black Book Market Research the “demand for outsourcing of full revenue cycle management services in health care grew 48% from 2015 to 2019.” Collaborating with a vendor may allow your practice access to competitive technology, accountability, and a better overall picture of your practice’s financial operations. When shopping for the right vendor, be sure to find one that meets your needs, has appropriate safeguards, and centers around trust.

By following these tips, you can begin optimizing your practice's financial efficiency!

Additional DermWorld Resources