End of Year Opportunities

It’s the end of the year and time to review every aspect of the business of your practice in order to plan for the upcoming year.

Fiscal Year-End
We recommend that you have your fiscal year coincide with the calendar year, at least in your practice management computer system. This allows for somewhat easier calculation of financial performance, as Medicare and some other payors adjust their fees and payment policies on January 1 of each year. If your fiscal year doesn’t correspond to the calendar year, accurate calculations of collection targets that coincide with government payors is more difficult.

Fee Schedule Adjustment and Recalculation
The end of the year is the ideal time to regenerate your fee schedule. As noted in various issues of this newsletter, we recommend that you develop your fee schedule as a multiple of your local Medicare Fee Schedule (MFS). If your medical market is heavily dominated by managed care, simply determine the mode of allowable PPO and HMO payments and express them in relationship to your local MFS. For example, in Chicago, the current mode of managed care payments is at the local MFS. In San Francisco, it is 80% of the MFS, and in other markets, it may be MFS plus 10% or MFS plus 15%.

If you examine your payor-mix and find you have a significant amount of insurance that pays in excess of those multiples, you can go higher. The important thing to remember is that your fee schedule places a value on your services. Its two main purposes are to ensure that you don’t leave any revenue “on the table” (charge less than the payor’s allowable) and to provide a basis for your assessment and management of the billing and collections process. Since most payors these days base their payments on the MFS, using a multiple of the MFS allows straightforward calculations of expected payments.

Again, the end of the year is the best time to recalculate your fee schedule and implement the new fees on January 1.

Business Structure
If your practice has two or more distinct businesses (e.g., medical-surgical, contact lenses, optical dispensing, refractive surgery, cosmetic surgery) and your computer system files are not structured in a way to easily segregate the financial data (charges, collections, AR, etc.), the end of the year is the time to make the necessary changes. This can be done by defining “departments” in your computer (if the software has this capability), or by identifying each line of business as a separate location, office, or provider.

Product-Line Analysis
The end of the year is an excellent time to review the distribution of services in the practice. Total the frequency of charges and RVUs by category (e.g., office encounters, refractions, office surgeries, hospital surgeries, etc.) and compare those figures to the totals for the previous year(s). You should be able to determine if your practice is growing or if your service mix is shifting.

Computer System Set-Up
If your insurance plans are not properly categorized for accurate management reporting, the end of the year is a good time to recategorize them. This is especially true if your computer system will only report the current year’s data once the previous year is closed. Realigning your insurance plans into classes based on expectation of payment (if this hasn’t already been done) will allow you to begin the year with the ability to generate the data to calculate accurate payor-mix and collection targets.

Payor-Mix
Payor-mix should be tracked throughout the year as it defines the practice’s customers. The end of the year is a good opportunity to review the overall payor-mix by charges for the entire 12-month period and compare it to the previous 12-month totals (assuming that you’ve not realigned payors since the last year was closed).

Overall Collection Performance
While this is an assessment that should be performed regularly, the close of the year is a good opportunity to assess your collection performance for the year. Remember to match payments to the charges that generated the payments. If your system can match payments to charges, generate a report of charges for January through September, including the corresponding payments against those charges. Remember, the payments generated by the charges for October, November, and December will not be completely collected by year-end.

If your system cannot match payments to charges, the best you can do at year’s end is to develop a gross collection ratio (GCR) by comparing total charges to total payments for the year. Unless there have been significant aberrations in the practice’s business (added or reduced providers, large changes in reimbursement, interruptions in the billing process at the beginning or end of the year), the calculated GCR will be reasonably accurate.

Compare the GCR to your calculated target. If you are more than 5% below target, begin an investigation to determine whether the variance is accurate or possibly a function of inaccurate data or inaccurate assumptions in calculating the target. If the assumptions and data are accurate, begin your investigation with AR summaries and move to a review of business office workflow and practices (e.g., tools for determining adequacy of managed care payments, pursuit of patient balances, etc.) and finally, to a review of a sample of accounts to find unpaid or underpaid claims. The last step is to make sure that adequate resources are available to track and pursue unpaid receivables and to manage your relationship with your payors.

Collection Performance by Plan
Generate a report of charges and payments by individual insurance plans to determine if each plan is paying according to the contracted allowable payment levels.

Capitation Analysis
Review any capitation contracts to determine your income per provided RVU, comparing that income level to previous years. Remember to adjust for changes in capitation rates and covered services.

Financial Policies
The end of the year is a good time to review your practice’s financial policies as communicated to new patients, including your policies on collection of copayments at time of service, patient responsibility for noncovered services, and signed waivers for Medicare patients for refractions and other noncovered services. Part of your review should be to assess how effective the staff is at communicating and enforcing those policies with patients.

Front Desk Collection Performance
Review the percentage of copayments collected at time of service. If there are data from earlier years, make sure that your front desk staff are maintaining a high percentage of copayment collection at time of service.

Billing Workflow
Take the opportunity to review your staff deployment as well as all of the workflow, anti-embezzlement, and monitoring tools in place in your business office. A useful process is to meet with the practice’s administrative physician or managing partner for a brainstorming session to discuss the business office structure and workflow.

Expense Analysis
After the fourth-quarter income statement (income and expense by category) is complete, calculate your overhead cost as a percentage of income and compare it to previous years. Assure yourself that your expenses are under control and not creeping up. Also, it will be important to separate your income and costs by line of business, such as optical dispensing, refractive surgery, medical-surgical, etc.

Overall
As in your personal life, the beginning of the new year is an excellent opportunity to turn over a new leaf and resolve to reorganize your practice’s business processes, including operations and performance monitoring. Include this topic in your meeting with your physician(s) and resolve to implement all of the changes you’ve been thinking about but waiting for the right time to start. The beginning of the new year is the right time.

Ron Rosenberg, PA, MPH, Author
Irene Chriss, Editor Practice Management Resource Group Director, AAO Practice