Financial Performance Analysis and Reports

In the last issue we laid the groundwork for a monthly reporting package. We showed how to prepare reports of clinical activity and patient type. In this issue we’ll use the data from those reports in describing the reporting of collection performance, accounts receivable (AR), and practice expense.

Collection Performance
There are several ways to display collection performance in a report. Because very few computer systems can display a revenue flow report of this type, in most cases you’ll have to build this table on a spreadsheet, using data from the billing computer system. Here is an example (the acronym GCR refers to Gross Collection Ratio):

 

Month

Charges

Coll’n

Pct

Cum

GCR

Cum

GCR

Cum

GCR

Cum

GCR

Cum

GCR

Cum

GCR

Cum

Jan

Coll’n

Coll’n

Coll’n

Coll’n

Coll’n

Coll’n

Coll’n

Feb

Mar

Apr

May

Jun

July

Aug

Jan

$55,445

$1,219

2.20%

$19,384

34.96%

$29,404

53.03%

$30,254

54.57%

$31,098

56.09%

$31,248

56.36%

$31,841

57.43%

$31,901

Feb

$47,276

   

$1,063

2.25%

$6,618

14.00%

$13,968

29.55%

$17,512

37.04%

$21,104

44.64%

$22,008

46.55%

$22,019

Mar

$50,610

       

$1,506

2.98%

$10,349

20.45%

$13,193

26.07%

$18,552

36.66%

$19,919

39.36%

$20,194

Apr

$63,320

           

$1,231

1.94%

$10,666

16.84%

$17,663

27.89%

$26,887

42.46%

$27,741

May

$73,549

               

$178

0.24%

$11,807

16.05%

$17,094

23.24%

$20,579

Jun

$55,507

                   

$3,017

5.44%

$8,832

15.91%

$17,502

Jul

$89,220

                       

$898

1.01%

$8,434

Aug

$81,175

                           

$1,226

Sept

$85,569

                             
Oct

$51,200

                             
TOTAL

$652,871

                             

This table shows how revenue flows into the practice. All of the collections are tied to the charges that generated them.

Another format for the same information is as follows:

    Coll’n Month 1 Coll’n Month 2 Coll’n Month 3   Coll’n Month 4   Coll’n Month 5

$

%

$

%

Cum%

$

%

Cum%

$

%

Cum%

$

%

Cum%

Month

Charges

Jan

$55,445

$1,220

2.20%

 

$18,164

32.76%

34.96%

 

$10,019

18.07%

53.03%

 

$854

1.54%

54.57%

 

$843

1.52%

56.09%

Feb

$47,276

$1,064

2.25%

 

$5,555

11.75%

14.00%

 

$7,351

15.55%

29.55%

 

$3,541

7.49%

37.04%

 

$3,593

7.60%

44.64%

Mar

$50,610

$1,508

2.98%

 

$8,842

17.47%

20.45%

 

$2,844

5.62%

26.07%

 

$5,360

10.59%

36.66%

 

$1,366

2.70%

39.36%

Apr

$63,320

$1,228

1.94%

 

$9,435

14.90%

16.84%

 

$6,997

11.05%

27.89%

 

$9,226

14.57%

42.46%

 

$855

1.35%

43.81%

May

$73,549

$177

0.24%

 

$11,628

15.81%

16.05%

 

$5,288

7.19%

23.24%

 

$3,486

4.74%

27.98%

 

$3,038

4.13%

32.11%

Jun

$55,507

$3,020

5.44%

 

$5,812

10.47%

15.91%

 

$8,670

15.62%

31.53%

 

$1,754

3.16%

34.69%

 

$1,821

3.28%

37.97%

Jul

$89,220

$901

1.01%

 

$7,530

8.44%

9.45%

 

$10,635

11.92%

21.37%

 

$6,040

6.77%

28.14%

       
Aug

$81,175

$1,226

1.51%

 

$24,239

29.86%

31.37%

 

$2,005

2.47%

33.84%

               
Sept

$85,569

$240

0.28%

 

$13,623

15.92%

16.20%

                       
Oct

$51,200

$4,531

8.85%

                               
TOTAL

$652,871

                                   
Average            

19.47%

     

30.82%

     

37.36%

     

42.33%

Incremental Increase        

19.47%

     

11.35%

     

6.55%

     

4.97%

Again, the key is to tie payments to the charges that generated the payments. As always, the total collection percentage should be compared to the calculated target (see the November 19, 1999 issue of Watching Your Bottom Line).

Accounts Receivable
The collection performance report describes what has happened in the billing operation; the accounts receivable report describes what hasn’t happened. This report should be presented by payor class.

Payor

Current 31-60 61-90 91-120 121-150 >150 TOTAL
Self-Pay $16,275 $9,185 $12,678 $11,768 $10,756 $29,678 $90,340
Indemnity $7,155 $8,226 $2,809 $1,698 $1,276 $9,845 $31,009
FFS Managed Care $82,928 $66,582 $23,810 $9,780 $2,650 $276 $186,026
Workers Comp. $3,242 $4,218 $2,395 $1,472 $534 $2,964 $14,825
Medicare $203,673 $183,214 $23,851 $9,365 $2,186 $86,720 $509,009
Medicaid $12,214 $14,634 $9,621 $7,215 $1,378 $18,942 $64,004
Medi/Medi $10,576 $8,265 $1,763 $935 $0 $0 $21,539
TOTAL $336,063 $294,324 $76,927 $42,233 $18,780 $148,425 $916,752

This table first appeared in the October 19, 1999 issue of Watching Your Bottom Line, and the interpretation of the data can be found there. Practice Expense Practice expense can be expressed, by category, as a percentage of income. The data should be generated either quarterly or as a twelve-month moving

Total Practice Income

$2,516,812

Practice X $

Practice X % of Income

MGMA Median

Employee Expense

$565,024

22.45%

27.16%

Office Occupancy

$150,505

5.98%

6.60%

Furniture & Equipment

$28,943

1.15%

3.12%

Medical Supplies

$44,296

1.76%

1.49%

Office Supplies

$69,464

2.76%

2.17%

Professional Liability Insurance

$33,222

1.32%

0.98%

Other Insurance

$3,524

0.14%

0.29%

Outside Professional Services

$89,347

3.55%

1.05%

Promotion & Marketing

$6,292

0.25%

1.33%

Business, Property, and Other Taxes

$11,326

0.45%

0.32%

Information Systems

$58,893

2.34%

1.45%

Other Operating Cost

$109,481

4.35%

5.90%

TOTAL EXPENSE

$1,170,318

46.50%

51.86%

The key to interpreting this analysis is to monitor for changes over time.

Summary
As an administrator, you’ll be providing a valuable service to the practice if you generate collection performance and AR reports monthly and expense reports quarterly, and review them with the managing physician. These reports will provide an accurate picture of the practice’s performance, including a quantified look at the practice’s clinical services and an evaluation of whether the income generated from those services is adequate. Only through regular surveillance of the data can problems with the practice’s business processes or the insurers be identified and corrected before these problems inflict serious financial damage on the practice.

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