United States: Use Of Templates To Monitor Financial Performance

To help owners and managers make effective management decisions, they must have access to comparative information about their finances. Report templates can help aggregate key data to monitor financial performance. Templates can condense, organize and present critical data in a format that facilitates practice operations and management decisions. Many, if not most, templates can be generated by standard practice management systems. If some data is not available or could be added, the templates can be modified to add or delete entries.

Templates can be designed to capture various types of data including:

  • Monthly financial information derived from various sources;
  • Annual reports;
  • Relative Value Unit (RVU) reports;
  • Payer evaluation reports;
  • Fee schedule reports; and
  • Proposed service reports.

A description of each of these types of templates will be described below:

Monthly Financial Report A short (one- or two-page) report featuring a variety of indicators that should be monitored. The report could include the following indicators:

  • Total charges by day and by physician;
  • Total payments and refunds;
  • Total A/R and their age;
  • Gross collection ratio;
  • Net receipts (actual/budget);
  • Operating expenses (actual/budget);
  • Net income;
  • Total encounters;
  • New patient visits; and
  • Full-time equivalent staff.

These numbers are good measures of your practice's monthly progress when monitored on a monthly basis.

Annual Report – This template captures much of its data from the monthly reports. But, this report should incorporate more operational detail and descriptions of long-term trends to reveal a practice's mission, objectives, strengths and challenges. The template could include the following:

  • Ancillary receipts;
  • Physician compensation;
  • Operating expenses (total and by site);
  • Overhead percentage;
  • Capitation payments; and
  • Gross collection ratio.

The Relative Value Unit (RVU) Report – This report measures productivity based on RVU's. With high-quality RVU data, the report can be used to negotiate managed care contracts, revise physician income distribution formulas, set fees and track relative resource use. The RVU template is a list of billing codes relevant to the practice, with an RVU for each one. The frequency for each code is multiplied by the RVU to arrive at a total RVU score. If the marginal cost per code is available, it can be multiplied by the code volume to get the total cost for each code.

Payer Evaluation Template – A practice may want to evaluate and analyze its payers. Two formats for a payer evaluation report that are commonly used are:

  • The practice's profitability for each payer. This template uses the same structure as the RVU report to derive a practice's total operating costs and receipts for the codes billed to each payer. A practice should use these figures for negotiating your fee schedule or evaluating overall practice profitability.
  • The payer mix collections report. This report indicates how promptly payers pay claims, monitors the effectiveness of the practice billing staff and tracks the relative size of each payer as a percent of practice business.

In using either template, the data should be drawn from five sets of quarterly numbers for the practice's payer mix: Medicare, Medicaid, commercial, managed care (capitated and non-capitated) and self-pay. Each set needs to include charges, payments/receipts, collection ratio and A/R.

Fee Schedule Report – This template begins as a simple list of the practices most commonly billed codes. Then, for each code, you insert:

  • The practice's fee;
  • The cost for providing that coded service; and
  • The fees reimbursed by each of the payers with which the practice contracts.

The resulting report can help billing staff verify that payments received are accurate. In addition, the fees in a proposed new contract can be compared to those in current contracts. This template also supports arguments for renegotiating existing fees.

Cost/Benefit Analysis Report – Often, decisions need to be made on whether to add a new service or equipment or whether to drop an existing service. Decisions also need to be made on whether it is more profitable to bring a service in-house or continue to outsource it. There are four steps in using a template to create a cost/benefit analysis report:

  • Identify the codes that will be billed for the service;
  • Estimate the likely service volumes and reimbursement amounts (revenues);
  • Determine the time needed to perform the service and the office resources it will require; taking into account factors such as convenience, patient satisfaction and quality of care; and
  • Subtract expenses from revenues to get profits.

Since most of these steps will be assumptions, different scenarios at different service volumes and expense levels and reimbursement rates need to be explored.

Using templates can help maintain an ongoing, high-level awareness of your practice. Templates also provide a basis for benchmarking your operations – either by comparing current performance to historical performance or by judging your practice against national standards. Benchmarking is a valuable tool to use when analyzing your practice financial indicators.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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