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Hidden Landmines in Revenue Cycle Management: 4 Rules of Report Analysis to Follow (Part 3)

  • Consultant, Pathology Practice Advisors LLC

This is the third post of a three-part blog series focused on key areas of business performance management for pathology practices, hospital outreach programs, diagnostic laboratories, and molecular diagnostic providers. The other blog posts in this series can be found here: Part 1 and Part 2

At the recent Executive War College, I had the honor of presenting with Diana Richard and Stephanie Denham of XIFIN in a session entitled, “Hidden Landmines in RCM — Understanding Trends That Impact Financial Performance of Laboratories and Pathology Practices.” It was a thrill since both Diana and Stephanie began their careers at my previous company,  Pathology Service Associates and I have enjoyed following their careers since. 

I have been in the pathology billing business since 1988 and it gets tougher each year. I think the title “Hidden Landmines” was very appropriate, given the complexity of managing revenue cycle management in today’s dynamic regulatory, reimbursement, and coding environment.

When I started doing financial analysis for pathology practices back in the ‘80s, our “tools” were a 13-column pad, a mechanical pencil, and a 10-key adding machine. In the early 80s Lotus 123 came out and all of us accountants thought financial management technologies could not get any better. Well, it did.  Excel now has over 1,000,000 rows and 16,000 columns, plus it does all the calculations for us automatically. 

That is a long way from the 13 columns, 40 rows, and the adding machine.

Many billing programs have wonderful reporting capabilities and libraries of standard reports to choose from, with the more robust platforms having ad hoc reporting capabilities and real-time reporting.  Most reporting platforms also have the capability to download data directly to a spreadsheet for further analysis, which is where I frequently leverage pivot tables that allow for easy drill-down capabilities. With all this increase in power, there is no reason not to do a thorough analysis of your billing process on a regular basis.

In my practice, there are four primary rules that should be followed when analyzing your billing reports:

Rule 1: Comprehensive Summary Reports

Look at the complete revenue cycle for the period (shown below), not just one element of it. This includes:

  • Gross charges
  • Contract adjustments
  • Net charges
  • Gross collections
  • Refunds
  • Net collections
  • Bad debts
  • Change in accounts receivable
  • Beginning accounts receivable
  • Ending accounts receivable

I know this is very basic, but I still see many billing reports that emphasize just one of the above elements of the cycle, such as charges or collection. It’s important to take all of these elements into consideration when evaluating your billing performance. For more insight into evaluating these as a whole, reference Stephanie Denham’s blog post: Hidden Landmines in Revenue Cycle Management: Industry Challenges, Patient Engagement, and Denial Trends.

Rule 2: Utilize Comparative Reports

Comprehensive summary reports are so much more meaningful when you compare to a prior period. Any variance from one period to the next needs to be understood and explained.

I have found that comparing the current year-to-date numbers to the same period of the prior year to be very informative. For example, if charges are up or down compared to a previous period, is it due to a change in volume or price or a combination of the two?

In order to answer this question, I use the following computation:

Rule 3: Monitor Key Performance Indicators (KPIs)

The four key performance indicators that I use are:

  • Net collection %
  • Bad debt %
  • Change in accounts receivable %
  • Days in accounts receivable

As Stephanie pointed out in the second blog post in this series titled "Hidden Landmines in Revenue Cycle Management: Misleading Metrics," these benchmarks can have some fluctuations that are not a result of a problem; however, it is still worthwhile to track them monthly. If there are variances you need to investigate further to rule out any problems. Much like monitoring your lab test results, sometimes we get lab results that are out of the normal range and we find out that nothing is wrong but something else impacted the test result. These KPI’s may point out if there is a problem.

Rule 4: Breakdown Reports

Category based detail reports can be very useful in understanding your practice, or lab. Some of the most useful breakdowns are listed below:

  • By payors
  • By CPT code
  • By place of service
  • By location
  • By pathologists

While the above breakdown report provides a lot of useful informative management information for a practice or lab, they also allow us to “drill down” to find out where our problems are. 

We use the KPIs to determine if we have a problem. We can use the breakdown reports to determine where the problem is. For example, if a practice or lab has a high number of days in accounts receivable overall, we can use the breakdown reports to see if it is one payor or place of service or CPT code.

In conclusion, following the 4 rules above allows you to get a good idea of how your billing operation is performing; if there is a problem, they can direct you to the source.

Continue reading the "Hidden Landmines in Revenue Cycle Management" 3-part blog series:

Published by XIFIN
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