As we explored in part 1 and part 2 of this 4-part series, some independent device testing facilities (IDFT) businesses fail to recognize just how important and complex the revenue cycle management (RCM) process and approach are and how big an impact they have on financial performance, cost, and valuation. It’s an extremely complex process that is beyond the scope of expertise for most IDTFs. Nor does it have to become such, given the expert partners available to support this process and its complexity.
In this post, we’re covering the importance of financial reporting and making the valuable distinction between contractual allowance and bad debt.
The last step in the RCM process, reviewed in part 2 of this series, is financial reporting. The cost of administration, particularly end-of-month reconciliation and general ledger work, is an aspect of total cost of billing. Accounting staff often spend many hours trying to tease numbers out of the billing system that accurately represent the facility’s revenue performance and can be used in the general ledger. In addition, with increased pressures on reimbursement, IDTF leaders need to be able to monitor key performance indicators, such as profitability by payor, profitability by provider, and other management data that are necessary to strategically manage the business. Reporting and financial analysts are often a hidden labor cost that a purpose-built RCM solution that includes business intelligence capabilities.
Contractual Allowance versus Bad Debt
One area of impact that is often difficult for organizations to identify is the extent of unnecessary write-offs. These are claims wherein the amount collected was lower than the contracted pay rate. Frequently, in traditional billing systems, these discrepancies are incorrectly attributed to contractual allowance when they should be recorded as bad debt. Under current accounting rules, eliminating this erroneous bad debt represents an increase to revenue, which would directly affect the total cost of billing, as measured as a percent of revenue.
In fact, the benefit is still greater because correctly identifying these items as (potentially recoverable) bad debt rather than contractual allowance enables an organization to take steps to recover this otherwise lost revenue.
- The billing system is not regularly updated with the latest payment rates
- The system is unable to provide the detailed financial reporting needed to identify and pursue any underpayments
Until a testing facility uses a best-in-class and purpose-built RCM solution or service that provides detailed payment rate tracking and analysis, this aspect of billing cost is difficult to measure. If an RCM solution or service doesn’t provide the necessary precision, your organization may routinely discount bad debt and inflate contractual allowance. Depending on the organization’s contracted payment rates, the lost revenue can be substantial.
Look out for the final part of this blog post next week, which focuses on effective compliance programs for IDTFs.
Want to learn more about XIFIN's RCM technologies for medical device companies and IDTFs? Checkout our mecical device page here:Click Here