We can watch the results of the fluctuating stock market on an hourly basis on our phones. We can see how close the car service we ordered is to our location. We can track the packages we purchased to the hour of delivery. How do we know if our practice is having problems before it gets too bad? Many practices do not get financial statements until four to six weeks after the month is over. Financial statements keep score after the fact; they do not help you manage. Timely Key Indicators are the tool.
It is very trendy to point to physicians and say that the root cause of the business problems they face is the fact that they are not business men and women. The reality is that physicians are as good business people as any other category of business owners. Physicians provided with good information can and do make good business decisions. The issue is that physicians typically do not have good timely information that is actionable. Physicians ask for and typically receive raw data from their practice managers in the form of large reports that may or may not have the information they need. Well run practices have a set of Key Indicators that partner physicians track on a regular basis. These reports go by a number of titles “Key Indicator Reports,” “Flash Reports,” “Business Markers,” etc. What the reports all have in common is a concise measurement of the health of the practice, timely.
Key Indicator reports should measure a few standard indices of practice status: productivity, cash, and volume. How a practice measures these should be specific to the needs of the practice and change based on age of the practice, profitability, cosmetic vs. medical, etc. A practice wanting to improve in a certain area should measure indicators that can predict future results in the target area. Some indicators that can be included as Key Indicators are:
• Year-to-date and Month-to-date charges and collections;
• Previous year’s comparative Year-to-date and Month-to-date charges;
• Cash collections for the time period;
• Collection percentage by financial class (retail/cosmetic, commercial, Medicare, Medicaid, HMO) cumulative for the year;
• Volume of patients: new and current;
• Charges/collections/adjustments by physician; and
• Accounts receivable aging including days in accounts receivable.
Key indicator reports may have additional information added, such as coding benchmarks by doctor; personnel costs as a percentage of revenue, RVU’s and any other information that the physician partners feel is important to their practice or their compensation model. When deciding on what to measure for the key indicator report use items that can be considered leading indicators of future success. For example, a cosmetic practice may measure new appointment lead time or procedure deposits. A Mohs practice may track booked surgeries and days outstanding receivable.
Keep the report one page (two pages maximum), concise, on time every month (or every two weeks), and easy to prepare. Reports that are too lengthy will not be read, too long or too hard to prepare will not be compiled regularly, and inaccurate will not be used. The Key Indicator report is an adjunct to the practice financial statements, it should be completed right after month end (or every two weeks) so that issues can be identified and do not linger. It helps to guide the physician partners on why good or bad things are occurring in the practice. The monthly (or quarterly partner meeting) should have an agenda item discussing the Key Indicator Report. Some Key Indicator reports develop a budget or goal for each indicator and track achievement in colors (red below target, yellow meeting target, green exceeding target). This ensures all partners understand the health of the practice.
Different sections of the Key Indicator Report tell us different things about the practice. Obviously, the production and charges section of the report explains how much cash the doctors are generating through charges and collections.
The payor analysis tells the practice where the revenue comes from, who are most important financial customers are, or commonly known as the payor mix.
The new patient tracking allows the practice to understand if it is growing, remaining stagnant or in full retreat. The physicians need to watch new patient metrics, it is a sign of growth, total cases are an indicator of productivity.
Volume and production/charges section should be viewed together to determine why revenue may be up or down. If total cases are up, but charges are down, we would investigate in depth what type of cases we are seeing. In this example, we could be very busy but seeing a less financially productive level of patients (not insurance but complexity of case). We can also view the payor analysis in this same scenario to determine if our payor mix has changed.
A physician profile section allows physicians to compare productivity and practice type. In addition, physicians can compare charges to cash collection realization to see if within the practice there is payor variation.
The Key Indicator report must be developed from information easily obtained in the practice. All of the information outlined above comes from any standard practice billing information system or an out-sourced billing company. The practice manager is instructed to set up a spreadsheet on any commercially available software. The practice must set an expectation that the report is prepared monthly at the very least and must not waiver from this standard. A practice manager with average database skills can chart these sections or add physician coding profiles very easily.
Variations identified by reviewing the Key Indicator Reports can be followed up in depth through specific problem area analysis. Billing and collections reviews if the accounts receivable grows excessively. Referral pattern analysis if the new cases begin to fall, etc.
Key Indicators are the ‘vital signs’ of the practice. Physicians who become adept at following the key indicators will manage better and become better business men and women. The art of management is knowing where to look to find problems and putting the checks and balances in place to fix issues or enhance opportunities.