Typically, practices look at a return on investment for utilizing a medical billing company as a matter of staffing and resource costs. While resource allocation is important, the focus should be on the current performance of the resources being utilized vs. the performance of other resources available. The differences in resource costs are typically over-shadowed, once a performance analysis is evaluated. Lack of performance in key areas of the revenue cycle can cause lower net collection rates, deflated cash-flow, and lower overall utilization of practice resources.

In a practice with a mismanaged revenue cycle, resources are forced to allocate time to processes that cost the practice money, such as working down increasing levels of appeals, denials, insurance and patient A/R balances, and collection accounts.

A quick way to check if the resources in your practice are working hard for you, or if they are more likely causing you to leave money on the table, is to compare your Gross Collections %, Net Collections %, and outstanding Accounts Receivable bucket %’s, to accepted industry averages and benchmarks.

For Example:  A Primary Care medical group bills out $2,300,000 in Gross Charges, has $900,000 in Adjustments, and $1,300,000 in Medical Revenue, over a twelve month period.

Gross Collections %: $1,300,000 / $2,300,000 = 56%
Net Collections % (non-matched): $1,300,000 / ($2,300,000 – $900,000) = 93%
(Net Collections % represents the amount of revenue collected vs. the amount of revenue that should have been collected over a period of time, and is the most accurate metric to compare collections performance. It is possible to have a >100% Net Collections % due to the fact that charges in one month aren’t collected until the following month(s), creating the “non-matched” concept. Receipts in one month most likely do not match the charges for that same month, but rather came from previous month’s charges. Over a larger time period, a practice should have consistency with charges and receipts, making this metric an accurate measurement tool.)

In evaluating a standard Accounts Receivable Aging Report, aging buckets show: (Total AR of $270,000)

Current AR:     50%     $135,000
31-60 Days:      10%     $27,000
61-90 Days:      9%       $24,300
91-120 Days:     8%      $21,600
121+ Days:        23%     $62,100

If we compare these practice performance and health indicators to industry standards for primary care practices, we will find that an average Gross Collections % is around 63%, an average Net Collections % is around 98%, and AR outstanding 90+ days should be less than 15% to 18% total. What does that mean for our example above in terms of lost revenue to the practice?

Taking a look at the increased Gross Collections %:
– 63% Gross Collections would have brought in $1,449,000 giving a +$149,000 increase in revenue.

Applying this new revenue to the Net Collections %: (Leaving Adjustments constant for ease of example)
– $1,449,000 / ($2,300,000 – $900,000) = 103%

And finally looking at Cash-Flow with AR:
– Reducing AR outstanding 90+ days from 31% to 15%, would represent a +$43,200 increase in cash-flow along with significantly reducing practice risk for uncollectable accounts.

An average 3 provider Primary Care practice, like the one in the example, might have 1 biller and 1 staff member working collections. Depending on your wage rate in your area (I’ll use $14 /hour plus benefits/sick/vacation/WC/payroll tax…), each staff member can cost $2800 per month, for a total of $5,600 in staffing expenses.

A billing service might charge this practice a rate of 6.5% of collections, and on $1,449,000 in receipts, that equals  around $7,800 per month in billing service fees. (Assuming that the billing company will restore their practice health to, at least, industry standards)

Is it reasonable for the practice to base their decision, on utilizing a billing company or not, on the fact that it will increase their monthly costs by $2,200, when there may be nearly $200,000 in revenue left on the table due to lack of current resource performance? A $26,400 annual increase in cost would be largely over-shadowed by the performance benefits.