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Physician Lesson # 1 : “Is Your Accounts Receivable Affecting Your Paycheck?”

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Evaluating the health of your Accounts Receivable is an essential part of medical practice analysis and practice management. Unfortunately, when it comes to truly understanding and managing the Accounts Receivable process many physicians and staff struggle with knowing what is good and what is bad. More importantly, not optimally managing this process could affect your paycheck.

Below explains how to better evaluate and improve the function of your medical billing and collections, helping you to increase accountability, have a timely and consistent revenue stream, better manage payments and keep your practice running smoothly.

Determining Your Practice’s Financial Health

There are two key questions to consider when determining your practice’s financial health:

  1. Are the monthly charges produced (dollars billed each month) enough to sustain the practice?
  2. Are these charges being turned into cash in the most optimal manner?

It Starts with Knowing Your Revenue and Expenses

To answer the first key question you must first determine your practice’s payment percentage and monthly expenses. Payment percentage refers to the percentage of every dollar billed that is turned into cash. You can calculate your practice’s average payment percentage by dividing your average payments over at least a six-month period into your average charges for this same timeframe. The percentage calculated is the average amount you receive in cash for each dollar billed.

As an example, if your six-month average charges are $100,000 and your six-month average collections are $65,000 then your average payment percentage is 65% ($65,000/$100,000).

Once you know this percentage you will know each month on average how much cash should be available to cover all overhead and salaries for practice operations.  If you produce enough cash to cover your overhead and salaries then you are in a positive cash flow position.  If not, then you are in a negative cash flow position.  If your Accounts Receivable is not being managed properly then fixing this could take you from a negative to a positive cash flow position or to a more positive cash flow position.  Increasing your cash flow in either case can mean more take home pay for you.

 Determining the Best Ways to Convert Charges to Cash

Answering the second key question informs physicians how their Accounts Receivable (A/R) converts charges to cash or write-offs. It also informs you of how well your billing staff (whether inside staff or an outside resource) is performing and how/if your A/R can be improved. The following list will help you determine your practice’s A/R timeline, how long charges take to convert to cash and how your medical billing system can flow more efficiently.

Look for these key indicators by digging into your monthly Accounts Receivable dashboard.

  1. Average days in A/R: the average number of days it takes for a charge to be paid by insurance and/or patients. This number should consistently stay between 35 and 45 days.
  2. Insurance A/R: the A/R owed by insurance carriers. Insurance A/R under 30 days old should account for 70 percent or more of your total A/R. Insurance A/R over 120 days old should account for 5 percent or less of your total A/R
  3. Patient A/R: the A/R owed by patients. Patient A/R should not exceed 25 percent of the total A/R.
  4. Collection percentage: payments + adjustments/charges. Your practice’s collection percentage should be 97 percent or higher; understanding you will have some bad debt.

Many medical practices do not realize the inefficiency of their Accounts Receivable system until they find themselves in the midst of a major cash strain. Proactively improving your medical billing and collections system will help to keep your practice running smoothly. If you need any assistance improving and managing your practice’s Accounts Receivable, Physician Services USA is here to help. Contact us today to learn how we help doctors maintain cash flow with optimized A/R solutions for your medical practice. We offer a free 30-minute evaluation of your A/R to include a Revenue Cycle Dashboard.

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