| Physical therapy practice management is similar to | | | | materials (software, paper, stamps etc). |
| patient care in that there is a science and an art | | | | Another factor of cost that is often overlooked |
| to how it works. One situation that lends itself to | | | | and probably the most important to stress is |
| this concept is the decision to have your billing | | | | what I call the "Sick Leave Factor". This refers to |
| service in house or to outsource it. On one hand | | | | the scenario in which your employee responsible |
| as the owner or manager you would like to keep | | | | for all the billing and follow up takes sick- or is out |
| control of the process and have the data at your | | | | of work for any reason. Less commonly but with |
| fingertips. On the other hand is the cost | | | | a greater impact is when this happens as that |
| associated with staff dedicating time to the entire | | | | staff member leaves or retires. This may leave |
| billing process, claims follow up, and the | | | | the practice owner in a difficult position in order to |
| management of that process to keep it efficient | | | | maintain reimbursement performance and |
| while working without a hitch. Making this decision | | | | ultimately cash flow while that key person is gone. |
| sometimes is done out of that gut feeling that it's | | | | Having a thoroughly trained support staff and |
| the right thing to do or strictly going by the | | | | established billing process is key to seeing that the |
| numbers or a combination of the two. The | | | | Sick Leave Factor doesn't impact your bottom |
| purpose of this article is to assist you in making | | | | line. From a human resource standpoint this is |
| an informed decision about what is best for your | | | | difficult to prepare for especially if your practice is |
| clinic and introducing you to a simple tool that will | | | | small. However if you think that this is isolated to |
| help compare different billing scenarios. | | | | an in house process - think again. I have seen and |
| Prior to starting my outpatient physical therapy | | | | experienced the Sick Leave Factor with sub |
| practice one colleague recommended that I should | | | | optimal billing companies as well. Please understand |
| do all the billing myself. That way I could cut down | | | | that an effective billing process when set up |
| on my cost. And after I grew the business then I | | | | correctly should not be dependent upon one key |
| would want to transition the process to a billing | | | | person. The system should run smoothly and that |
| company. I was also told by another colleague | | | | many people should know how to keep it running |
| that with small start ups it makes more sense to | | | | smoothly in the case of personnel change over no |
| utilize a billing company at first until I grew the | | | | matter if this is done within your practice or |
| business to a certain level and then I would be | | | | outsourced. |
| able take it in house. From my perspective I | | | | A tool that I believe you will find helpful in your |
| believe both can be effective and both can be | | | | decision making is the Cost Performance |
| ineffective based upon certain variables. Often | | | | Index(TM). This is the relationship between the |
| times these variables are overlooked by owners | | | | total cost of a billing service and the value |
| who may not truly understand the dynamics of | | | | (effectiveness) of that service on your clinic's |
| physical therapy reimbursement and practice | | | | cash flow. |
| management. I believe most of us have found | | | | Cost Performance Index = RPI Cash flow / Total |
| success with both situations and likewise have | | | | Cost |
| found utter frustration with both situations at one | | | | The RPI(TM) cash flow is the projected cash flow |
| time or another. This article will highlight the two | | | | (Visits x charges x % of typical reimbursement) / |
| most important variables as well as introduce you | | | | RPI score |
| to a tool - The Cost Performance Index (TM) or | | | | Example: 350 visits x $155 charge per visit x 67% |
| CPI that you can use to help make better | | | | reimbursement = a projected cash flow of |
| informed decisions about your own billing process. | | | | $36,347.50 |
| A wise man once told me that 5% of nothing is | | | | A. If the process is effective (RPI for instance is |
| nothing. This wise man, who eventually became | | | | 1.0) then the RPI cash flow is $36,347/1.0 = |
| my business partner, was referring to the fact | | | | $36,347 |
| that although a 5% cost per reimbursed claim | | | | B. If the process is ineffective (RPI is 1.4 ) then |
| was very affordable, the fact that without | | | | the RPI cash flow is $36,347/1.4 = $25,962 |
| adequate reimbursement performance, it didn't | | | | From here you can compare Cost Performances |
| mean much. What he was alluding to was the | | | | between two billing processes. |
| cost of billing that I paid to a company who didn't | | | | 1. Let's say that you can bill from within with an |
| truly understand my needs and whose services | | | | RPI of 1.4 (Scenario B above) and the total cost |
| were poor. It didn't cost me much - because I | | | | to you is $2,500 per month your CPI would be as |
| didn't make much. Sure a low cost was great. But | | | | follows. |
| looking at cost alone does nothing for the pocket | | | | CPI = RPI cash flow / Total cost So - CPI= |
| book. Your goal as a business owner is to achieve | | | | $25,962 / $2500 = 10.4. This means that $10.40 |
| the greatest revenue for the lowest cost in order | | | | is generated in revenues for every dollar of cost |
| to maximize your profit margin. | | | | associated with the billing process |
| There are two primary variables that the owner | | | | 2. Let's say that you use a Billing Company that |
| practice manager needs to acknowledge and | | | | achieves an RPI of 1.0 (Scenario A above) and |
| understand in addition to being able to see how | | | | the total cost to you is the same - $2,500 your |
| they impact your bottom line. In their simplest | | | | CPI would be as follows |
| form they are performance and cost. Firstly, your | | | | CPI= RPI cash flow / Total cost So - CPI= |
| billing system needs to be effective and you need | | | | $36,347 / $2,500 = 14.5. So you generate $14.5 |
| to know how to measure it and what factors are | | | | dollars for every one dollar spent on the cost to |
| involved in making it effective. In a previous E-zine | | | | use that billing company. |
| article, Reimbursement Performance Index: A | | | | As you can see better performance (lower RPI) |
| New Tool in Physical Therapy Practice | | | | can make a big difference in your bottom line. If |
| Management I introduced a simple metric to help | | | | you simply look at the retained cash flow you can |
| determine a practice's billing effectiveness - the | | | | see that the lesser performing process yields you |
| Reimbursement Performance Index (TM). [Total | | | | $23,445 at the end of the month [RPI cash flow |
| AR / Ave. Monthly Charges]. Having an ineffective | | | | minus the cost of the service - $25,945 - $2500]. |
| billing process is detrimental to a practice no | | | | With the greater performing process you end up |
| matter if you are doing it in house or outsourcing | | | | with $33,847 at the end of the month [$36,347 |
| it. I have seen examples of both. | | | | -$2500]. |
| An effective process starts from having your | | | | What needs to be stressed here is to accurately |
| front office be on top of performing health | | | | measure performance (RPI) and to gather the |
| insurance benefit checks so that both you and | | | | true total cost associated with billing in either |
| the patient are on the same page as to what the | | | | situation. What most owners and managers |
| cost for services will be per visit. Understanding | | | | forget when looking at the cost of services |
| and explaining to a patient the difference between | | | | provided within the practice is the impact of |
| co-pays and co-insurance as well as coming up | | | | benefits, taxes, worker's compensation insurance |
| with a plan to have patients pay for services up | | | | and billing software / supplies. Conversely when |
| front when they have an unmet deductible or | | | | dealing with a third party billing agency you need |
| co-pays are key to saving you time and money | | | | to be aware of all the costs including any set up |
| as well as maintaining good cash flow. Next, | | | | fees, minimal charge fees or any extras that are |
| having those who manage your billing process | | | | not included in your contract. |
| completely understand all the intricacies involved | | | | Finally, I would be remiss if I didn't touch upon this |
| with the plethora of health insurers and plans that | | | | concept. Many practice owners believe that billing |
| are out there and the rules that each expect us | | | | can be simple and effective if they purchase the |
| to follow in order to get paid for the services we | | | | right software package. Much thought, time and |
| render. In depth knowledge of coding including the | | | | energy seems to go into deciding which billing |
| use of modifiers and tracking reimbursement | | | | software package the owner should invest in. My |
| trends and utilization is also highly important. It | | | | opinion is the least important cog in the |
| should also be expected that the same personnel | | | | reimbursement wheel is what software you use. |
| needs to work hard for you and your patient to | | | | The most important aspect by far is the system |
| correct any misinformation and unpaid claims that | | | | you develop - everything from choosing which |
| the insurance company sends your way. Having | | | | contracts to sign, to your fee schedule, to how |
| dedicated staff to spend time to research and do | | | | and when you input your charges and to how you |
| follow up on any and all erroneous claims is vital | | | | train your staff on what to charge and more. |
| to not giving away free service. | | | | Those who control and run your system, the |
| Cost is the other variable that needs to be | | | | trained experts who understand how it all works |
| understood in order to make a better informed | | | | and how they need to modify it over time as the |
| decision about how you should bill. From an | | | | rules change eventually will define your level of |
| outsourced point of view the third party agency | | | | success and cash flow both in the short and long |
| can charge the practice in many ways. The cost | | | | term. |
| to the practice can be based upon gross charges, | | | | In conclusion, understanding the factors involved in |
| total revenues actually collected (including desk | | | | determining the effectiveness of your billing cycle |
| payments), or revenues collected through | | | | as well as accounting for all the costs associated |
| insurance payments alone. In some situations they | | | | is key in helping you make a better more |
| even charge for low volumes as well as a setup | | | | informed decision. These two variables are all that |
| and start up fees. A percentage of gross charges | | | | count. How effective of a job are you doing? And |
| or revenues collected are typical. Total costs | | | | what is the total true cost to get that level of |
| associated from in house processes include the | | | | effectiveness. The Cost Performance Index (TM) |
| direct cost of personnel including: salary; benefits; | | | | is a simple way to make sense of it all. |
| taxes (up to 40% of salary) and supplies / | | | | |