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Plugging Income Leaks You Didn't Know You Had

Do you know how much collectible income is being written off in your practice? Here's how to track bookable income and keep money from going down the drain.

By: Dawn Cavanagh, Jefferson
Ophthalmology Management February 1, 2001

Plugging Income Leaks You Didn't Know You Had
Do you know how much collectible income is being written off in your practice? Here's how to track bookable income and keep money from going down the drain.
By Dawn Cavanagh, Jefferson City, Mo.

Every busy ophthalmologist anticipates the arrival of payment for services rendered. Yet most ophthalmologists don't have any idea exactly how much payment ought to be coming in during any given month. As a result, they have no way of knowing how much income is slipping through the cracks.

You may believe that tracking and projecting monthly income is difficult or impossible without help from expensive accountants and consultants, but that's not true. You can manage this task in your practice without any outside help -- and your bottom line may benefit enormously if you do.

 

The Numbers are Your Business, Too
 

Most practices handle their books internally and then send out computer generated reports to their accountants at the end of the month (or quarterly). Whether you're a solo practitioner or a partner in a large group, take the time to read and understand these reports. (As a partner, you're entitled to receive a copy of these reports and to discuss them with your accountant.) Taking the time to do this is necessary if you hope to make informed decisions that will benefit both you and your partnership.

I'm always shocked to hear a partner say, "Why would I need to review these reports? All of us are making money." Groups with this attitude are really putting themselves at risk because things aren't always what they seem to be.

-- Dawn Cavanaugh
   

Tracking the numbers

Here are 13 steps you can take to start tracking your bookable income:

  • Make sure that your patients are only seen by physicians who are credentialed on the patient's plan. Start by creating a list of all the insurance plans in which you and your partners participate, and list which doctors are credentialed by each plan. Make sure it's clear to your staff which plans you don't participate in, and which plans (if any) have denied access to certain physicians employed by your clinic. (Because of the rising costs associated with many heavily penetrated managed care markets, some administrators have made the decision to credential only certain doctors on certain plans.)
  • Create a comprehensive list of allowed fees, organized by CPT code and insurance plan. Differentiate between plans that pay flat fees and employer groups that pay a percentage of billed charges (or a percentage of "usual, customary, reasonable fees" [UCR]).
  • Create a list of noncovered services, organized by insurance payer. Your staff won't collect money from patients unless they realize that the patient's insurance won't pay.
  • Check billings periodically for accuracy. Pay close attention to which codes are being used, by whom, and in which location. You may uncover problems such as one doctor using the same visit code for every patient, or an entire location not being keyed in one month. If billings are being rejected because someone periodically forgets to enclose a referral, you can take action to ensure that the problem is corrected.
  • Establish a policy for collecting payment for noncovered services. Your office needs a clearly established protocol for informing patients about noncovered services and collecting fees at the time of service. (One clinic tracked refractions for 1 month and discovered that they hadn't been collecting fees from some patients. This oversight cost them $120,000 a year.)
  • Generate computerized reports showing all procedures, organized by location, insurance plan and doctor. Doctors may not be credentialed for every location at which they're seeing patients. This will result in the physicians not being paid.
  • Create a comprehensive fee schedule grid. Once all of this information has been collected, create a grid that will allow you to review the fees your clinic is accepting for all services rendered. (The person in charge of your accounts receivable can take care of this.)
    Make sure you pull the allowed amounts from the contract, not from the Explanation of Benefits (EOB) form. If you pull the allowed amounts from the EOBs, you won't catch payment mistakes. (If no fee schedules are attached to the contracts your clinic has signed, ask the insurance company to send your office an updated fee schedule.) Be sure to track capitated arrangements separately to make sure that it's not costing you more to see these patients than you're earning by seeing them.
  • Take the time to get acquainted with your fee schedule. Know who's in charge of setting the fees for your clinic and how often your fees are reviewed. Understand how the writeoff system works (i.e., what is billed vs. what should be collected). Be aware of what your contractual writeoff percentages are for each insurance plan or category.
  • Compare EOBs to contract fee schedules. If you have sufficient staff and time, have someone compare the allowed amount specified in the contract for each procedure to the amounts listed in the EOBs. (Some clinics have found that they're being underpaid by 5% to 20%.)
  • Track every payment arrangement you offer. When it comes to booking revenue from cash patients, make sure that your office is able to track each different payment arrangement you offer. (It does no good to list LASIK as a single income category when you have five different types of payment methodology for this type of surgery.)
    Also, make sure this process is monitored over time. As the number of patients willing to pay for this procedure increases, so will the problems associated with cash management.
  • Have an outside party do occasional spot checks of the books. If your staff knows that this is your policy, anyone tempted to play with the numbers will have second thoughts. And if errors are made -- deliberately or not -- you'll find out about it before you lose thousands of dollars.
  • Encourage your staff to point out behavior on your part that results in unpaid claims. If your staff is afraid to say anything to you, you're the one who loses.
  • Don't assume you have to accept contracts exactly the way they're offered to you. Don't sign any contracts that you haven't taken the time to read or understand. And when you do sign a contract, make sure a fee schedule is attached.

Taking home the money you've earned

Tracking and projecting your monthly earnings will be challenging, but the payoff will be well worth it. Take the time to implement this plan, and maybe, just maybe, you'll find yourself not only working hard, but working smart.

Dawn Cavanaugh is president of Cavanaugh Consulting, a firm specializing in ophthalmic and ASC consulting. She can be reached at (573) 632-2661 or at cavdl@aol.com.

 

"Sure, It's a Good Idea, But . . ."

Here are the most common rationales doctors offer to explain why they don't track their income -- and the reasons these arguments don't really make sense.

  • Rationale #1: "My practice collects the same amount each month, so everything's okay." Most physicians in practices that average about the same dollar income amount each month don't feel threatened, so they don't ask any questions. Unfortunately, these are the physicians who find out later they've been burned. For example, how can it be that collections average the same amount each month when production numbers go up and down? You need to find out why this is happening -- especially if your surgeries are increasing but collections are remaining the same.
  • Rationale #2: "In my practice, accounts receivable averages around 55 days, so I know that all my services are being collected." An acceptable AR rate doesn't necessarily mean that everything is being collected:
    • Surgeries may be written off because the billing department failed to submit the "op note" or referral. (Usually this is indicated on a denial on the Explanation of Benefits.)
    • Some practices fail to keep a list of all noncovered procedures by payer; as a result, noncovered procedures are billed to the payer -- and no money is collected.
    • Insurance companies often don't pay claims correctly. (After all, they have the same problems that most offices do, such as new, inexperienced staff, human error and computer error.)
  • Rationale #3: "Our practice has never been in a position to negotiate with managed care. We sign the contracts that are presented to us." Contracts usually have language that states that the payer will pay the UCR for that area -- but they don't always provide an attached fee schedule indicating what the UCR amount is. If you don't read the fine print, you may end up accepting conditions that will cost you plenty.
  • Rationale #4: "By signing an exclusive capitation contract we can hurt our local competitor." Actually, doing this may hurt your practice financially more than your competitors.
  • Rationale #5: "The only financial matter our clinic is concerned with is the amount collected. Why should we care what's written off?" How do you know for sure that covered services or collected payments aren't being written off? Do you think a person engaging in this behavior would voluntarily bring it to your attention? (For example, see "Who's Minding the Store?" )
    It's important to understand the relationship between what your clinic charges and what you collect. For example: If you charge $50 for an exam and the allowed amount is $25, your writeoff amount shouldn't exceed 50% for that insurance plan and CPT code.
  • Rationale #6: "We're not sure what's collected over the counter from our patients, because we don't track this. After all, it all goes into the same pot at the end of the month." If a copay isn't collected at the time of the visit, it won't be cost effective to pursue in the future. (How many statements are you willing to send to a patient trying to get him to pay $10?)
  • Rationale #7: "We pay our accountant to balance our books every month, and so far he's never brought anything of concern to our attention." Get smart -- check things out yourself. Remember: It's your practice, not your accountant's.
  • Rationale #8: "Our staff would let us know if they were writing off services that weren't covered or precertified . . . wouldn't they?" I've worked with physicians who insist on treating patients, even when conditions mandated by their insurance companies haven't been met. They say things like, "This cataract surgery has to be done today" -- even though the patient doesn't have the referral that's required by his insurance plan.
    When this happens, the provider and facility don't receive any payment at all. But the surgeon may never realize the consequences of his actions. When the surgeon is this insistent -- even though his staff attempts to explain the problem -- staff members aren't likely to tell him when the claim is denied.
  • Rationale #9: "We've had problems with staff handling payments in the past, but we don't think we've lost that much. (By the way, how would we know?)" Many physicians who are now enjoying the influx of dollars associated with the LASIK boom are willing to assume that some petty theft could be going on in their practices, but feel the issue isn't worth pursuing. This attitude, of course, simply enables problematic behavior to continue.
    Make sure that you and your accountant create policies to protect your hard-earned money. If you're a part of a large clinic, or have multiple satellite locations, pay even closer attention.
  • Rationale #10: "Our practice is making so much money from LASIK, the rest of the business doesn't matter." Each time I work with a LASIK surgeon, I ask, "How much money do you earn per eye?" Typically, the surgeon quotes the amount he charges per eye -- which isn't the same thing. The impression that he's making a lot of money from LASIK may be based on numbers that don't reflect real income.
    More and more surgeons are getting in over their heads because they're not paying attention to the numbers. How many eyes did they treat last month? What were the costs associated with each LASIK surgery -- staff, laser, supplies, advertising and so forth? What is the true profit margin per case? (Some surgeons do look at the dollar amount collected, but they still don't have any idea whether this number is what it should be.)

-- Dawn Cavanaugh

 

Who's Minding the Store?

A lack of concern about writeoffs is surprisingly common. Yet a complacent attitude on your part can allow errors (or unscrupulous staff members) to drain income out of your practice.

I recently encountered this problem working with an ophthalmologist who had grown a sizeable LASIK practice during the previous year. I asked him if he knew how many LASIK surgeries he'd performed last month. He said yes. Then I asked him, "How much money did you collect and deposit for LASIK surgery last month?" He didn't know the answer.

For the next 2 hours, I walked him through all the steps of cash management within his practice. We found that he had several cash management leaks; the leak for 1 month was about $8,000. I explained that cash payments received from patients and insurance companies should always balance back to the practice management system, which should balance back to his accounting system, which should balance back to his bank statement.

To complicate matters, this clinic had several different arrangements for charging LASIK patients, and they weren't being tracked independently. This made cash reconciliation next to impossible.

The surgeon expected his accountant to catch any discrepancies. But the only thing the accountant did was send a monthly bill to the surgeon and make a journal adjustment each month to bring the practice's books into balance. (How convenient for the person within the clinic who walked away with the $8,000!)

-- Dawn Cavanaugh

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