Performance Analytics: What Billing Can Tell You

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Medical billing is the process of translating a physician’s work into reimbursable language understood by governmental and private third-party payors. The billing process must start with the physician’s documentation of patient encounters, which forms the basis for billing. The physician’s documentation is then translated into a CPT® code (representing the type of work done) and an ICD-9 code (indicating the reason for that work). In some practices, physicians use encounter forms with preprinted CPT and ICD-9 codes, while other practices derive the billing language (codes) directly from physicians’ documentation. Medical billing can provide important intelligence on the state of a practice based on charge capture, reconciliation, and lag time; net (or adjusted) collection ratio; days in accounts receivable; and charge/payor mixes. Charge Capture and Reconciliation The charge-capture and -reconciliation matrix is used to assess the efficacy of a billing operation. Charge capture refers to the process of ensuring that all billable services are captured and billed to third-party insurance carriers. To be certain that all charges are captured, a physician practice must implement a robust system of reconciling services performed by its physicians with charges billed to insurance carriers. A radiology practice that bills payors based on exam orders must take care to ensure that billed exams accurately reflect exams performed. Billing based on ordered exams could be fraught with potential undercoding (resulting in revenue losses) or overcoding (with the potential for compliance problems). For example, a referring physician might order a CT exam of the abdomen, but the radiology department might determine that a CT exam of the abdomen and pelvis is more appropriate because of the patient’s signs and symptoms. Under normal circumstances, the radiology department would then contact the referring physician to request a new order for a CT exam of the abdomen and pelvis. In some cases, the radiologist and referring physician might verbally agree that a new order for both areas should be procured—without communicating the information to the administrative staff. In those cases, a practice that bills payors based on referring physicians’ orders might bill only for the CT exam of the abdomen, while neglecting to bill for the additional CT exam of the pelvis (because the original order was not changed to reflect the agreement between the radiologist and the referring physician). A practice with this type of pattern could be losing a substantial amount of revenue because additional exams, when performed, are not reflected by orders. The reverse potential (for overcoding) also exists if the practice in question receives an order for a CT exam of the abdomen and pelvis, but decides that only an abdominal CT exam is necessary. If the order is not changed to reflect that only an abdominal CT exam was performed, the practice could bill for a CT exam of the abdomen and pelvis, resulting in overcoding and a potential compliance problem. A practice that bills payors based on radiologists’ documentation—not referrers’ orders—should be able catch such discrepancies and bill appropriately. This is an area that requires clearly defined processes for dealing with changes in ordered exams to make sure that the appropriate exams are billed accurately. The problem of exam changes affects a broad range of studies; for example, a referring physician might order an MRI exam of the cervical, thoracic, or lumbar spine, but the radiologist might determine that an MRI exam of the total spine is more appropriate for the indication presented by the patient. Unless the order is changed, a practice that bills based on exams ordered might be likely to bill for one CPT code, as opposed to the three CPT codes that apply to a total-spine MRI exam. Two of the more common areas where some practices might be leaving money on the table involve changing a noncontrast exam to a contrast exam and changing a contrast exam to a precontrast–postcontrast exam. Since radiology departments can determine when an exam requires contrast administration, a practice that bills based on orders might be likely to bill for an exam ordered without contrast—even when contrast media are actually administered, based on the clinical judgment of the radiologist. An effective way to mitigate such billing errors is to set up a process for communicating exam changes to the administrative staff, ensuring that orders for exams properly reflect exams actually performed by the radiologist. In addition to changing the order (after receiving the new order from the referring clinician), the administrative staff must also ensure that the new exam has the appropriate authorization from the insurance carrier, in order to be reimbursed for the exam. Some utilization-management com-panies will only reimburse providers for CPT codes that are specifically authorized; they either will not reimburse for an unauthorized exam or will reimburse for it at a significantly lower rate. The processes used to capture and reconcile exams, therefore, speak volumes about the financial health—or the lack thereof—of a practice. Net/Adjusted Collection Ratio The net (or adjusted) collection ratio involves looking at the relationship between the actual payment collected by medical practices and what they should have collected: The collected amount, divided by the billed amount, yields the percentage representing the adjusted collection ratio. The ratio should indicate the effectiveness of a medical practice’s collections efforts, and it should be a leading barometer of difficulties in the billing processes. Generally speaking, a practice should aim to collect all that is legitimately and legally due to it, but a 100% collection ratio might be difficult to achieve, depending on the patient population. Nevertheless, a practice should aim for a net collection ratio of at least 95%. A lower net collection ratio might be an indication that the practice is not being paid at its contracted rates. To determine whether a practice is being paid the right amount, load the contracted rates into the billing system; it is then easy to determine the accuracy of each payment by matching the payment received to the allowed amount in the billing system. A payment amount lower than the contracted rate does not necessarily translate into incorrect reimbursement, since many (if not most) insurance plans now include patient responsibility (in the form of deductibles and copayments). Thus, to determine whether there has been an underpayment, a practice must factor in the patient’s responsibilities as well. A lower payment than the contracted payment can also be caused by other factors; these include multiple-procedure rules, under which insurance carriers reimburse for the second and subsequent procedures performed on the same day at less than the contracted rate. Once all of the factors that might reduce payments have been filtered out, what remains is an authentic report indicating underpayments. With that in hand, a practice has multiple options for addressing the problem. If the underpayments are insignificant, the practice might elect to apply its usual processes for accounts-receivable management. If the problem appears to be systemic, however, the practice might want to meet with payors to correct it. If the problem persists after numerous efforts to fix it, the practice might want to consider other remedial approaches. In many cases, recurring problems of underpayment might be the result of an insurance carrier mistakenly loading the wrong rates into its claims system. It is thus advisable for a practice, after signing a new contract with an insurance carrier, to demand a report from the carrier showing the fees loaded into its system; making sure that these rates are correct will prevent future problems. Days in Accounts Receivable Days in accounts receivable indicate the length of time that it takes a practice to convert charges or claims into cash. The matrix is represented mathematically as the total accounts receivable of a practice divided by the average daily charge. A practice must be very careful in setting up this matrix, making sure that the ratio is measuring what it is intended to measure. For instance, including only payor-contracted amounts (not patients’ responsibilities) in daily average charges might artificially increase the apparent days in accounts receivable. A practice should be aware of the the claims-processing and payment patterns of its insurance carriers so that it can quickly detect a problem—and fix it before it becomes unmanageable. Many insurance carriers have predictable patterns of claims processing and of determination of the payor’s responsibility (adjudication). For instance, Medicare generally adjudicates claims in 14 days, while many managed-care carriers adjudicate claims in 21 to 30 days. If charges and claim submissions are constant and consistent, a practice should be able to predict its monthly cash flow with little variation. If the predicted cash flow deviates from expectation, then the practice should intervene immediately. A practice that has good monitoring tools for claim-submission patterns, claim-edit management, and insurance-validation reports should never be surprised—because those tools should predict what to expect with a certain degree of confidence. Those tools obviously will not predict insurance errors, but they should help the practice to focus quickly on areas that might be responsible for delayed payments or nonpayment. Days in accounts receivable will tell a practice about systemic billing-process problems, should they exist. Days in accounts receivable that deviate significantly from industry standards should be a red flag, with the problem looked into and addressed quickly. A higher number of days in accounts receivable than the industry norm could be due to a variety of problems, from demographic and insurance errors at registration to excessive lag time in filing claims with insurance carriers, porous edit-management processes, consistent and constant underpayment, increased or inaccurate claim denials, or excessive delays in posting payments to patients’ accounts. The obvious challenge, for a practice, is to recognize the problems responsible for the increased days in accounts receivable and employ an effective intervention regime to arrest the problem. If the problem relates to claims that are not getting to the insurance carriers, the practice should take corrective measures by ensuring that charges are entered within an established, reasonable amount of time. It should also ensure that all claims edits from the billing system and insurance carriers are addressed in a timely manner, to make sure that claims are reaching to the insurance carriers in as clean a form as possible. The practice should monitor payors’ validation reports, which indicate the number of claims submitted and accepted. At least 95% of a practice’s claims should be accepted on the first submission—and if this is not the case, the practice’s edit-management system might be the problem. Monitoring days in accounts receivable routinely, and benchmarking that number against industry standards, should be part of the integral billing language that tells a practice whether or not it is heading in the right direction. Charge/Payor Mixes The charge/payor-mix ratio is a measure of a practice’s patient population and its insurance coverage; it also denotes the relative importance of various sources of revenue. Charge mix refers to the volume of exams and the dollar amount of charges going out to different insurance carriers, while payor mix refers to the amount and sources of money coming into the practice. Practices that maintain charges at the allowed insurance amounts should have the charge/payor-mix ratio at equivalent proportions (with the exception of written-off bad debts, which will affect the payor mix). A practice located in an elderly community might attract a significant number of Medicare patients, while a practice located in an economically depressed community might attract more Medicaid patients. A practice located in a business district might attract a sizable number of managed-care patients and patients with commercial insurance. Typically, a practice with more patients who have commercial insurance coverage will probably be more financially stable than a practice that has fewer such patients. Commercial insurance (indemnity) plans usually pay about 100% of a practice’s charges—or a high percentage of the charges, with the remaining balance defaulting to the patient. These types of plans are rare in areas where managed care dominates the market. Depending on the characteristics of the practice’s market area, the next highest payments can usually be expected from managed-care carriers or negotiated fee-for-service plans. With managed-care carriers, a practice actively negotiates fees for its services. The success of such negotiations will depend on a number of factors, such as the leverage that the practice might have, the reputation and expertise of the physicians in the practice, innovative technology, affiliation with a reputable medical institution, and the competitive environment. The negotiated rate might be based on a factor of Medicare or on a set amount per RVU, with a cost-of-living adjustment. Next in the reimbursement hierarchy in many markets is Medicare. Medicare has the most leverage of all insurance carriers due to the enormous buying power of the federal government. Medicare releases its Medicare Physician Fee Schedule annually, with a set reimbursement per CPT code for participating and nonparticipating physicians. Practices have no negotiating leverage with Medicare and must accept the allowed amount (with Medicare paying 80% of the allowed amount and the patient, or the patient’s secondary insurance, responsible for the other 20%). Last in the physician-reimbursement hierarchy is Medicaid, which pays very little for physician services. It is not unusual to find practices that do not accept Medicaid because of the low reimbursement. Another component of the charge/payor mix is the self-pay group. Generally, these are patients who have no insurance coverage and must therefore pay the practice’s charges (or a negotiated discounted charge). The irony is that this group of patients ends up paying most—if not all—of the physician’s charges because it lacks the bargaining power of insurance plans. Charge/payor mix is an important barometer of a practice’s financial health. It can tell a practice where to concentrate its marketing efforts so as to attract a composite payor mix that could enhance the practice’s financial viability and sustainability. Conclusion Billing can tell us a lot about a practice: how efficiently the practice is running, how financially viable the practice is, and whether resources are being optimized to achieve the goals and objectives of the practice. Above all, the billing matrix should be a barometer for measuring where the practice is—and where it should be. While billing matrices are not a panacea for all of a practice’s ills, it is fair to suggest that a practice that diligently monitors these measurements should be able to discern changes in patterns (and to take corrective action, when necessary). The monitoring tools become even more important for practices that outsource billing functions. It is vital for them to develop some key matrices that can quickly identify problems before they become unmanageable. Simple matrices, such as average daily cash receipts compared with targeted daily cash, can quickly point to the potential problem, if negative variance persists for longer periods than expected. The same simple matrix can be developed for average daily charges compared with targeted daily charges. These matrices can (and do) tell practices about their operations—and listening to those words of billing wisdom can be what creates the difference between a successful practice and a struggling practice. Felix Okhiria, MPA, MA, CCPO, CMPE, CPC, CHC, is director of business services, NYU Langone Medical Center, New York, New York.