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Reimbursement and Practice Management

Business Office Key Performance Indicators

Be sure to use the right gauges and understand what they mean when measuring billing operations. Here are two of the most common errors and my advice on what to really measure.


After reading this article you will know how to:

  • Identify common errors of understanding for billing operations
  • Identify measures that accurately measure financial success

View related pearls


At a seminar I gave, a physician came up to me afterward to brag about his business office. "We're doing great," he told me. "Everybody got a bonus because collections are so much higher than they were last year."

"Wonderful!" I told him. Then I asked a few questions. It turns out the practice had hired two new physicians six months earlier. The improvement in collections was almost undoubtedly caused by the resulting increase in gross charges. The percent of the total revenue – the piece of the pie lost to bad debt or plain old inefficiencies had remained the same. The pie itself had simply gotten bigger. The employees of the business office didn't really deserve any special kudos; they were just doing more of the same.

Many practices misinterpret performance indicators like this physician did. It's so nice to have a few key financial indicators in place, and so easy to be lulled into taking them at face value. But you need to be careful to use the right gauges and understand what they mean when measuring the strength of their billing operations. Here are two of the most common errors and my advice on what to really measure.

Relying on overall collections data can result in a significant misunderstanding. The physician who bragged to me after the seminar was making a very common and understandable error. It makes intuitive sense that collecting more is better. The key is remembering that this success may not necessarily be created by improvements in the to increased productivity, adding physicians or advanced practice providers, or expanding ancillaries – you should collect more. But you might have collected yet even more on top of that with improved revenue cycle operations.

You cannot know for sure by just looking at the total dollars collected. On the flip slide, lower collections aren't always a function of business office performance either. In addition to productivity, collections are impacted by payer mix, coding, charge capture and reimbursement rates, among other factors. That's why it's so important to monitor multiple indicators, instead of just relying on what's been deposited in the bank.

Using the gross collection ratio can be disastrous. Measuring your business office based on your gross collection ratio is no better than assessing only collections. This ratio is the total amount collected (revenue) divided by the total amount billed (charges). Using this method, the fact that you billed more is factored into the equation, but it is not a fool-proof way to measure success. In fact, I've worked with practices that were thrilled that their gross collection ratio was 100 percent – meaning they collected everything they billed. But all that means is that they were charging exactly what their third-party payers would pay them – most likely, too little. If you are getting paid in full 100 percent of the time from Medicare or a commercial payer, I'd be willing to bet that you are charging them less than their allowable. Similarly, if you use the gross collection ratio to rate your business office's performance, you can't blame them if the percentage collected drops in the same year you raise your fees. The denominator grew; that does not, however, necessarily mean that your employees fell down on the job.

Instead of using these risky approaches to measuring financial success (or similar ones only tied to collections or charges), measure days in accounts receivable, the percentage of accounts receivable over 120 days, and the net collection ratio (NCR). Recognize that credits offset receivables, so be sure to pull those out of your receivables before calculating the first two indicators. The NCR divides the total collected by the allowable, thus taking into account the various reimbursement rates you have.

Together, these three measures provide a good, counter-balanced base to be used in conjunction with revenue to give you the real scoop on the performance of your revenue cycle.

Pearl: Perform at least one task between every patient

Review one result, answer one message or approve one prescription renewal. Although you may not be able to get all of the work down in between patients, ignoring the workflow unrelated to patients in the exam room results in reducing the capability of your clinical support team. The team must wait for your response, leaving work to pile up all day long. Not only is over-batching unproductive, the overhead associated with it is heart stopping. If you don't address issues until after clinic, for example, the staff overtime alone can break the bank.

Pearl: Open each patient visit with a few friendly words regarding the patient's family or work

If you have a poor memory for details, keep some notes in the patient's record (or have your staff manage the information for you). It's not being nosy; a pleasant question about, say, how a patient's tennis game is coming along, or how the kids are doing, shows interest in the patient as a person, not just as a clinical subject.

After a brief social interaction, you can segue into discussing the reason for the visit. Introduce yourself to new patients with a handshake. Greet established patients with a smile and a gentle touch when, and if, appropriate during the encounter. Sit with the patient, as standing up during a discussion with a patient may convey that you are in a hurry to leave. Sit down and you'll appear more relaxed and interested in what they have to say. If you work with pediatric patients, sit at the child's level. Make eye contact, which indicates that you are interested and creates a connection between you and your patient.

Pearl: Start on time no matter what

Take the time to do work as it comes in, rather than batching it for later. Train and empower your employees to truly support you – the revenue generator – rather than having them work as computer key-ers or paper shufflers. It may seem like handling tasks and messages during clinic hours means seeing fewer patients, which would mean less income. But it can actually be better for the bottom line – not to mention your mental health – to get today's work done today, even if it means you see one less patient. Turnover, overtime, and other costs related to inefficiency can easily cost you more than you get for that patient visit. Not to mention that you end up seeing fewer patients, anyway, when the workday doesn't get rolling until 9:00 a.m.

Pearl: Determine your call in advance – well in advance

Get a calendar for the next five years, sit down with your partners, and get it over with. Before the meeting, consider having each physician submit his top three requests for days off, in order of importance. Try to honor at least the top priority of each physician, and negotiate the rest. A five-year plan will avoid the quarterly angst, and allow better planning for all physicians involved.

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