MEDICAL BILLING BLOG

This is the fifth and final article in my series on allowables. Now that we have covered how to understand your allowables, set your fee schedules, calculate your yields and value your AR, we are ready to discuss how to predict your practice's cash flow month-to-month.

In its simplest form, predicting collections can be done by taking your practice's average charges per month over the past year and multiplying by your weighted average practice yield. This calculation provides your average expected monthly collections. For instance, if you practice's average charges per month are $500,000 and your weighted average practice yield is 30%, then your average expected month collections should be around $150,000 ($500,000 X 0.3 = $150,000).

This does a good job of telling you're your average monthly collections and helping your understand if the collections your have budgeted for the year are supported by your charge volume. It does not, however, help you predict the month-to-month variations that can make managing a practice's cash flow difficult. These variations are primarily driven by changes in charge volume from month-to-month.

In order to capture the month-to-month variations it is necessary to add another element to your calculations; the distribution of the average month's payments by date of service. In other words, which month's patient encounters generated this month's collections? Once you know this you can apply your practice's average weighted yield to the portion of each preceding month's charges that will impact the current month's collections. This is easiest to see with an example:

Let's assume your weighted average practice yield is 30% and your collection distribution is:

• 15% of this month's collections come from this month's dates of service (month N);
• 40% of this month's collections come from last month's date of service (month N-1);
• 25% of this month's collections come from dates of service from two months ago (month N-2);
• 10% of this month's collections come from dates of service from three months ago (month N-3);
• 10% of this month's collections come from dates of service of 4+ months ago (month N-4+).

With this information in hand (which a good billing system or billing provider should be able to provide) you are ready to build a predictive collections model. If you use excel then you can build the model so that on one row your enter the practice's charges by month and then directly below you calculate the collections for the month. If we take the data from above, the calculation for each month would be (where n equals the current month):

 ((month N charges x 0.3 x 0.15) + (month N-1 charges x 0.3 x 0.4) + (month N-2 charges x 0.3 x 0.25) + (month N-3 charges x 0.3 x 0.1))/0.9  = Month N expected collections.

A couple of items of note:

• The faster your collections the more the current month's collections are dependent on the current month's charges.
• In order to simplify the calculation it is helpful to limit the calculation to the current month and the three previous months. This is what I did above and it is the reason that I divided the answer by 0.9. The current month and the preceding 3 months account for 90% of the current month's collections. When I divide the answer by 0.9 (90%), I take this 90% answer and extrapolate it to 100%.

Once you have constructed an excel spreadsheet with the formula's outlines above you can quite accurately predict your month-to-month collections and account for the impact of seasonal and vacation driven changes in your charge volume. In addition, with the collection prediction in place your can quickly spot billing issues before they have a chance to propagate.

Copyright 2009, Carl Mays II and the ClaimCare Medical Billing Company

 In my last post I outlined why yields are important and how to calculate them. In this article I want to follow up with a few more tactical points concerning medical billing yields:

1. Calculating yields requires accurate data about your procedure mix, payer mix and your allowables. If you do not have all of this data then you have bigger issues than just no knowing your yield - you need a new billing system.
2. Calculating yields is more complicated for specialties that have issues such as multiple procedure discounts. In situations like this you must understand what percentage of each CPT's occurrence will be subject to these discounts to gain an accurate yield. This is also true if you have other discounts that frequently apply such as assistant surgeon discounts. A fast way to understand the impact that these issues have on your yield is to calculate the yield on fully resolved claims from your billing system and see how much your yield is lowered by the effect of these various discounts.
3. The yield you are calculating is your theoretical medical billing yield. Your actual yield will be lower because of procedures that do not pay (e.g., preauthorization issues), patients that do not pay, bundling, duplicate claims, etc.
4. You need to recalculate your yield at least annually when Medicare and other payers change their contracts. You also need to recalculate your yield if there is a large shift in payer mix or procedure mix.
5. Looking at your yields between payers is a great way to compare the attractiveness of your various payer contracts. The payer yields moves away from looking at the multiple of Medicare that a payer says their contract pays and focuses instead on how the contract works for you and your procedure mix.
6. Along a similar line of thought to the point above, you can calculate the yield of a proposed contract to understand it true value to your practice and use this knowledge to better negotiate with a payer. For instance, if your fee schedule is set at 200% of Medicare and a payer contract has a yield of 48%, then you know that for your procedure mix the contract is actually paying less than Medicare (if it was paying at Medicare then the yield would be 50%).
7. Finally, ask you medical billing manager or medical billing company their thoughts on yields. If they do not completely understand yields and have thoughts on how you can use your yield to understand your practice, predict cashflow, compare contracts and negotiate contracts, then this is a major red flag in terms of their true understanding of medical billing.

Yields are a critical component of medical billing and practice management. The points above should help you become a "power user" when it comes to medical billing yields.

Copyright 2009, Carl Mays II and the ClaimCare Medical Billing Company

This is the fourth in my series of articles on allowables and how they impact your collections and medical billing. Previous articles explored the reasons for setting fee schedules higher than expected collections and how this fee strategy coupled with contractual allowables impacts reports and EOBs. This article will discuss how to use the knowledge gained thus far to better understand the true value of a practice's AR.

Understanding the concept of yield is the key behind understanding the value of a practice's AR.  From a medical billing standpoint, yield is the amount of a claim that should actually result in a payment versus a contractual adjustment. In other words, if your yield is 50%, then on a $100 claim you should received $50 in payments and will write-off the rest to contractual adjustments. In the first article in this series on allowables I discussed why you should set your fee schedule higher than your contractual allowables. Having fees higher than allowables is what results in yields that are less than 100%.

Calculating your practice's yield is straightforward. At its simplest level you take the allowable for a CPT and divide by the fee you charge for that CPT. Using the example above, if your fee for a given CPT is $100 and your allowable for that fee is $50, then your yield is $50 (what you should collect)/$100 (what you charge) = 50%.

This is a straightforward calculation. The complication arises because of the various payer contracts for a practice and the fact that the yield for a specific payer often varies by CPT (i.e., with BCBS you may have a yield of 50% for one CPT and 60% for another CPT).

This means that calculating your yield requires you to understand your procedure mix. To get a close estimate of your yield for a specific payer you can:

1. Take your top 20 CPT codes and calculate the yield for each of these codes; and then
2. Calculate a weighted average for the overall yield based upon the frequency of each of your CPTs;

To move from a close estimate to a more precise estimate your repeat the above procedure but instead of only using your top 20 CPT codes, you use as many as is required to cover at least 90% of your charge volume with each payer. Typically, however, the top 20 CPTs provde an accurate answer.

Once you have completed the above exercise for one payer, you need to repeat this for each of your top payers (you should do this for the payers that represent at least 80% of your payment volume). Once you have done this you can then get an overall yield for your practice by creating a weighted average yield for the practice based upon your charge volume (not payment volume) for the practice. The idea of a weighted average yield of the practice works well as long as your procedure mix and payer mix are stable.  If either changes significantly, then you need to recalculate your yields.

With a weighted average practice yield in hand you can easily understand the value of your AR. If your practice yield is 50% and you have $500,000 in insurance AR then this AR is worth approximately $250,000. On the other hand, if you have $500,000 in insurance AR and a 30% yield, then your AR is worth $150,000. As you can see, understanding your yield is critical to understanding the true value of your AR.

Although developing yields can be tedious work, it is critical to know your practice's yield so that you do not make incorrect assumptions about the value of your AR or the cashflow impact of good and bad charge months.

Now that you understand your allowables, fee schedules, yields and AR value you are ready to predict and manage your practice's cashflow. Building and maintaining these predictions will be the subject of my next article in this series.

Copyright 2009, Carl Mays II and the ClaimCare Medical Billing Company

 In my last article I discussed some of the principles and best practices to consider when setting a practice's fee schedules. This Article focuses on how your allowables and fee schedules shape the EOBs and reports you will see every day.

Impact on the Explanation of Benefits (EOB):

The main impact that you will see on your EOB is from contractual adjustments. Here is how this works on an EOB:

Let's say you bill $150 for a certain CPT and that your UHC contract allowable for this CPT is $100 and your patient has an insurance plan with a 20% co-insurance. Your UHC EOB will look like this:

• Charges: $150
• Allowed: $100
• Contractual Adjustments: $50 (difference between your fee schedule and your UHC contracted rate)
• Patient portion: $20 ($100 contract allowable times 20% patient co-insurance)
• Payment from UHC: $80

So, the $150 charge leads to an $80 payment from UHC and a $20 balance transferred to the patient. The amount you charge for this CPT has absolutely no impact on the $80 payment. If you charged $300 instead of $150, all that would happen is that the EOB would show a Contractual Adjustment of $200 (Your $300 charge minus the $100 contractual allowable) instead of $50. This is a critical point. Many new physicians think that a higher fee schedule will generate more income - this is not the case from payers with whom you have a contract. In addition, many new physicians do not understand why they see these contractual adjustments each month. As you can see the combination of your fee schedule and payer contracts lead to these contractual adjustments.

A final point here, payers make mistakes. Just because they say the contract allows a certain fee for a CPT does not mean they are correct. This is why it is critical to compare your allowables to your contracted rates.

Impact on your billing reports

Your will see two main impacts on your reports due to the interaction of your fee schedule and your allowable:

1. Contractual Adjustment Entries: As outlined above, all of your EOBs will show contractual adjustments. This means that all of your collections reports will show some of your Accounts Receivable (AR) was moved off the report due to payments (cash in the bank) and some will move off your report due to contractual adjustments (no cash in the bank). This is normal. It is critical, however, that your billing system is set up to differentiate between write-offs due to denials, timely filing issues, etc and contractual allowables adjustments. Assuming you are comparing allowables to your contracts then the contractual allowable adjustments are not a source of concern. Other types of adjustments/write-offs are likely costing you money.
2. Value of your AR: Because of contractual allowables, $1 of AR does not represent $1 of potential payments. This means that when you see $300,000 in AR you need to keep in mind that this is not $300,000 in potential payments. In the EOB example above, the initial $150 in AR only represented $100 in expected collections. Understanding this is critical to financial planning for your practice.

In the next article in this series I will go into more detail on how to get a realistic understanding of your AR using what you know about your allowables and fee schedules.

Copyright 2009, Carl Mays II and the ClaimCare Medical Billing Company

I am taking a brief respite from the previously mentioned outline for the series of posts on allowables and fee schedules to mention a key point about allowables - they are often ignored by insurance companies. If you are not systematically comparing your payments to your contracted allowables you are losing thousands of dollars. Most likely, your revenue is 7% lower than it should be - that is right 7%!

A recent National Health Insurer Report Card compiled by the American Medical Association measured payment accuracy of seven major payers: Aetna, Anthem BCBS, Cigna, Coventry, Human, United Healthcare and Medicare.

All of these payers to some degree strayed from contracted payment rate.   The worst offender was United (did not pay contracted rate in 38.4% of cases), followed by Cigna (did not pay contracted rate in 33.8% of cases), Aetna (did not pay contracted rate in 29.2% of cases), Anthem BCBS (did not pay contracted rate in 27.9% of cases), Humana (did not pay contracted rate in 15.8% of cases) and Coventry (did not pay contracted rate in 13.3% of cases).  Even Medicare missed contracted payment rates in almost 2% of cases.

It is hard to methodically track these underpayments.  From our experience at ClaimCare Medical Billing Services, as we look across multiple clients we will see the exact same CPTs being underpaid by the same amount by the same payer in a given month across all of our clients. The following month we will see the same payer switch to underpaying a different set of CPTs. These under payments are not huge but they add up quickly to big dollars for a medical practice. The combination of switching the codes being underpaid from month-to-month and keeping the underpayment amount "under the radar" can make this difficult for an individual practice to spot. It is also difficult for a billing office to spot if they are not comparing your payments to your contracted rates (and dealing with multiple procedure complexities properly).

At ClaimCare Medical Billing Services we have found that comparison of payments to allowables can increase a medical practice's collections by 5 to 10 percent.    This of course requires a strong process, powerful reporting technology and the ability to track complex procedures methodically-in the end, it can however add thousands of dollars to your bottom line.

Copyright 2009 by ClaimCare Inc and the ClaimCare Medical Billing Company

In my last article I discussed why fee schedules are set at levels above what a practice would expect to collect. In this article I will discuss some of the principles and best practices to consider when setting a practice's fee schedules. Before I start let me point out that this article is not about negotiating your contracts with payers. Doing that requires many steps, including obtaining a strong understanding of your cost structure. I am focusing only on setting the overall fee schedule for the practice once you know your allowables.

The main goals or principles to consider when setting a fee schedule are:

1. Be consistent: One key element of a fee schedule is not allowing inconsistencies in how the fees were set to make it hard to understand the true value of your AR at any point in time. If some codes are set at 300 percent of Medicare and others are set at 150 percent of Medicare and still others are legacy fees that are a random multiple of Medicare then it becomes difficult to look at your AR and quickly understand how much it should yield in terms of your collections. On the other hand, if a fee schedule is set in a consistent manner then some simple calculations will provide you with a yield which can be easily applied to you AR to provide you with a quick estimate of what you should collect. In a future article I will outline how to calculate your practice's yield.
2. Don't leave money uncollected: One of the key ideas to keep in mind is that no matter what an insurance plan is willing to pay for a claim, they will never pay more than you bill them. So, if BCBS is willing to pay $150 for a level 3 office visit but you bill them $125, they will only pay you $125. In addition, some plans pay a percentage of billed charges. Not many do this and typically they represent a small percentage of the practice's charges, but there is no reason to leave any money uncollected. Finally, payer allowables can change throughout the year. If you are charging BCBS $150 (from our previous example) and at some point the allowable goes up to $165, you will only receive $150 unless you increase your fees. So, you need to set you fee schedule high enough that you never bill a contracted payer less than they are willing to pay and high enough that you can reasonable take full advantage of plans that pay a percentage of billed charges. Finally, you want to set fees high enough that you have "wiggle" room and are not caught off guard by unexpected shifts in your allowables (like the BCBS example I provided earlier).
3. Don't scare away patients: So, given the two principles above why not simply charge 10 times Medicare and be done with it? Well, there are two ideas to keep in mind here. First, many self-pay patients (or those with high deductible insurance plans) will call a doctor's office and ask what about the charge for an office visit or procedure. If the patient hears that your office visit cost $1,500 they will likely move on to the next practice.  The second idea that you need to keep in mind is that patients will see on their Explanation of Benefits (EOBs) that you charged $1,500 for your office visit. Even though the EOB shows you may only have been paid $150, the idea that you charged so much can easily lead patients to view the practice as greedy and unreasonable.

So, given the ideas above you want to set the fee schedule consistently high enough not to leave legitimate money uncollected but not so high that you risk alienating patients when they receive an EOB or are told the charges for the day.

An easy way to achieve this balance is to set the fees at a reasonable percentage of Medicare. Often family practices will use 150 to 200 percent of Medicare and specialist will use 300 percent of Medicare. The percentage you select should be informed by practices in your area and your own payer contracts, but you will typically be quite safe with 200 to 300 percent of Medicare. Before finalizing your fee schedule you should always make sure that none of your payer contracts have carve outs or allowables that exceed (or even come within 25 percent) of your fees. One safety net you should always have in place is a report that identifies any claims that paid at 100 percent of billed charges. If you see this, then your charges for the codes on that claim are too low and you need to revisit your fee schedule.

Now that we have discussed why fees are set above expected collections and how to think about setting fee levels, it is time to discuss how your allowables and fee schedules interact to impact the reports and explanation of benefits that are seen in a practice each day. This will be the subject of the next article.

Copyright 2009, Carl Mays II and the ClaimCare Medical Billing Company

There are many items that are confusing in the world of medical billing. One of the most confusing areas for individuals that are new to the business side of medicine is the idea of medical billing allowables. There are not many businesses where a bill is sent out for much more than one would expect to collect. In most business if you bill $100 then you expect to collect $100. In the business of medicine a bill for $100 is often sent out with the expectation that only $50, $30 or even less will be collected. Why?

This is primarily done for four reasons:

1. Simplicity. Not all payers pay the same amount for a medical procedure. If a practice tried to bill each insurer and each patient exactly what they expected to collect it would become an all consuming task to maintain the multiple fee schedules. The practice could easily end up with more than 25 fee schedules. In addition, all of the fee schedules would need on-going updating since many plans change the amount they will pay annually (and they change their fee schedules at different times throughout the year).
2. Revenue Enhancement. Medical practices will often see patients with insurance plans for which the provider is out of network. Some of these plans pay a percentage of billed charges. So, you do not want to set fees too low because for the plans that pay a percentage of billed charges the practice would leave money on the table that they could be collecting.
3. Comparability. If a practice continually changes it fee schedules (see point 1 above) then comparing charge volumes across months and years becomes less meaningful. For example, does the fact that charges are up 10% this June versus last mean more patients are being seen or that the fee schedule has changed? There are other measures that are easily decoupled from charge volume, such as patient encounters, but charge volume is the fastest and easiest metric for most billing software and departments to produce.
4. Compliance. It is illegal for a medical practice that accepts Medicare to charge any other entity a lower fee than they charge Medicare. They can always give discounts, but the fee charged must not be lower. By charging all plans and individuals the same amount, the risk of unintentionally running afoul of this rule is eliminated.

Now that you understand why fees are set higher than expected collections it is time to explore other elements of allowables:

• How are fee levels determined (or at least what is the best practice for determining fee levels)?
• How do allowables impact the reports and explanation of benefits that are seen daily?
• How can you use your understanding of allowables to better understand the meaning of your AR numbers?
• How can you use your understanding of allowables to better predict practice cash flow and expected collections?

These topics will be the subjects of upcoming blog entries.

2009 copyright by Carl Mays II and the ClaimCare Medical Billing Company