News Flash — we are in a recession. Unless you have been living under a rock for the past 18 months, it’s impossible to ignore the fact that we are living in uncertain economic times. The gloomy outlook makes headline news day in and day out. “For Sale” signs line some residential neighborhoods and “For Rent” signs line some, once busy and highly sought after commercial streets.
We have the good fortune of working in health care, which is less affected by consumer spending habits. After all, medical services are not typically considered discretionary expenses. Practices performing elective procedures such as LASIK and cosmetic procedures have felt the greatest impact from the recession.
On the flip side, being too dependent on Medicare also has its risks. Only last July, we were threatened with the possibility of a 10 to 20+ percent drop in Medicare physician reimbursements. As a result of these external factors, ophthalmology practices are forced to focus even more intently on ways they can raise revenues and cut costs.
Practices need to respond by making sure they stay on top of their accounts receivable (A/R) and do all they can to raise revenues and control expenses.
Collecting Accounts Receivable
The money outstanding in your accounts receivable is essentially being loaned, interest-free, by your practice to insurers and patients, so it is critical to collect those debts as quickly as you can. For a practice that does $1 million in collectible business in a year, a 1 percent increase in the amount collected can mean $10,000 in added money on the practice’s bottom line.
Here are a couple of ways to measure the success of your A/R collections:
- Days in A/R: Divide your total annual charges by 365 to get an average daily charge rate. Divide your total outstanding A/R by that average daily charge rate to calculate your number of days in accounts receivable. That figure should be no more than 40; many practices now have days in A/R less than 30, especially if they are doing refractive or cosmetic surgery that is paid up front. If your practice provides intravitreal injections, do not include the revenues for the injected drugs in your charges and also exclude the drug A/R from your accounts receivable in order to make your figures comparable to this standard.
- Net collection percentage: Add your collections and your contractual write-offs for the last 12 months and divide that sum by your total charges for the same period. If the figure is less than 98 percent, you may want to do some investigating as to why you are not receiving more of your potential collections. If the figure is below 95 percent, you most likely have a serious collections problem.
My rule of thumb is that if your collections are going well, about 10 percent to 20 percent of your billing staff’s time should be spent on following up on past-due claims. If your A/R is out of line, you may want to have staff spend as much as 50 percent of their time on collections, but that often requires additional billing staff, at least temporarily.
Increasing your efforts at collecting money owed to your practice by insurance companies and patients is often the quickest way to add to your bottom line, especially if your A/R is higher than it should be.
Here are some ideas for increasing your revenues:
- Make sure your fees are appropriate for services that are not price-controlled by insurance companies, such as refractions, refractive surgery, toric and presbyopic IOL services and cosmetic procedures.
- Increase the number of patients your physician examines per day.
- Reduce lunch break duration to enable the scheduling of more patients.
- Refine your recall procedures. Make phone calls to patients needing exams and track those who don’t make appointments for additional follow-up.
- Promote your practice to senior care facilities.
- Work to attract more self-pay patients for procedures such as refractive surgery, cosmetic surgery, etc.
- Maximize the use of your space by adding more providers.
- Use staff for revenue-generating work when doctors are out of the office.
- Provide Saturday or evening office hours.
- Add office locations to capture more patients.
- Monitor the fees that insurers pay you to make sure they are paying correctly.
- Scrutinize your billing processes to verify that no money is “falling through the cracks.”
- Ask your staff for suggestions as to how you can increase revenues.
- Increase your optical revenues by working on your capture rate and making sure that pricing is appropriate.
- Increase your capabilities for special testing so that you increase convenience for your patients and keep those revenues in your practice.
- Build or invest in an ASC to increase physician cash flow.
- Focus on increasing your market share among the better payers, and terminate contracts with poor payers when full capacity is reached.
- Collect co-pays and deductibles from patients on the date of service.
- Open a sweep bank account to earn more interest on your deposited funds.
It is usually more difficult to have a major effect on practice finances by cutting costs than it is by raising revenues, but practice administrators are very creative in controlling expenses. Some of the ideas they implement for reducing staff expenditures are:
- Cross-train your employees to maximize office efficiency and take advantage of down time.
- Use health savings or health reimbursement accounts to reduce health insurance costs.
- Increase the portion of benefits premiums that employees pay.
- Freeze wages for a period of time if your pay scales are high compared to your market.
- Hire part-time employees with reduced or no benefits.
- Don’t fill open positions unless necessary to maintain practice revenues and operational efficiency.
- Reduce office hours if no doctor is present by having the office closed or manned only by a minimal staff.
- Reduce staff hours to only those necessary for the proper operation of the office.
- Prorate paid time off (PTO) by hours actually worked to reduce PTO for those working less than full time.
- Raise your health-insurance deductible and then self-insure for part of the increased deductible.
- Shop for less expensive insurance plans.
- Use a professional employer organization (employee leasing company) to reduce benefit costs.
- Use a less expensive category of employees when possible (e.g., a medical assistant instead of a registered nurse.)
- Restructure your technicians’ duties and assignments; use a tech pool instead of having techs assigned only to specific doctors.
- Increase the use of technology when possible rather than adding more staff.
- Implement a bonus program based on practice financial results in lieu of providing annual raises.
Of course, making changes that adversely affect employee perceptions of the value they receive in return for working for your practice comes with the clear and significant risks of damaged morale and increased staff turnover and the less visible peril of diminished motivation and productivity. The savings accrued by your practice in making changes in employment expenses are usually easy to quantify, but the final net effect of those cost savings can easily be overwhelmed by the negative consequences of an unhappy staff.
For that reason, before adopting cost-cutting measures that might endanger employee confidence, it is wise to make a careful assessment of the true price of those changes, including the costs of the loss of staff enthusiasm for the practice.
There are other areas where expense reductions can be applied without the danger of backlash from affected employees. However, these cutbacks also need to be wisely applied so that critical practice operations are not damaged. Some of the possibilities are:
- Reduce utility use; install programmable thermostats that can only be changed by authorized persons.
- Close unprofitable satellite offices.
- Use technology to reduce transcription, paper and postage costs.
- Use voice over internet protocol (VOIP) to reduce the number of phone lines you lease and to cut long distance charges.
- Increase your internal marketing efforts; carefully track patient sources so that you can reduce advertising expenditures in less effective media.
- Shop for medical and office supplies online to find better pricing.
- Centralize your supply ordering to reduce duplication.
- Have competent staff do simple repairs rather than contract with a repair service.
- Reduce copier/scanner/fax/printer costs by leasing a multi-function machine with toner included in the lease price.
- Print as little as possible; print on both sides of the paper; use recycled paper whenever possible.
- Use digital calendars, task lists, e-mail, etc. to avoid the paper and storage costs of printing.
- Send statements to your patients electronically through a service rather than printing them in your office.
- Establish a policy of adding a billing fee to patient co-payments that are not paid on the date of service.
- Review all the expenses listed on your profit-and-loss statement and eliminate any expenditures that are not necessary to the functioning of the practice.
The preceding inventory of revenue enhancement and expense-reduction tactics can be used as a checklist for your practice, but keep in mind that not every idea is appropriate for every practice. The judicial application of these suggestions can help you continue to thrive, even during these difficult economic times, and to boost the bottom line for your practice.
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About the author: Derek Preece, MBA, is a practice management consultant with BSM Consulting and a member of the AAOE Consultant Directory. You can reach him at firstname.lastname@example.org or 801.227.0527. This article originally appeared in the March 2009 issue of Executive Update.