Philip J. Russell, MBA, CMPE

In 1992, several Radiology Business Management Association (RBMA) members who were concerned about comparative statistics across radiology practices undertook an effort to put together the standard formulas and definitions used throughout RBMA. They are used particularly in the management of accounts receivable. Over the past few years, they have been used in the voluntary collection of data, via survey, from the practices of RBMA members. RBMA survey results are reported by geographic region, group size, academic versus private practice, community size, and use of in-house versus external billing services.

The charge of the RBMA Data Collection and Reporting Committee was to try to develop some benchmarks for our industry. What was happening 15 years ago is still happening today: in hallway, telephone, and online conversations, people want to know what other practices’ experiences and statistics can tell them. Often, responses to these queries are scattered, meaningless, or absent. As a committee, our first step toward gathering the data needed to address these questions was to define items that we believed, based on our education and experience, could serve as key indicators. Within the area of accounts receivable management, we have identified eight calculations that represent key indicators of performance. It is critical, in completing the RBMA survey of these indicators or compiling internal practice statistics, to adopt standard definitions (see sidebar below) so data concerning these indicators can be compared.

PERFORMANCE INDICATORS

John J. Cergnul, JD, CPA

For each of the eight key indicators identified by the RBMA Data Collection and Reporting Committee, the sample survey results that follow illustrate the wide variation among practices (and underscore the importance of broad survey participation). In addition, each of the eight categories has its own set of critical data that the practice should track in order to evaluate its accounts receivable performance.

The first indicator is Adjusted Collection Percentage. This indicator probably serves as the gold standard for evaluating accounts receivable management performance (although simply comparing the raw data from one practice with that from another can be fraught with pitfalls because practices differ). Adjusted Collection Percentage is adjusted collections divided by adjusted charges, multiplied by 100. For survey respondents in the East region, the mean professional component Adjusted Collection Percentage was 90.5% and the median was 92%. For the South region, the mean was 81.4% and the median was 84.7%. For all survey respondents, the median was 88%.

Standard Definitions

Adjusted charges are gross charges minus total adjustments.

Adjusted collections are payments received minus refunds and returned checks.

Adjustments are amounts that the practice never expects to collect. For example, this may be the difference between the practice’s usual charge and its contracted (discounted) charge or the Medicare allowable.

Average daily billings are average monthly gross charges divided by 30; it is best to use 6-month to 12-month averages.

Collection expenses are all costs incurred in collecting, recording, and transmitting charge information, plus the costs of collecting, posting, and depositing payments. Proper allocation between administration costs and collection expenses can be difficult, leading to inexact reporting. The cost of the time of employees who perform both collections and administrative tasks should be divided accordingly.

Gross charges are the full dollar value of all services rendered to patients.

Gross Collection Percentage is adjusted collections divided by gross charges, multiplied by 100. (Because practices use varying means of assessing charges, with some charges not being based on the Resource-Based Relative Value Scale, this is not necessarily a useful comparative figure and is not considered a key indicator of accounts receivable performance.)

Write-offs are amounts that the practice expected to collect, but was unsuccessful in collecting. These accounts have already been turned over to collection agencies, for example. Another write-off is the difference between the amount that the practice expected to collect and the amount that it later accepted, following noncontractual negotiation of some kind.

Important variables to monitor for this indicator are changes in payor mix, increasing or decreasing volumes, fee-schedule changes, and changes in payors’ reimbursement policies. Practices should bear in mind that changes in these areas can cause large fluctuations in Adjusted Collection Percentage, particularly if it is calculated each month. Comparison with other practices will probably require the use of figures from a longer period.

The second indicator is accounts receivable days outstanding. The RBMA committee believes that all practices should be tracking this. Accounts receivable days outstanding is the total accounts receivable balance divided by average daily billings. Among survey respondents in the West region, who were billing global (professional and technical combined) fees, the mean result was 59.7 days; for the South region, it was 109.9 days. The median for the West region was 50.5 days, and it was 66.7 days for the South region (representing a huge difference between the mean and the median for this region). For all respondents who were billing only professional fees, the mean was 56.1 days.

For this indicator, important variables to consider are account write-off policies and procedures (since any amount that is inappropriately written off will cause this value to be falsely low), internal collection policies, and follow-up action on contracted payor adjustments. Practices should realize that too few days outstanding can be as unfavorable as too many, in some cases, since it may mean that potentially collectible accounts are being written off too early or before resolving disputes with third-party payors.

The third indicator, adjustments as a percentage of gross charges, is total adjustments divided by gross charges, multiplied by 100. This was a median of 56.3% for survey responses coming from academic practices that were billing professional fees. For private practices, the mean was 48% for practices billing only professional fees. A critical management task is to ensure correct posting of adjustments and write-offs, making sure that these are correctly categorized.

Write-offs as a percentage of gross charges (total write-offs divided by gross charges, multiplied by 100) is the fourth indicator. The RBMA survey found that, among responding groups having 25 to 30 radiologists, median write-offs for professional component billing were 2.5%, but median write-offs for global billing were 0.7%. For responding practices of all sizes, this figure was 6.1% for professional component billing and 1.4% for global billing. Part of the large difference between global and professional component billing may be attributable to professional billing in the hospital setting, which involves a significant percentage of nonpaying patients (eg, through the emergency department). On the other hand, in the outpatient imaging center the employees may be more diligent (or monetarily incentivized) to gather complete and correct insurance information and collect co-insurance and deductible payments at the time of service.

In global billing settings, the payor mix may also be more favorable. Just as for the preceding indicator, it is critical to ensure that adjustments and write-offs are correctly categorized.

The fifth indicator is refunds and returned checks as a percentage of gross charges (refunds plus returned checks divided by gross charges, multiplied by 100). The RBMA committee considers this indicator particularly important to evaluate when setting up a computerized billing system. If the patient is billed too soon and he or she pays the balance before the insurer has paid, there will be more refunds required (at a considerable processing cost to the practice).

For respondents whose practices serve communities of fewer than 25,000 people, median refunds for professional component billing was 0.4% and the mean was 0.3%. For respondents serving communities of all sizes, the median was 0.7%. The median and mean for global billing were both 1% for communities of 25,000 or fewer; for all respondents, the median was 0.7%. Critical processes to monitor for this indicator are balance billing policy and the timing of second and third statements. If this indicator is exceeding 0.7% to 1%, the practice may want to change the time elapsed before patient billing.

Collection Expense Percentage is the sixth indicator. This is collection expense divided by adjusted collections, multiplied by 100. For survey respondents using in-house billing, the median for professional component billing was 9.5% and the mean was 9.7%. For those using billing services, the median for practices performing global billing was 4.1% and the mean was 5.5%. For this indicator, it is critical to track the proper allocation of all collection expenses, including costs of dual-duty employees who spend part of their time performing tasks unrelated to collection.

The seventh indicator, Billing Cost per Procedure (BCPP), is a new addition to the current survey. This is collection expense divided by the number of procedures billed in a year. This figure was a median of $3.53 per Current Procedural Terminology code billed for respondents in the Midwest region using in-house professional component billing; the mean value was $3.80. For survey respondents in the South region who were performing billing in-house, the median global billing cost was $6.55 and the mean value was $8.87. For practices in all regions, the median BCPP for those billing professional fees was $3.53 while the median for those billing global was $7.27.

This is a new RBMA indicator, as collection expense was previously expressed only as a percentage of collections. As for the preceding indicator, it is critical to track the allocation of all collection expenses, including costs of dual-duty employees. The cost per procedure to bill globally could be higher because the reporting practices had less volume, but a fixed number of employees are still required to perform this work (making them less productive than their counterparts who are doing professional component billing for a larger volume of examinations). Alternatively, this variance could be explained by the added work undertaken in the imaging center setting to verify insurance coverage, obtain authorizations, and collect information from patients at time of service.

The eighth indicator is accounts receivable aging, particularly accounts more than 120 days past due (although RBMA reports on all aging categories). Accounts receivable aging percentages are determined by dividing the dollar amount of accounts from the period of interest by the total accounts receivable balance and then multiplying by 100. The usual time divisions employed are 0 to 30 days, 31 to 60 days, 61 to 90 days, 91 to 120 days, and more than 120 days.

For respondents having five or fewer radiologists in their practices, the survey indicated that a mean of 19.2% of professional component billings and a mean of 21.1% of global billings were more than 120 days old. The median values were 14.7% and 25.1%, respectively. For practices of all sizes, the mean was 18.6% for the professional component and 18.2% for global billing. Critical data to track for this indicator are accounts receivable entered by service date or entry date, and it is important to remember that changing billing classes changes the aging category back to zero in many billing systems, which may be misleading. The practice’s write-off policy also affects these percentages.

CONCLUSION

The comparative information on key performance indicators for the management of accounts receivable is becoming more reliable as more RBMA members supply data in sequential Web-based surveys. Participation involves answering 15 questions about the practice and supplying 15 data elements. All practices for which this information is submitted will then become part of the database used to compile the next set of statistics for comparison. Participation will also facilitate the development of new management tools, such as a custom comparison report, that should yield benefits far exceeding the effort of supplying survey responses. We are the data sources for our practices, so we must supply the needed information.

John J. Cergnul, JD, CPA, is business manager, Radiology Inc, Mishiwaka, Ind, and past president of the Radiology Business Management Association (RBMA).

Philip J. Russell, MBA, CMPE, is CEO, South Texas Radiology Group, San Antonio, and past president of RBMA. He chairs the RBMA Data Collection and Reporting Committee. This article has been excerpted from Key Financial Indicators in Radiology Practice Management, which they presented at RBMA’s Radiology Summit, June 8, 2004, in San Diego.