Based in Atlanta, Georgia, the Medical Consultants Group works with medical practices of all sizes to help increase profitability and patient satisfaction. From our experience, we have found that the following seven indicators are a strong standard for determining the financial performance of most practices.
First Try Resolutions
What percentage of claims submitted to insurance companies are resolved on the first submission, and what percentage of claims are rejected after the first try? A practice should resolve at least 90% of insurance claims on the first submission.
Days Revenue Outstanding
Take last year’s total collected revenue and divide by the number of working days. This will give you the average amount collected per working day. Divide your total accounts receivable by this number, and you will get the total number of average days that practice revenue remains in Accounts Receivable. This should be between 30 to 40.
Percentage of All Accounts Receivable Over 120 Days
Divide the amount of all accounts receivable over 120 days old by the amount of total accounts receivable. Financially successful practices are able to keep this number under 25%.
Net Collection Rate
The net collection rate of your practice can be calculated by subtracting payments (minus credits) from your total charges (minus contractual adjustments). This formula will give you the percentage of what you expect to receive that you actually do receive. The Gold Standard is 95%.
12 Month Trailing Average for Average Reimbursement Per Encounter
To calculate this number, take the amount you collected for each of the past 12 months and divide by the number of encounters completed in each month. This will give you an average amount collected per encounter for each of the previous 12 months. Add all of these numbers up and divide by 12; this will give you an average amount collected per encounter based on the previous 12 months.
12 Month Trailing Average for Average Cost Per Encounter
To calculate this number, determine a total cost of operating the practice for each of the previous 12 months and divide each monthly cost number by the number of encounters completed each month. Then, add all of the monthly averages together and divide by 12. This will give you an average cost per encounter based on the previous 12 months.
12 Month Trailing Average for Average Operating Margin Per Encounter
To get this number, subtract the average cost computed in number 6 from the average revenue per encounter computed in number 5. This will give you the average operating margin per encounter based on the data from the previous 12 months. This is really a measurement of the practice’s ability to produce positive cash flow and should be recorded monthly and tracked over time to detect trends.
What key financial indicators do you use to help determine the profitability and solvency of your practice?