Maximizing A/R Reimbursement

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Healthcare today is looking at how much is being billed to insurance and how much is actually being collected. Putting a sum value on lost collections can serve as motivation to resolving issues regarding unpaid claims. One of the things we want to look at is how you go about gauging that number. Generally, practices will use this as their high level stat, billed vs. collected and you'll see, that it generally varies. You can have months where your collected amount looks closer to your billed amount or it could look really far away. One of the big problems with looking at your stats this way, is that it really doesn't tell you anything. What it can do is put you into panic mode, right? Well, don't panic. We would like to share a strategy with you that could benefit you in this instance.

This is where we want to implement one of our key tools during phase one or phase two in automation level of business management, which is what we call, a 4 Q&A. First, we want to understand what the problem is. Then, we want to figure out where the opportunity exists within the problem. Ask yourself, why is this problem important? We also want to determine the level of difficulty in solving the presenting problem. After we have assessed the root of the problem, potential opportunity, and level of difficulty, we can start considering viable approaches for solving the problem. Now, in terms of approaches, one of the basic fundamental perspectives and points with regards to a four Q&A is that you have to come up with at least two or three ways of solving any given problem. Even though the first idea that you have might be your best one, you still want to have backups, especially when you're reporting to someone. It is important to be able to offer alternatives and options in the event that your initial plan goes belly up or falls short of expectations.

That being said, we can only offer viable solutions if we truly understand the root cause of the issue we are trying to resolve. In order to fully understand the presenting problem, we need more information. We really need to understand what contributes to this billed amount, what contributes to this collected amount, okay?

So, we're going to begin by honing in on one aspect of this problem because it is actually quite complex. You can break it down into payers because you might have some insurance companies that are paying less than others, and so, you might decide, "I need to be in a network versus out of network or I might want to drop networks completely." This is where a lot of practices run into issues where they think, "I should just drop insurance and be a straight cash practice." But if you look at a lot of cash practices, they're having A/R issues with their patients as well. They're experiencing issues with accounts receivables where patients are not paying them on time, and so, they're seeing the same kind of billed versus collected amount. This issue becomes especially problematic if they don't have the right systems in place. One of the cornerstones of our business is actually helping practices not only collect on insurance balances, but to also collect on patient balances, where they're lacking.

So, one of the ways to really break down this number at a high level is by looking at what's known as an allowed amount. An allowed amount is essentially the difference between what you bill and what the insurance company deems as a normal billed amount. Now, that could be determined by a contract that you have with the insurance company, especially if you're in network. Your allowed amount with an insurance company might be set based on a contract that you have with them. Otherwise, they tend to use what's called usual and customary amount. Usual and customary means that the given amount is what they tend to pay. The problem with either of those scenarios is that there tends to be a range as to what they pay for specific procedures, especially depending on how they're bundled with other procedures or how they're attached to diagnosis codes. All of that can play a role here, but the number one point we need to walk away with in understanding this statistic as a business owner, is that the bill versus collected amount is not enough.

We actually want to look at our billed amount versus allowed amount versus collected amount. It is really important to know not only what we're billing versus what we're collecting, but also what is actually being allowed versus what's collected. Generally, you're going to find that, what's allowed is going to be lower than what you're billing. This is especially true if you're out of network. So, a lot of the time, what we find is that this happens to our statistics. Therefore, much of the amount you're billing may be too much on these procedures, even though you think it's justified, right? We might agree with you, but the reality is that the insurance company does not agree. Now, that might be an argument for you to think, "Oh, I should go cash," but again, we don't want to jump directly from understanding our problem or its importance, to our approach. We want to go methodically through this process and do not want to rush to any decisions.

It's really important when we look at this again, that we look at the allowed amount versus the collected amount, and then look at that difference. What we'll generally find, is that month over month the number between the allowed amount and the collected amount is still a problem. Now, it's important to recognize, of course, that the amount collected in any given month is not necessarily directly related to the amount billed that month, right? You have claims getting paid from a month ago, two months ago, but overall as an average, if you see an average amount difference...