Reimbursement Performance Index – A New Tool in Physical Therapy Practice Management

As an owner and operator of two outpatient physical therapy practices I have found that determining the effectiveness of a billing and reimbursement process can be challenging but vital to your clinic’s long term success. When I started my practice in 2001 I initially utilized a medical billing company for my third party and patient balance billing. One of my major questions to them was, “How do I know you are doing a good job for me?” They didn’t have any pat answers other than just directing me to look at my accounts receivables (AR). When the receivables were growing over time and eventually became out of control I had the same question. Was $30,000, $50,000 or $100,000 of AR too much for the size practice that I had? Having enough money to pay the bills is one thing, but having too much outstanding money and eventually never being able to collect those older claims was another.

After going through another ‘medical billing’ company, with even worse performance, I decided to take control of the situation and bring the process in house. I could no longer afford giving away services especially as my practice grew and volumes and overhead increased. The success we found in solving our own issues resulted in creating a physical therapy specialty billing service, assisting other practices who were also faced with sub optimal reimbursement. One of our goals was to develop a way in which we could track our performance in helping them. A metric owners / managers could use to monitor their clinic’s reimbursement performance on a day to day basis and our effectiveness in keeping their cash flow consistent. We believe in giving practice owners the power to quickly evaluate how well their billing service or in house staff performs. After all cash flow and ultimately their livelihoods are at stake. The measurement tool we developed to do this- the Reimbursement Performance Index(TM) (RPI) was the result. The RPI(TM) is the ratio of your outstanding AR divided by your average monthly charges.

The ratio highlights the percentage of outstanding charges that are collected, and the amount of time it takes to collect an average month’s charges. The higher the ratio, the longer it’s taking for an average month’s charges to be collected; the lower the ratio, the quicker an average month’s charges are being collected. So for instance back during the early days of my practice, our RPI would have been calculated as the following:

$115,000 (outstanding AR) / $55,000 (average monthly charges) = 2.09

An RPI(TM) of 2.09 was no way to run a successful business. The goal for our two clinics and our client’s clinics is to get the RPI 1.0 or below. Basically achieving full reimbursement for services rendered within a 30 day cycle or sooner. Certainly the payer mix can influence this metric- such as having a small practice that has a high percentage of motor vehicle claims or workers compensation claims that may be in litigation or controverted. So if your practices’ RPI for cash and health insurance claims is around 1.0 or less- you are doing a stellar job! If it is significantly higher then you need to take a serious look at your procedures, processes and entire system whether or not you bill in house or outsource it. We encourage the practice to continue to look for ways to improve their billing and reimbursement process if the RPI(TM) grows much above 1.2

Certainly other metrics can be helpful in providing insight into your system’s effectiveness such as percentage of AR at 30, 60 and 90 days and beyond, but like anything you can get overwhelmed with the complexities of the accounting that goes into looking at your cash flow. However, keeping things simple by having an RPI(TM) score can quickly give you a good idea of how things are working for your clinic. I value concepts that can be tested and reproduced and more importantly utilized in guiding changes that can be used to make the practice more successful. I believe the RPI (TM) is an ideal tool that clinic managers and owners can use in addition to their current metrics in managing their practices.

Finally, we try to stress to colleagues two important concepts that are often overlooked. The clinic manager / owner must understand that the entire billing process is complex as well as dynamic and that cash flow is king!

o Understanding the entire (big picture) billing process is key. Anyone can bill with any software. More importantly is the process that you develop to set yourself up for success. Having competent staff and efficient resources or a billing partner who understands third party reimbursement, can keep up to date on healthcare policy changes as well as dedicate many hours to fight your reimbursement battles is vital to your success.

o Cash flow is king. Cash flow – the effective turnaround time from the moment a service is provided to when you have accurate reimbursement for that service. Everyone is well aware of the dynamics of weekly or monthly accounts payable. What needs to be stressed is the goal to maintain a high level of steady income based upon an effective reimbursement process. If this is not optimized you will find major problems in having enough money to pay those bills when they come in.