Revenue Cycle Management

Revenue cycle management refers to how we get money in the door for the services that we've provided. Some groups will outsource their revenue cycle management and Athena is probably the most notable example of this where they've combined the EHR and their revenue cycle management and just take a percent of your collections.

The revenue cycle management starts when the patient walks in the door and your office has to capture the, the correct insurance information and you'll be surprised how often that gets mess, messed up, but basically you have to make sure you have the right Primary and secondary insurance and then you have to verify that the insurance benefits are still valid, that's verification of insurance or VOI. And then if a patient wants Surgery, my Surgery scheduler is gonna have to obtain the prior authorization. I then operate.

And then we send both the charges, my central billing office will send in the charges and my operative note to the insurance company, and the insurance company will pay me, you know, 2 or 3 weeks later. So that whole process may take 3 or 4 weeks for me to get paid after I do a total Knee.

So accounts receivable is a very important and kind of complicated, um.

Portion of revenue cycle management that I think everyone needs to understand. Accounts receivable basically means that, the work I've done that I have not yet been paid for, and this can get really high. Usually, it can be 20% or so of your annual collections. So let's just say a theoretical group has $10 million in accounts receivable, that means they've done $10 million worth of work that they have not been paid for yet. If that orthopedic group collects 5000 $500,000 a day.

Their days in AR are 20 so it means that it would take 20 days to collect all of their outstanding uh charges that haven't been collected on yet, and days in AR is the nomenclature that an orthopedic group will use to figure out how much, how well, well, well-run their central billing offices.

So here's just a quick cheat sheet about how to figure out whether or not your orthopedic, uh, group is, is well-run, and this is pretty advanced stuff. I wouldn't expect residents to know this, but if they're physicians on the call that want to understand their CVO and the rev cycle management, this is pretty important stuff. So if your collections are low, but your days in AR are high, that's this box in the 2x2 matrix, it means the AR dollars are not moving through that funnel that you see over there.

On the right, on the left side of the screen, everything's getting backed up. Now, that might be because the surgeon did unauthorized procedures. It might be that the CBO is not filing the claims in time, but basically the CBO, your central billing office is not working your claims in an efficient manner.

If your days in AR are low and your collections are low, which is this bottom box, this is a much harder, uh, problem to catch, but it basically means that somebody in the CDO is taking the days, uh, the, the accounts receivable out of the funnel, which basically means the insurance company is denying the care and denying the charge, and your CDO is not fighting the appeal process to get the, that money, uh, paid for.

And that's basically where they're writing off claims, and you'll see this if a group incentivizes their CBO to keep days in AR low with a bonus structure and that's what will happen. The nirvana is if your collections are high and your days in AR are low, that means everybody's doing their, they're doing their job and doing well. So what is the proper amount of overhead for a group? Well, it does depend on the group. Uh, a blended rate of all the groups overhead should be somewhere around 52 to 60%.

You gotta realize the, the amount of overhead it takes to deliver clinical work, which is your surgeries and your, your clinic visits is a little bit lower, usually in the low 50s. The amount of overhead to deliver ancillary services is a lot higher typically, usually 65 to 70%, and that's just to say that uh ancillaries have a lower profit margin than clinical work.

But if an orthopedic, uh, orthopedic practice's overhead is really high, say it's 60, 65%, it could be that they just have a lot of ancillaries and they're just cranking it out on the ancillaries which have a higher overhead. Uh, it's more likely than not means they have a lot of, uh, employees who are sitting around the office and not.

Doing a whole lot of work, um, and that it could also mean that your payer mix is not great or the doctors aren't working super hard. You got to realize overhead percentage is the cost of running your Business over your collections. So if you lower the cost of running your Business or you raise your collections, you can lower your overhead.

There's 2 ways to figure out how to distribute overhead among the orthopedic surgeons in the group. There's a fixed and there's a variable. If you believe in fixed overhead, it's implied that running your Business costs the same if you run 1 patient through the door or if you run 1000 patients through the door. It basically means you pay rent for your clinic space whether you show up to work or whether patients come or not.

If you believe in variable overhead, it means that the cost of running your Business depends on how many patients you run through the door. A busy surgeon may keep their OR staff or keep their clinic staff late, which means overtime, which means more, more, uh, cost of running your Business. Um,

If you believe in fixed overhead, it means every physician is gonna pay the same amount of money. If you believe in variable overhead, it means that every physician pays the same percent of overhead. My group does a blended rate, which I think is the most appropriate, but you need to understand how this works. I'm gonna run through this example for both just to help you understand it.

Let's just assume this orthopedic group has 5 surgeons. Their monthly overhead is $250,000. They collect in total $500,000. 4 of those surgeons are lower producers who collect $75,000 a month and 1 surgeon's killing it and collecting $200,000 a month.

If you believe in fixed overhead, it means every surgeon is gonna pay the same amount, which is 5 surgeons divided by $250 which is gonna be $50,000 per surgeon to keep the lights on in that practice per month. That means 4 surgeons would make $25,000.01 surgeon would make $150,000.

It's a big difference in uh salary. If you believe in variable overhead, every surgeon pays 50% of their collections to cover the overhead. Four surgeons make $337,000.01 surgeon makes 200 $100,000 in, in overhead. So this will have a huge impact depending on whether you're a high-producing surgeon or a lower-producing surgeon and how much money you take home.