How do I reduce Bad Debt? [clue: the Perfect Admission]
The industry standard for bad debt in Nursing Homes (SNF) is ~2-3%. The easiest way to reduce your bad debt is to improve your admissions process.
The 3 best ways to increase cash flow in healthcare with a calculator.
The 3 Drivers of AR to Cash
There are 3 drivers that improve the performance of your AR (accounts receivable) and RCM (revenue cycle management) processes.
And there's just one simple metric that defines the success of your AR/RCM process. It's the speed at which you can:
convert healthcare services
to
billed AR
to
cash in the bank
The 3 drivers of cash flow are:
- Software
These are your tools, and how your team uses them. Healthcare companies that have automated, configurable tools for AR and RCM do better than the traditional hodge-podge of EMR, spreadsheets and Post-it's. Adding (or moving to) to a dedicated RCM software tool, will increase cash flow.
- People
This is who you hire for your team, and how you train them in the first 6 months. And how you re-train them in year 2 onwards. In billing/AR, your team’s ability to convert AR to cash is combo of: experience, raw talent and training.
- Process
By process we mean your strategy (think big picture, like where you focus, how you structure your team, pre-AR processes) and tactics (think detail, like claims denials, workflows, and AR buckets)
Why this matters
These drivers are the inputs to the AR process that you can control. This is in contrast to the many factors that you cannot control, like changes in payer mix, census, reimbursement per diagnosis.
To move the needle and see results (i.e. healthcare services converted to cash in the bank), it’s super important to focus on the 3 drivers you can control. Not the ones you cannot.
Cash flow drivers: in your control VS. beyond your control
Here’s the breakdown of drivers you can control to improve your AR/RCM processes (i.e. cash in bank), versus the factors you cannot control.
|
Cash flow drivers you CAN control |
Why you can control this |
|
Software |
Every 3 years or so, new technology means there are new software tools that your company can use. |
|
People (your team) |
Hire smarter and slower (and fire faster), and train your team |
|
Process (how your team uses its tools) |
Learn best practices from others in the industry, review revenue processes every 6 months, hire a consultant |
|
Cash flow drivers you CANNOT control |
Why you cannot control this |
|
Payer reimbursement levels |
This is mostly a contracted rate set by the payer |
|
Payer mix (this is percentage of your census who have high-paying insurances, versus low-paying insurances) |
Your sales reps may be able to get patients with better insurances, but your back office team has almost no control over this |
|
Timely filing deadlines (the deadline for submitting clean claims to the payers) |
These are hard rules set by the payers |
|
Documentation required by the payer |
|
|
Authorization required by the payer |
To some degree you can get better at getting the auth, but you can’t control the requirement in the first place. |
How this affects the bottom line
Small percentage improvements in the 3 drivers can have massive impact to the bottom line, based on studies in McKinsey, Bain and other healthcare consulting companies.
The reason is that every month, a new bucket of AR (potential cash) enters the “Current” (0-30 day) bucket.
Depending on your healthcare type and census, your “Current” bucket can be anywhere from $100k’s to $1m’s of dollars. If you improve your overall ability to convert this fresh AR to cash by just 1%, and do that for 12 months, you’ll have 12% more cash at the end of the year.
To give you an example
-
-
- A nursing home has $500k each month entering it’s “Current” bucket (i.e. it bills $500k/month).
- If the AR/RCM process improves by just 1% in each of the 3 drivers (software, people, process), that’s an extra 3% cash flow per month.
- Meaning, an extra $30k a month, or $360k/year. Then multiply that by the number of facilities, and it adds up.
-
Final Takeaways
To increase your cash flow
- Focus your efforts on the 3 drivers you can control: software, people, process. Use our Cash Flow Calculator to get some practical ideas on how to do this
- Also use our Cash Flow Calculator to estimate exactly how much more cash flow can be gained by improving your AR/RCM processes in these 3 drivers.
Keep up the good work! And be good,
Rich Handler
rich@arproactive.com, c. 414.699.2541
CEO, AR Proactive
