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Billing efficiency ratio
Letter to the Editors
Billing Efficiency Ratio I read with interest the article “In Search of a Benchmark: A Proposed Standard Efficiency Rating for Air Medical Services” in the March/April edition of Air Medical Journal. As the former chief financial officer for two of the largest air medical providers and the current CFO for the largest independent air medical and ground transport billing companies, I find this article a dramatic oversimplification of a complex and dynamic process that has extensive causal and financial factors to consider. Air medical transport billing is one of the most difficult forms of medical billing, involving complex, unclear, and regionally applied payer rules that change without notice. Coordination of insurance benefits, liability payers, tort status, lien designation, service downgrades, technical denials, closest appropriate facility denials, and medical necessity denials are all factors to understand and monitor. No question the end result is compliantly collecting the highest average collections per flight in the fewest days possible, but let’s examine closer what this article puts forth as a basis for creating a “standard of billing efficiency.” From a financial perspective, I agree that the three metrics used in calculating this billing efficiency ratio (BER) are important factors to consider. These calculations have been used by me and other accountants for years. However, the BER factors can provide misleading conclusions when used together in this formula. From my perspective, the factors should not be weighted equally. This requires further explanation of the components proposed for the BER. Cost per dollar collected. The article suggest that the entity that spends the fewest dollars as a percent of cash collected is the most efficient and when considered in this formula would have the highest rating. What about the billing agent who performs significantly better than another or than inhouse performance but charges a higher cost per dollar collected? I would argue the winning provider is the one who has more dollars from collections after deducting off the cost of billing for the service, even if it costs a few more dollars. For example, the article used the example where cash collected totals $12,695,707, costs 2% or $253,914, for a net difference of $12,441,793, for a ranking of 98%, If alternately, another billing company collected $13,800,000, cost 6% or $828,000, for a net difference of $12,972,000 and a ranking of only 94%. The provider who paid 6% would have a lower ranking of 94 vs 98 but would have $530,000 more in their pocket. As such, the provider is much better off paying more because they are getting much more. Adjusted/weighted collection rate. I would recommend never using “arbitrary” numbers or assumptions as used with private pay in this example. Arbitrary allocation is the enemy of good decision making. 118
Days sales outstanding (DSO). With respect to DSO efficiency, the fastest way to get your DSOs down is to write your claims off early or to push claims through a system without appropriate compliance checks and balances. It is absolutely critical in understanding the many issues that can impact the DSO, many of which do not translate to the traditional billing function. Obtaining the required CMN forms and obtaining bypass documentation are two significant factors that could delay getting transports billed. The coordination of benefits, problems obtaining payer information, liability settlements, lien payments, and self pay cycles do not happen rapidly and will skew the DSO out further in air ambulance billing when compared to other medical billing. The OIG has made it painfully clear to air medical providers that they must have “effective means of detecting fraud and abuse.” Try adding an OIG corporate integrity agreement into your budget, and, no, you cannot abdicate health care compliance to your billing company. Prematurely writing these claims off to a collection agency dramatically reduces the collection per transport and increases the cost of billing. Where is this factored into the BER? Clearly, the individual components of the BER are important to measure, but when taken together and given equal weighting, you may very well come to the wrong conclusion. In my opinion, the single most important metric for this industry is the Dollar Collected per Transport, which is not even part of the BER. It trumps all three of these measurements. The most successful providers are those that figure out how to maximize collections per transport, often by outsourcing. The example above for 2,300 transports suggests one provider collects $12,695,707 and the other collects $13,800,000 for an average collection per transport of $5,520 and $6,000, respectively. I think we would all agree that $6,000 per transport is better than $5,520. This is not an easy business. Decision support systems that measure all the complex dimensions of air medical billing, collections, medical necessity, compliance, denials, and revenue management—coupled with multiple variable monitoring access portals by highly experienced and motivated account-receivables managers—that are incorporated with complete technical business methodology integration platforms and financial alignment with the client have proven highly successful in compliantly optimizing average collections and rationally reducing DSO. For those who read this article and believe they have an easy formula to measure their efficiency, as the article suggests…keep searching. Michael Walterscheid, CPA/MBA Chief Financial Officer, Golden Hour Data System, Inc San Diego, California Air Medical Journal 26:3
Billing Efficiency Ratio I read with interest the article “In Search of a Benchmark: A Proposed Standard Efficiency Rating for Air Medical Services” in the March/April edition of Air Medical Journal. As the former chief financial officer for two of the largest air medical providers and the current CFO for the largest independent air medical and ground transport billing companies, I find this article a dramatic oversimplification of a complex and dynamic process that has extensive causal and financial factors to consider. Air medical transport billing is one of the most difficult forms of medical billing, involving complex, unclear, and regionally applied payer rules that change without notice. Coordination of insurance benefits, liability payers, tort status, lien designation, service downgrades, technical denials, closest appropriate facility denials, and medical necessity denials are all factors to understand and monitor. No question the end result is compliantly collecting the highest average collections per flight in the fewest days possible, but let’s examine closer what this article puts forth as a basis for creating a “standard of billing efficiency.” From a financial perspective, I agree that the three metrics used in calculating this billing efficiency ratio (BER) are important factors to consider. These calculations have been used by me and other accountants for years. However, the BER factors can provide misleading conclusions when used together in this formula. From my perspective, the factors should not be weighted equally. This requires further explanation of the components proposed for the BER. Cost per dollar collected. The article suggest that the entity that spends the fewest dollars as a percent of cash collected is the most efficient and when considered in this formula would have the highest rating. What about the billing agent who performs significantly better than another or than inhouse performance but charges a higher cost per dollar collected? I would argue the winning provider is the one who has more dollars from collections after deducting off the cost of billing for the service, even if it costs a few more dollars. For example, the article used the example where cash collected totals $12,695,707, costs 2% or $253,914, for a net difference of $12,441,793, for a ranking of 98%, If alternately, another billing company collected $13,800,000, cost 6% or $828,000, for a net difference of $12,972,000 and a ranking of only 94%. The provider who paid 6% would have a lower ranking of 94 vs 98 but would have $530,000 more in their pocket. As such, the provider is much better off paying more because they are getting much more. Adjusted/weighted collection rate. I would recommend never using “arbitrary” numbers or assumptions as used with private pay in this example. Arbitrary allocation is the enemy of good decision making. 118
Days sales outstanding (DSO). With respect to DSO efficiency, the fastest way to get your DSOs down is to write your claims off early or to push claims through a system without appropriate compliance checks and balances. It is absolutely critical in understanding the many issues that can impact the DSO, many of which do not translate to the traditional billing function. Obtaining the required CMN forms and obtaining bypass documentation are two significant factors that could delay getting transports billed. The coordination of benefits, problems obtaining payer information, liability settlements, lien payments, and self pay cycles do not happen rapidly and will skew the DSO out further in air ambulance billing when compared to other medical billing. The OIG has made it painfully clear to air medical providers that they must have “effective means of detecting fraud and abuse.” Try adding an OIG corporate integrity agreement into your budget, and, no, you cannot abdicate health care compliance to your billing company. Prematurely writing these claims off to a collection agency dramatically reduces the collection per transport and increases the cost of billing. Where is this factored into the BER? Clearly, the individual components of the BER are important to measure, but when taken together and given equal weighting, you may very well come to the wrong conclusion. In my opinion, the single most important metric for this industry is the Dollar Collected per Transport, which is not even part of the BER. It trumps all three of these measurements. The most successful providers are those that figure out how to maximize collections per transport, often by outsourcing. The example above for 2,300 transports suggests one provider collects $12,695,707 and the other collects $13,800,000 for an average collection per transport of $5,520 and $6,000, respectively. I think we would all agree that $6,000 per transport is better than $5,520. This is not an easy business. Decision support systems that measure all the complex dimensions of air medical billing, collections, medical necessity, compliance, denials, and revenue management—coupled with multiple variable monitoring access portals by highly experienced and motivated account-receivables managers—that are incorporated with complete technical business methodology integration platforms and financial alignment with the client have proven highly successful in compliantly optimizing average collections and rationally reducing DSO. For those who read this article and believe they have an easy formula to measure their efficiency, as the article suggests…keep searching. Michael Walterscheid, CPA/MBA Chief Financial Officer, Golden Hour Data System, Inc San Diego, California Air Medical Journal 26:3