Finance 101: Medical Practice Finance Basics Presented by: Robbie M. Connell, CPA

Agenda Standard Practice Management Reports Industry Benchmark Data Basic Financial Overview

Practice Management Reports Accounts Receivable (A/R) Aging Summary By Payer By Provider Denials Report Activity by Provider & Location Top CPT Codes

Sample A/R Aging Report Amt 31-60 61-90 91-120 121-150 151-180 Totals For AETNA $55.00 $0.00 Totals For Aetna Life Co Mngd Choice Acces Totals For AETNA MEDICARE $115.00 Totals For AETNA OPEN ACCESS $135.00 $95.00 Totals For AETNA POS $1,116.42 $60.00 $651.42 Totals For AETNA PPO Totals For Aetna Student Health $1,279.72 Totals For Assurant Health/ASA $600.77 Totals For BCBS TEXAS PPO $14,933.69 $455.00 $900.00 $2,395.37 $132.56 Totals For Caprock - PHCS $110.00 Totals For CHRISTIAN BROTHERS SERVICE $210.00 Totals For CIGNA $1,243.62 $50.00 $25.00 Totals For Cigna HealthSpring Prospect $150.00 Totals For Cofinity $430.00 Totals For COMMUNITY FIRST $986.83 $66.83 Totals For COMMUNITY FIRST CHIP $420.00 Totals For COMMUNITY FIRST MEDICAID CHIP $1,350.00 $225.00 $230.00 Totals For FEDERATED INSURANCE $1,097.00

Sample Claims Rejections (i.e. Denials) SHEET METAL WRKS NATL Patient : Entity not eligible for benefits for submitted dates of service Acknowledgement/Rejected for Invalid Information-The claim/encounter has invalid information as specified in the Status details and has been rejected. 1 $235.00 SUPERIOR HEALTHPLAN CHECK MEMBER ID OR ELIGIBILITY. CONTACT PAYER FOR FURTHER INFORMATION. $402.00 Payer : Cannot provide further status electronically Acknowledgement/Returned as unprocessable claim-The claim/encounter has been rejected and has not been entered into the adjudication system. UNITED HEALTHCARE Admission Date is required on inpatient medical visits. 2300.DTP*435 $2,850.00 CIGNA 2 $600.00 MEDICARE Re- Submit the claim by appending the suffix to Other Payer Id's, when Other Payer Id's are same. 5 $1,087.00 Adjudication Date required either at the claim level or on all service lines for COB and Tertiary claims. 2330 / 2430 DTP*573 $300.00 The COB information does not balance at the claim level. The COB information does not balance at the service level. The COB information does not balance. AARP- UNITED HEALTHCARE Subscriber and subscriber id not found Acknowledgement/Returned as unprocessable claim-The claim/encounter has been rejected and has not been entered into the adjudication system. $1,439.92 AETNA Investigating existence of other insurance coverage Pending/Patient Requested Information-The claim or encounter is waiting for information that has already been requested from the patient. $547.46

Sample CPT Code Chart

Sample CPT Code Chart

Benchmarks Days in Accounts Receivable Entry Lag – Avg number of days from encounter to charge entry – 0-48 hours Charge Entry to date of bill release to Clearinghouse/Payer – 24-72 hours Denial Rate – Less than 4% Industry Overhead Comparison

Distribution of A/R Days In A/R Cardiology* Family Med. OBGYN Orthopedic* 0-30 Days 60.41% 72.88% 61.77% 50.28% 31-60 Days 12.16% 10.85% 12.13% 14.03% 61-90 Days 6.94% 5.72% 6.39% 8.46% 91-120 Days 4.58% 3.34% 3.71% 5.65% 121+ Days 15.10% 4.73% 11.31% 17.19% * Texas Specific Data Median %s used Source: MGMA Report, Cost Survey: 2014 Report Based on 2013 Data

Overhead as a % of Total Medical Revenue Category Cardiology* Family Med. OBGYN Orthopedic* Total Support Staff 23.62% 32.05% 24.14% 19.75% Drug Supply N/A 3.63% 1.52% 1.67% Building & Occupancy 4.67% 9.29% 6.28% 5.40% Prof Liability Ins 1.20% 3.24% 1.11% Info Technology 1.62% 3.26% 2.07% 1.42% Medical Supplies .88% 1.46% 4.65% 2.24% Total Operating Cost 44.58% 59.80% 54.91% 44.02% * Texas Specific Data Median %s Used Source: MGMA Report, Cost Survey: 2014 Report Based on 2013 Data

Staffing per FTE Physician Category Cardiology Family Med. OBGYN Orthopedic Clinical Support Staff 1.40 2.59 1.78 1.43 Front Ofc Support 1.58 1.73 1.33 1.67 Med Assistant, Nurse Aides .87 1.35 .94 1.00 Total Support Staff 4.86 5.76 4.85 5.77 Median FTEs Used Source: MGMA Report, Cost Survey: 2014 Report Based on 2013 Data

Other Useful Benchmarks Percentage of insurance verified – 98% Number of patients cleared (demographic & insurance data necessary for claims processing prior to visit – 90% Error rates due to front-end billing – Less than 2% Time of Service Collections Copayments – 100% All other – 75% Follow-up notes documented on the account – < 30-45 days Identification and return of unidentified or overpayment refunds – < 60 days Date of charge entry to date of claim release – 0-72 hours Claims Submission – Daily Source: “The Physician Billing Process: 12 Potholes to Avoid in the Road to Getting Paid” by Deborah Walker Keegan, PhD, FACMPE; Elizabeth W. Woodcock, MBA, FACMPE, CPC; and Sara M. Larch, MSHA, FACMPE

Purpose of Accounting Accounting helps you understand where you have been, so you can decide where you are going Information systems, which measure, process and communicate information, is useful for decision makers

Definitions Asset – Something you own Cash Accounts Receivable Charges vs. Net Adjusted Collectible Charges Property, plant & equipment Liability – Something you owe Accounts Payable Long-term equipment loans Equity – The difference between the two above. Assets – Liabilities = Equity

Financial Statements – The Big 3 Balance Sheet Income Statement Cash Flow Statement

Visual summary – Financial Statements Reporting of Business Activity Balance Sheet Financial condition at a point in time Balance Sheet Financial condition at a point in time Income Statement Summary of activity for a period of time Statement of Cash Flows Summary of activity for a period of time Beginning of Year January 1, 2015 End of Year December 31, 2015

Basis of Accounting Cash Basis Accrual Basis Income is recognized when cash is collected Expense is recognized when cash is paid Accrual Basis Income is recognized as it is earned Expense is recognized as it is incurred

Balance Sheet The balance sheet will tell you what the company owns (its assets) and what it owes (its liabilities) and what is left over for the owners (equity) Key Points Snapshot at a fixed point in time Not necessarily current market values Current financial health of the company Focus on the quality of the assets – e.g. is the company sitting on a pile of cash - or is everything sitting in past due receivables?

Sample Balance Sheet

Income Statement Shows a company’s performance over a period of time – i.e. how did a company earn its money last year? Key Points Also referred to as a “Profit and Loss” or “Statement of Operations” Useful for determining performance before or after an event – e.g. after the addition of a new physician or the opening of a new location

Sample Income Statement

Cash Flow Statement Shows a company’s sources and uses of cash during a period of time Key Points Quickly tells you how a company is using its cash or funding its day-to-day operations Rarely does “net cash flow” equal “net income”

Sample Cash Flow Statement

Questions? Robbie M. Connell, CPA Manager / BKD, LLP 210-341-9400 rconnell@bkd.com