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    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; as well as Oglethorpe University and Emory University in Georgia, the Atlanta Hospital & Medical Center; Kellogg-Keller Graduate School of Business and Management in Chicago, and the Aachen City University Hospital, Koln-Germany. He became one of the most innovative global thought leaders in medical business entrepreneurship today by leveraging and adding value with strategies to grow revenues and EBITDA while reducing non-essential expenditures and improving dated operational in-efficiencies.

    Professor David Marcinko was a board certified surgical fellow, hospital medical staff President, public and population health advocate, and Chief Executive & Education Officer with more than 425 published papers; 5,150 op-ed pieces and over 135+ domestic / international presentations to his credit; including the top ten [10] biggest drug, DME and pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published academic text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

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    Later, Dr. Marcinko was a vital recruited BOD member of several innovative companies like Physicians Nexus, First Global Financial Advisors and the Physician Services Group Inc; as well as mentor and coach for Deloitte-Touche and other start-up firms in Silicon Valley, CA.

    As a state licensed life, P&C and health insurance agent; and dual SEC registered investment advisor and representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® chartered professional designation education program; as well as Chief Editor of the three print format HEALTH DICTIONARY SERIES® and online Wiki Project.

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A New Take on Accounts Receivable [AR] Factoring for Doctors

 Understanding How Medical Practice Business Factoring Works

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AR factoring is a financial transaction whereby a business, like a medical practice, sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.

Factoring differs from a bank loan in three main ways.

First, the emphasis is on the value of the receivables (essentially a financial asset), [1][2] not the firm’s credit worthiness.

Second, factoring is not a loan – it is the purchase of a financial asset (the receivable).

Finally, a bank loan involves two parties whereas factoring involves three.

Conclusion

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On Hospital Revenue Cycle Opportunities

Do They Still Exist in Today’s Healthcare Milieu?

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For a decade now, healthcare providers have been challenged to deliver quality patient care in an environment of shrinking profit margins. Total margins and operating margins have followed the same trend. Analysts report that an operating margin of less than 5% leaves an organization without the resources to invest in new technology and capital projects, and will eventually force the facility to close or merge. With rising labor costs, a poorly performing economy, and an aging population, these numbers are not likely to improve soon.

Bar code use in hospitals may save lives

Industry Status

Although the industry has seen an overall improvement in accounts receivable days and bad debt for an extended period, it appears that many facilities have reached their peak in addressing these areas, particularly given current demands to reduce staff and other operational costs. So, where is the next major opportunity for reducing costs or maximizing revenue opportunities?

The Experts Opine

According to private consultants Ross J. Fidler and Karen White PhD, revenue cycle improvement still seems to be a promising and popular area today. And, PriceWaterhouseCoopers recently listed five areas to reinvent the revenue cycle:

1) organizational / accountability;

2) process/workflow improvements;

3) information systems/management reporting enhancements;

4) quality assurance mechanisms; and

5) department and staff productivity measurements.

Assessment

A thorough re-examination of the revenue cycle process will typically uncover cost drains and revenue opportunities.

Conclusion

To succeed in enhancing hospital revenue streams, for example, we commence with patient access through HIM to PFS, by applying optimal organizational structures, benchmarking, and technology adoption. Only then will outcomes trend toward higher performing revenue cycles.

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Financial Ratio Liquidity Analysis for Medical Accounts Receivable

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Understanding Vital Balance Sheet and Income Statement Components

By Dr. David Edward Marcinko; MBA, CMP™

By Dr. Gary L. Bode; MSA, CPA, CMP™ [Hon]

Dr. Gary L. Bode CPA MSAFinancial ratios are derived from components of the balance sheet and income statement. These short and long-term financial ratio values are “benchmarked” to values obtained in medical practice management surveys that become industry standards. Often they become de facto economic indicators of entity viability, and should be monitored by all financial executives regularly.

Defining Terms

One of the most useful liquidity ratiosrelated to ARs is the current ratio. It is mathematically defined as: current assets/current liabilities. The current ratio is important since it measures short-term solvency, or the daily bill-paying ability of a medical practice, clinic  or hospital; etc.  Current assets include cash on hand (COH), and cash in checking accounts, money market accounts, money market deposit accounts, US Treasury bills, inventory, pre-paid expenses, and the percentage of ARs that can be reasonably expected to be collected. Current liabilitiesare notes payable within one year. This ratio should be at least 1, or preferably in the range of about 1.2 to 1.8 for medical practices.

Other Ratios

The quick ratiois similar to the current ratio. However, unlike the current ratio, the quick ratio does not include money tied up in inventory, since rapid conversion to cash might not be possible in an economic emergency. A reasonable quick ratio would be 1.0 – 1.3 for a hospital, since this ratio is a more stringent indicator of liquidity than the current ratio.

Assessment

A point of emphasis in the case of both the current ratio and the quick ratio is that higher is not necessarily better. Higher ratios denote a greater capacity to pay bills as they come due, but they also indicate that the entity has more cash tied up in assets that have a relatively low rate of earnings. Hence, there is an optimum range for both ratios: they should be neither too low nor too high.

Conclusion

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The Need to Protect Accounts Receivable [ARs]

Understanding Liability and Stewardship Issues

By Dr. David Edward Marcinko; MBA, CMP™

By Dr. Gary L. Bode; MSA, CPA, CMP™

HOFMSAll hospitals, clinics, healthcare entities and doctors are aware that accounts receivable (ARs) represent money that is owed to them, usually by a patient, insurance company, health maintenance organization (HMO), Medicare, Medicaid, or other third party payer. In the reimbursement climate that exists today, it is not unusual for ARs to represent 75% of a hospital’s investments in current assets. ARs are a major source of cash flow, and cash flow is the life-blood of any healthcare entity. It pays bills, meets office payroll, and satisfies operational obligations.

Medical ARS are Different

A feature of ARs in healthcare organizations that differentiates them from ARs in other types of business is that they are often settled for less than the billed amounts. These allowances include four categories that are used to restate ARs to realizable expected values:

  • professional or courtesy allowances;
  • charity (pro bono care) allowances;
  • doubtful account allowances; and
  • HMO and managed care organization (MCO) contractual and prospective payment allowances.

AR Stewardship Issues

Good stewardship of assets requires that one must be concerned not only with significant economic losses due to professional conduct (professional malpractice liability concerns, and issues raised by the Equal Employment Opportunity Commission (EEOC), Office of Civil Rights (OCR), Occupational Safety and Health Administration (OSHA), and so on); but that of physician partner(s) and even the financial failure of contracted private insurers, payers, MCOs, HMOs, etc. ARs are often the biggest asset to protect against creditors or adverse legal judgments. It is not unusual to have ARs in the range of a hundred thousand dollars for a group practice or medical clinic; and in the millions of dollars for a hospital. Yet, since they can easily be attached, ARs are known as exposed assets to creditors.

Assessment

A judgment creditor pursuing a doctor for a claim may pursue the assets of the clinic, and ARs and cash are the most vulnerable assets. ARs are as good as cash to a creditor, who usually has to do no more than seize them and wait a few months to collect them. If a creditor seizes ARs, the clinic or health entity may be hard pressed to pay its bills as they become due. One must therefore be vigilant to protect AR assets from lawsuit creditors.

More: www.CertifiedMedicalPlanner.org

Conclusion

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Proactive Medical Accounts Receivable Monitoring

Forewarned is Forearmed

Dr. David E. Marcinko MBA CMP™

By Dr. Gary L. Bode; MSA, CPA, CMP™

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All hospitals, medical clinics, healthcare entities, and doctors are aware that accounts receivable (ARs) represent money that is owed to them, usually by a patient, insurance company, health maintenance organization (HMO), Medicare, Medicaid, or other third party payor. In the reimbursement climate that exists today, it is not unusual for ARs to represent 75% of a hospital’s investments in current assets. And, a medical practice may have ARs in the range of several hundred thousand dollars. ARs are a major source of cash flow, and cash flow is the life-blood of any healthcare entity. It pays bills, meets office payroll, and satisfies operational obligations.

Avoidance Management

The best way to manage AR problems is to avoid them in the first place by implementing a good system of AR control. Answering the following questions may help upgrade a system of AR control:

  • Is an AR policy in place for the collection of self-pay accounts (de minimus and maximus amounts, annual percentage rate (APR), terms, penalties, etc.)?
  • Do employees receive proper AR, bad debt, and follow-up training within legal guidelines?
  • Are AR exceptions approved by the doctor, office manager, or accounting department, or require individual scrutiny?
  • Are AR policies in place for dealing with hardship cases, pro bono work, co-pay waivers, discounts, or no-charges?
  • Are collection procedures within legal guidelines?
  • Are AR policies in place for dealing with past due notices, telephone calls, dunning messages, collection agencies, small claims court, and other collection methods?
  • Are guidelines in place for handling hospital, clinic, or medical practice consultations, unpaid claims, refilling of claims, and appealing claims?
  • Are office AR policies periodically revised and reviewed, with employee input?
  • Does the doctor, hospital, or clinic agree with and support the guidelines?

Assessment

It is  typical that poor control occurs because the doctor and/or hospital is too busy treating patients, or the front office or administrative staff does not have, or follow a good system of AR control.

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Conclusion

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Medical Accounts Receivable and Related Formulae

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Understanding Rationale and Formulae

[By Dr. David Edward Marcinko; MBA, CMP™]

[By Dr. Gary L. Bode; CPA, MSA, CMP™]

HO-JFMS-CD-ROMMedical practices, clinics and hospitals generate a patient account or an account receivable (AR) at the same time as they send the patient a bill or the insurance company a claim. ARs are treated as current assets (cash equivalents) on the healthcare entity balance sheet, and usually with a percentage mark-down to reflect historic collection rates.

The Balance Sheet

The balance sheet is a snapshot of a medical practice or healthcare entity at a specific point in time. This contrasts with the income statement (profit and loss), which shows accounting data across a period of time. The balance sheet uses the accounting formula:

Assets (what the entity owns) = Liabilities (what the entity owes) + Entity Equity (left over).

AR Aging Schedules

HDSAccording to the Dictionary of Health Economics and Finance, an AR aging schedule is a periodic report (30, 60, 90, 180, or 360 days) showing all outstanding ARs identified by patient or payor, and month due. The average duration of an AR is equal to total claims, divided by accounts receivable. Faster is better, of course, but it is not unusual for a hospital to wait six, nine, twelve months, or more for payment. Each of these measures seeks to answer two questions:

1) How many days of revenue are tied up in ARs?

2) How long does it take to collect ARs?

More Formulae

An important measure in the analysis of accounts receivable is the AR Ratio, AR Turnover Rate, and Average Days Receivables, expressed by these formulae:

1. AR Ratio = Current AR Balance / Average Monthly Gross Production
(suggested between 1 and 3 for hospitals)

2. AR Turnover Rate = AR Balance / Average Monthly Receipts

3. Average Days Receivable = AR Balance / Daily Average Charges
(suggested < 90 days for medical practices)

And Even More Measures

Other significant measures include:

1. Collection Period = ARs / Net Patient Revenue / 365 days

2. Gross Collection Percentage = Clinic Collections / Clinic Production
(suggested > 40-80% for hospitals)

3. Net Collection Percentage = Clinic Collections / Clinic Production – (minus) Contractual Adjustments (suggested > 80-90% for medical practices)

4. Contractual Percentage = Contractual adjustments / Gross production
(suggested < 40-50% for hospitals).

Assessment

Often, older ARs are often written off, or charged back as bad debt expenses and never collected at all.

Conclusion

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Collecting Medical Accounts Receivable

Doctors are Not Bankers

By Dr. David Edward Marcinko; MBA, CMP™

By Hope Rachel Hetico; RN, MHA, CMP™

Collecting accounts receivable (ARs) is one of the most important elements in maintaining the financial health of any medical practice. Your practice is not a bank and an effective billing system should be complemented by an efficient collection system. Accordingly, we often address this issue with our clients, as follows. 

Setting your AR Policy 

An AR collections policy that is too conservative may results in poor collection rates while an aggressive policy may be counterproductive and increase liability. Have collectors call early and often. Waiting encourages patients to pay late. Use the 80/20 rule and concentrate on your biggest accounts first. Get non-performing receivables off the books. Accounts over about 120 day should be turned over to third party agents. Out-sourcing to collection agencies however, varies significantly in terms of quality and results.  Most charge from 20 to 50% of what they collect.

Using Proper Protocol

According to human resources managerial expert, Rachel Pentin-Maki; RN, MHA of our firm www.MedicalBusinessAdvisors.com and John Broderick, an executive staffing consultant from New York, the following protocol should be considered when selecting a collection agency or using in-house personnel:

  • Assertiveness and Analytical Skills: Collectors should be able to break a billing problem into component parts and aggressively pursue each part without being unduly tactless. 
  • Creativeness and Curiosity: Collectors should keep abreast of new computer and software technology and pursue innovative philosophies related to the billing process.
  • Empathy and Communicativeness: Collectors should be able to communicate with both patients and doctors, yet still be able to put themselves in others’ shoes to view problems from each perspective. 
  • Perspective and Stability:  Collectors should be able to see the patients entire economic picture and maintain an emotionally objective and neutral attitude toward the collection process.
  • Integrity and Tenacity: Collectors should have steadfast attitude and still earn the trust of clients, relative and the doctor employer. Collections should be in immediately since waiting. 
  • Salary: An entry level full time office billing collector should be familiar with most States laws regarding the collection process and be paid in the low 30s per annum.  If not, after some time he or she may take their experience and training to another office for considerably more compensation.

About Going to Court

Remember, small claims court is the last avenue for payment. Often a decision has to be made whether to forgive or “write off” a patient’s balance if indemnity insurance coverage is maintained and this decision is best made on an individual basis. Unfortunately, malpractice claims have resulted by pursing past due accounts too aggressively. This is especially true with surgical patients and it is best to pursue payment diplomatically, gently and often forgivingly. Also, think about potentially adverse community public relations.

Assessment

You could be losing money if your medical practice is still using a traditional checking account for its daily cash activities. One-way to make your cash work more effectively is to open a cash management account with a brokerage firm. This will ensure that your practice’s money is earning a much higher rate of interest; even in today’s low interest rate environment.

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Conclusion

Let us know what’s on your mind with a post, opinion or comment on this topic. How do you address the medical AR problem?

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