Must Have Financial Ratios
or
What You Don't Know WILL Hurt You!
You cannot manage what you cannot measure and it’s very important to measure where a
practice stands financially so that you can be more effective at collecting insurance money. If you
don’t know how to measure your success, then you can never determine what’s happening with
the money nor implement goals to improve productivity.
You can’t make changes and improve performance until you have
accurate, relevant measures to analyze.
The financial ratios below will allow you to analyze your practice(s). We give a brief description of
each and describe how the ratio may be useful to a practice.
Quick Analysis
Look at:
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The percentage of claims submitted within the last 30 days that were delayed
The percentage of claims submitted within the last 30 days that were denied on the
first submission
The reasons most frequently given by payers for the delays and denials
A quick review can alert you to new trends or changes in your A/R.
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Is the total A/R within normal limits? ( months total gross charges)
Possible causes include inadequate financial policies and collection procedures, inadequate
Staffing, poor training or a lack of accountability among the collection staff or billing service

Do your payers consistently account for about the same percentage of your aged
A/R?
If A/R by payer classification changes markedly, this may indicate that an insurer hasn't been
receiving your claims or is delaying payment because of internal problems or other reasons

Is your contractual adjustments ratio stable?
If insurance contracts generally pay 75% of Doctor Charges, you should expect contractual
adjustments to be about 25% each month. Examine the write-offs staff members make. Don’t
assume carriers paid claims correctly. Look for inappropriate write-offs of what patients owe.
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Is Net Cash Flow at least 9%?
Is less than 0 percent of your total A/R aged 120 days or more?
If not, you should be setting new collection goals and working harder to collect insurance money

Is your aged A/R distributed evenly among the physicians in your group?
If not, this could be indicative of a collection problem or a productivity problem. If one physician
has an especially large increase in his or her A/R, you should determine which insurance plans
are represented and take immediate action.
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Is more than 20% of the A/R over 120 days old?
If so, this is a good indication that billing staff is not working as hard as they should be or could
be, OR carriers are delaying your claims. Either way, you have to figure out what the problem is.
When A/R analysis uncovers problems, you should set new monthly goals for improvement. Keep
establishing new goals, always setting your sights a little higher, until your A/R performance is
stellar. With LQVXUDQFHFDUULHUV reducing reimbursements, the burden is on you to ensure that you get
paid what is due you in a timely manner.
Benchmarking
It’s important to establish benchmarks so that you can set reasonable goals and then analyze and
compare new data against old data. It’s important to benchmark monthly, quarterly, annually and
as needed.
Gross Collections Ratio
This basic ratio shows what is actually collected v. what is billed.
Total Collections divided by Total Charges
Compare this ratio to Net Collections to get an idea if fees are too high or too low
Net Collections Ratio
Total Collected divided by Adjusted Charges
Adjusted Charges = Total Charges minus write-offs and adjustments
Know your payment rights well enough to post only acknowledge disallowances and dispute all
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Percent of Total A/R Over 120 Days
Total A/R over 120 days divided by Total A/R
Total A/R over 120 days should be less than 3 months of Gross Charges and less than 20%.
*Median was 17.7% in 20 according to MGMA Survey%HVW3UDFWLFHVDUHXQGHU
Net Cash Flow
Another way to more accurately determine cash flow, which removes write offs from the equation:
Total Payments divided by Adjusted Charges multiplied by 100%)
Try to achieve 9% or higher. While 80% might sound good, that means you’re adding 20% of
potential income to total outstanding A/R each month. If that 20% represents only $10K, you
would add $120,000 to A/R in one year.
Turn Around Time (or Accounts Receivable Ratio)
Total A/R divided by Adjusted Charges, multiplied by 30 days
Average turn-around time is 60 days or less for most practices. If turn-around time is more than
60 days, look at denials and reasons for denials, internal billing errors, and other key factors that
affect turn around time.
Another way to get a quick analysis of Days in A/R:
Outstanding A/R divided by Average Adjusted Charges per day
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Adjusted Revenue per Day
Total Charges (last 3 month) minus Total Adjustments (last 3 months) divided by Number
of Business Days (last 3 months)
Compare to your daily charges to see if your revenue is above or below average. It shows how
busy a practice is. Investigate reasons behind significant variance.
Average Revenue per Patient
Total Monthly Collections divided by Total Monthly Patient Visits
This is a quick figure to use in forecasting future income. Obviously, revenue is tied to average
costs per patient.
Percent of Aging by Days Benchmark
50
45
40
35
30
25
20
15
10
5
0
Outstanding
A/R By Aging
0-30 31-60 61-90
91- > 120
120 Days
Payer Mix Ratio
Compare each plan to show how each individual plan contributes to the overall income to the
practice. Knowing this ratio will help you work better on plans that make you the most money and
it could help you determine which plans to weed out.
Individual Payer Receipts divided by Total Receipts
You can also calculate a similar payer ratio using this method:
Individual Payer Adjusted Charges divided by Total Receipts
This ratio will tell you what you should receive from the payer. Notice that we replaced receipts
with adjusted charges. If what you collect differs greatly from what you should collect, this could
be indicative of a problem with collections or the payer.
Contractual Adjustment Ratio
Total Contractual Adjustments divided by Total Charges
This ratio demonstrates how much the insurance plan is discounting the practice fees by. Figure
this for all plans.
Voluntary Adjustment Ratio
Total Voluntary Adjustments divided by Total Charges
This ratio shows how much a practice is voluntarily discounting fees by. This is an important
number for medical billers because your income is being discounted by voluntary write offs, too.
Bad Debt Adjustment Ratio
Total Bad Debt Adjustments divided by Total Charges
This ratio demonstrates how much of what patients and plans owe is being written off as
uncollectible.
Overhead Ratio
Total Overhead (operating expenses minus provider compensation and benefits) divided
by Total Collections
Unless practice costs are reduced, volume increased accordingly or costs shifted to someone
else, revenue will come out of the doctor's pocket.
Accounts Receivable per FTE (Full Time Equivalent) Physician
Outstanding A/R divided by Number of FTE Physicians in the Practice
This ratio the average amount owed for each physician’s work. Totaling receivables for each
physician and comparing that amount with the Group’s average could be indicative of potential
coding problems or a problem in keeping up with everyday paperwork within the practice.
Staff Ratio
Calculate non-physician practitioner consistently when using the ratio. You can consider them as
employees, making them part of the equation:
Total FTE Employees divided by Total FTE Providers
A practice should look at:
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gross practice income, expenses and doctor compensation
performance compared to previous years
charges to collections
collections as a percentage of charges
charges, collections and contractual or write-off adjustments
analysis of net revenue received compared to previous years
in order to stay lean.
Typically if physician compensation is below average, it is attributable to too low practice income
or high overhead. You need to ask one question. Are all the collections flowing through the
pipeline? There are a couple of reasons why they may not be. First, cash gets stuck in the
conduit. Remember, the practice is a conduit. Get the cash through the pipeline and into the
doctor’s pocket as soon as possible. The other reason may be employee theft.
Establishing benchmarks and analyzing where the practice stands financially is crucial to
collecting more money!
For More Information Contact:
800.256.4004
www.PatientAccountServices.com
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