We’ve previously published several articles in our blog, Practice Elevations, related to the need for adequate internal controls to prevent theft in medical and dental practices.  Because of evidence that theft is increasingly common in small businesses, including professional practices, with the amount of losses also on the rise, we are returning to this subject again this month.

The 2016 report of the Association of Certified Fraud Examiners (ACPE) share reveals some sobering statistics:

• The survey results show that most businesses lose 5% of revenues each year as a result of theft, and much of that loss of revenues is to employees. Lost revenues have a particularly significant impact on the economic success of small businesses, including dental and medical practices.
• The median loss for all cases in the 2016 ACFE report was $150,000, up from $145,000 in the 2014 report. The median loss incurred by small businesses was the same as for largest businesses.
• The most frequent forms of theft involved billing and check tampering schemes.

Medical and dental practices are particularly susceptible to fraud and theft. It is estimated that fraud and theft account for three to 10 percent of total health care costs in the United States.  Why are medical and dental practices particularly susceptible?  In many cases, the practice, due to limited staffing resources and the existence of long-term employees and centralized accounting functions, has not implemented or deemed internal controls to be necessary in the past.

What practice and business circumstances lead most frequently to employee theft?  Here are three elements that are usually present when employees commit theft:

• Pressure – work related pressures or personal finance pressures
• Opportunity – lack of basic accounting and internal controls; prior lack of disciplinary action; misplaced trust of the employer
• Rationalization – the employee believes that the employer owes money to the employee or that the employee is just “borrowing” the money

What are some financial red flags that could indicate possible fraud or theft in your medical or dental practice?

• Increase in accounts receivable
• Decrease in collection ratio
• Increase in accounts payable
• Increase in over-time, but work output remains behind or not current
• Poor accounting records
• Large increase in supply expenses over prior periods
• Patient and payer complaints about recording of payments

What basic internal controls are a must for every medical and dental practice?

• Segregation of job duties
• Mandatory vacations
• Institute employee fidelity bonding, a form of insurance protection

Where are the potential weak spots in your practice that need internal controls and extra attention from practice management?

• Front desk
• Billing and collections
• Accounts payable
• Payroll

Below are basic internal controls for each of the areas that need controls and extra attention from management:

Front desk internal controls:

• Make sure that every patient encounter on the daily schedule has a charge and a payment.
• All payments received must be accounted for in the reconciliation at the end of the day.

Billing and collections internal controls:

• Segregate duties and cross train employees
• Consider a lockbox
• The total receipts in the general ledger (posted from the deposit slip) just agree to the total receipts posted in the billing system daily. If receipts are received at month end, before explanation of benefits, reconcile deferred revenue on a monthly basis so that cash collections in the financials agrees to cash collections in the practice management system.
• Randomly conduct spot checks every few days and routinely review adjustments to ensure there was a valid reason for making them. No charges can be written off without written consent by the manager. Often, just the knowledge that someone may be looking over their shoulder is enough to keep would-be fraudsters in line.
• Determine if the practice management system can block a 100% write-off.
• Monitor contractual adjustments
• Monitor bad debt write-offs

Accounts payable internal controls:

• Throw away all signature stamps!
• Ensure there is a regular check signer in the practice
• Develop a list of approved vendors
• There should be an invoice, stamped “paid” with each check so that the invoice cannot be paid a second time – either accidentally or deliberately, attached to each check. Signer should review each invoice for reasonableness
• Set bank account controls so that transfers can be made only between specified accounts at the same bank and only by authorized individuals
• Bank statements should be opened by an owner or by a manager who has no check writing/signing responsibilities. Review cancelled check payees
• Bank reconciliation should be prepared by someone who has no check writing or billing/collection/deposit responsibilities
• Regular and frequent review of general ledger detail
• Regular and frequent review of practice overhead

Payroll internal controls

• Managers approve payroll hours before submitted for payment
• All overtime must be approved by a manager in advance
• Periodically review year-to-date gross wages for individual employees to ensure that compensation is reasonable

Stockman Kast Ryan + CO can help you take fraud prevention a step further by conducting an external review of internal controls. In addition, an operational audit may be commissioned to help ensure that the practice is enjoying efficient operations while minimizing the risk of fraud loss.

 

Contact our office today to learn more. 

Collections are the lifeblood of any medical or dental practice. But do you really know if you’re doing a good job of collecting receivables? Find out for sure by monitoring these three collections performance indicators:

1. Days in Accounts Receivable

To find out how long it takes to collect a day's worth of gross charges, add up the charges posted for a specific period of time and divide by the total number of days in that period. Then divide the total accounts receivable by the average daily charges. 

For instance, if you have charged $640,000 in the past 12 months, or 365 days, your average daily revenue is $1,753. Then, if your total accounts receivable today are $80,000, the days in accounts receivable is 45.6. That means it is taking an average of 45.6 days to collect your payments. Note that if this number is consistently high — or you notice a jump in the number of days outstanding from one month to the next — it could be sign of problems caused by anything from coding errors and incomplete documentation to claims rejections caused by patient registration errors. 

Recommendation: We recommend that you use a rolling average of 12 months of charges for this computation. The results will vary by specialty and payer mix, but a typical goal for days in accounts receivable is 35 to 40 days.  

Action: Determine how your practice’s days in accounts receivable compares with other practices using a source such as the Medical Group Management Association (MGMA) annual Cost Survey Report or Performance and Practices of Successful Medical Groups Report. 

2. Accounts over 90 days

The practice’s aging report, based on date of entry and NOT ”re-aged,” should be reviewed monthly. Obviously, the longer an account remains unpaid the higher the risk of it becoming uncollectable. So, it’s critical to measure the percent of your accounts receivable in each “aging bucket.” 

Recommendation: We recommend that you review a separate aging report for both insurance and patient receivables monthly, paying particular attention to outlier payers in the insurance aging report to spot any developing trends. Credit balances in accounts receivable should be investigated and manually added back to each aging “bucket” to get a clear picture of accounts receivable aging. An acceptable performance indicator would be to have no more than 15 to 20 percent total accounts receivable in the greater than 90 days category. Yet, the MGMA reports that better-performing practices show much lower percentages, typically in the range of 5 percent to 8 percent, depending on the specialty. 

Action: Consider establishing a target AR range for your practice. For example, you might shoot for having 60 percent of receivables fall into the 0-30 days bucket, 20 percent in 31-60 days, 5 percent each at 61-90 days and 91-120 days, and 10 percent falling over 120 days. 

3. Net Collection Percentage

This is the bottom-line number that reveals how successful you were in collecting the money you are entitled to collect. Add up your total collections and divide by adjusted charges (charges less contractual adjustments) to determine how much you have actually collected. For example, if your practice only collected $50 on a procedure contracted for $75, your net collection rate would be 67 percent (50 divided by 100 minus 25). 

Recommendation: We recommend that you use a rolling average of 12 months of net charges and receipts for this calculation. In general, a net collection percentage of 97 percent or higher will help ensure a healthy bottom line for the practice.

Action: If your net collection rate is lower than this, drill down and calculate the net collection rate by each of your payers to determine if the problem is coming from a particular source. If net collection percentage is consistently down across all of your payers, you’ll know that the problem is internal (e.g. your front-end billing process is resulting in rejected claims). 
 

Contact our office today for help in monitoring your practice’s collection performance.

Collections are the lifeblood of any medical or dental practice. But do you really know if you’re doing a good job of collecting receivables? Find out for sure by monitoring these three collections performance indicators:

1. Days in Accounts Receivable

To find out how long it takes to collect a day's worth of gross charges, add up the charges posted for a specific period of time and divide by the total number of days in that period. Then divide the total accounts receivable by the average daily charges. 

For instance, if you have charged $640,000 in the past 12 months, or 365 days, your average daily revenue is $1,753. Then, if your total accounts receivable today are $80,000, the days in accounts receivable is 45.6. That means it is taking an average of 45.6 days to collect your payments. Note that if this number is consistently high — or you notice a jump in the number of days outstanding from one month to the next — it could be sign of problems caused by anything from coding errors and incomplete documentation to claims rejections caused by patient registration errors. 

Recommendation: We recommend that you use a rolling average of 12 months of charges for this computation. The results will vary by specialty and payer mix, but a typical goal for days in accounts receivable is 35 to 40 days.  

Action: Determine how your practice’s days in accounts receivable compares with other practices using a source such as the Medical Group Management Association (MGMA) annual Cost Survey Report or Performance and Practices of Successful Medical Groups Report. 

2. Accounts over 90 days

The practice’s aging report, based on date of entry and NOT ”re-aged,” should be reviewed monthly. Obviously, the longer an account remains unpaid the higher the risk of it becoming uncollectable. So, it’s critical to measure the percent of your accounts receivable in each “aging bucket.” 

Recommendation: We recommend that you review a separate aging report for both insurance and patient receivables monthly, paying particular attention to outlier payers in the insurance aging report to spot any developing trends. Credit balances in accounts receivable should be investigated and manually added back to each aging “bucket” to get a clear picture of accounts receivable aging. An acceptable performance indicator would be to have no more than 15 to 20 percent total accounts receivable in the greater than 90 days category. Yet, the MGMA reports that better-performing practices show much lower percentages, typically in the range of 5 percent to 8 percent, depending on the specialty. 

Action: Consider establishing a target AR range for your practice. For example, you might shoot for having 60 percent of receivables fall into the 0-30 days bucket, 20 percent in 31-60 days, 5 percent each at 61-90 days and 91-120 days, and 10 percent falling over 120 days. 

3. Net Collection Percentage

This is the bottom-line number that reveals how successful you were in collecting the money you are entitled to collect. Add up your total collections and divide by adjusted charges (charges less contractual adjustments) to determine how much you have actually collected. For example, if your practice only collected $50 on a procedure contracted for $75, your net collection rate would be 67 percent (50 divided by 100 minus 25). 

Recommendation: We recommend that you use a rolling average of 12 months of net charges and receipts for this calculation. In general, a net collection percentage of 97 percent or higher will help ensure a healthy bottom line for the practice.

Action: If your net collection rate is lower than this, drill down and calculate the net collection rate by each of your payers to determine if the problem is coming from a particular source. If net collection percentage is consistently down across all of your payers, you’ll know that the problem is internal (e.g. your front-end billing process is resulting in rejected claims). 
 

Contact our office today for help in monitoring your practice’s collection performance.