Sell a Medical Practice with 5 metrics
Selling a medical practice is not much different to selling any sort of business; it requires a willing seller and a willing buyer.
One of the best ways to motivate a willing buyer when you are selling a medical practice is to present the practice strongly with its current performance so the buyer thinks that if they continue what the current owner has been doing, they too can be successful.
There are many metrics a buyer will review as they move through their decision making process.
Here are 5 different metrics that are worth measuring and managing while you own and operate your practice so it makes it stronger.
Sell a medical practice with 5 metrics
If these numbers present well, highlight them to a potential buyer as a way to motivate them to buy your practice instead of buying another practice or going to work in a hospital and skip the whole idea of owning and operating their own practice.
1. First Pass Resolution Rate
The First Pass Resolution Rate is a metric that measures the rate by percentage that the medical practice claims of the practice are paid on first submission. Health Insurance companies love to reject a claim so they can hold onto their money longer.
To make this calculation it is fairly simple. Take the Total Number of Claims Paid and divide by Total Number of Claims Submitted for a period of time, for example, one month. To drill down further, consider doing this same calculation for the top five Health Insurance companies that you submit claims to see if one or more of the Health Insurance companies are too hard to work with.
A best practice for First Pass Resolution Rate is 90% or higher.
2. Days in Accounts Receivable
Days in Accounts Receivable shows the average number of days it takes for the practice to be paid. The lower the number the better.
There are different ways to make this calculation. A simple one is the Total Current Receivables less Credits divided by the Average Daily Gross Charge Amount.
A best practice would be for the Accounts Receivable to stay below 50 days while it would be preferable to have it in the 30 to 40 days range. After all you are running a medical practice and not a bank.
3. Percentage of Accounts Receivable > than 120 days
Accounts Receivables are generally grouped into 30 days, 60 days, 90 days and 120 days. Once they hit 120 days it simply stays in that bucket until its paid or written off. The more money in the 120 days bucket the worse it is for the practice.
This calculation is very simple. Take the Total Dollar Value of Accounts Receivables that are in the bucket for Greater than 120 days and divide by the dollar amount of the Total Value of Accounts Receivables.
A best practice would be for the Percentage of Accounts Receivable > than 120 days to be less than 25%. The lower the number the better.
4. Net Collection Rate
The Net Collection Rate may also be called the “Adjusted Collection Rate” and its purpose is to measure the amount of revenue the practice expects versus what it actually receives. The higher the number the better.
The calculation is a little messy. It’s (Payments-Credits) divided by (Charges-Contractual Adjustments.)
There are many reasons why a patient or claim may not be paid. There are things you can control and things outside your control. This is the purpose of the Net Collection Rate as it helps identify that number and encourage more research about how to raise or improve it.
A best practice for the Net Collection Rate would be 95% or greater.
5. Average Reimbursement Per Encounter
The Average Reimbursement Per Encounter shows the average amount the practice collects per patient encounter. It’s pretty simple.
The calculation is also fairly simple. It’s the Total Reimbursement divided by the Number of Encounters in a Given Time period.
There is no best practice number as it varies with the medical specialty. The goal is to make the number as high as possible.
Are you thinking about selling your medical practice and move to the next phase in your life? Would you like to know the value of your practice? If you would like more information please visit my website Sell a Medical Practice.
For more immediate, give us a try with an email to Andrew Rogerson or give me a call on 916 570-2674.