An Important Financial Metric Your Practice Should Track

Today, I want to talk about DSO (Days Sales Outstanding).  This is the time frame in number of days it takes for you to see a patient and get the final payment posted into your billing system.

Do you know what your average DSO is?  Do you know why it's important to know this?  Do you know how to calculate it?

Let's start with knowing the number.  If you have billing software that can calculate this out for you, great!  Half of the work is done.  If you don't see it and have a third-party billing company, it is well within your right to ask this question. 

Why is it so important to know this number?  It's the overall health of your company's A/R. This determines cash flow, which helps you budget and plan.  If you are like most private practices, every penny counts and knowing you will be able to function as a business is very important.  Your employees depend upon you for their paycheck.  If you are one of those providers or administrators that "sort of guesses," you are playing with fire.

I work with a provider whose DSO is 14-17 days.  This is really, really healthy and they thrive knowing that their inflow will be consistent and always available as a resource.  This number includes liens that are one-to-three years old, so there really isn't an excuse for a high DSO.  It's all about follow up.  There are many providers who work off of a 90-day DSO.  I'm quite perplexed how they stay in business.  Most of them trust others with their outstanding A/R and think this is "normal."  It could very well be industry standard, but do you want to skip along just getting by, or do you want to thrive in this industry?

It's your choice, but I highly recommend you start by calculating your DSO yourself and see what you get.  Remember the higher your DSO, the more working capital you have to cough up to manage your business.  Here's the formula:

TOTAL A/R / TOTAL CHARGES * DAYS            

For EXAMPLE:

$360,928.51 / $814,665.78 * 30 = 13.29 DSO

So I took the total A/R and divided that by the total charges and multiplied that by the 30 days I used to get the charges.  So you have your DSO, now what?  Well, if it's over 60 days, you have some work to do.  Here are some areas you can look at to clean this up quickly:

• Bill out daily or at least weekly.  If you are sending claims out monthly, you are skating a fine line.  If the claim is sent out 30 days after the patient is seen, you've already increased your DSO by 30-days.  If you get a delay or denial, the DSO is only going to increase.  Check with your billing department to find out just how often claims get sent out.
• Run your DSO on a monthly basis, consistently.  This way, as you start to clean up areas, you will be able to see the results of your efforts.
• Run your A/R reports at least every 20-30 days and clean up any outstanding claims.  You should be able to follow up on claims at the very least every 30 days.  Most payers have a timeframe that they are required to pay in per contract.  Know those number of days and make a note to follow up on any unpaid claims after that date.
• If you have a high lien A/R make a plan to follow up with attorneys on a quarterly basis.  You'll find that some clients are no longer with the firm, they've been paid all of their money and were supposed to pay you (and never did), or the attorney lost the case.  In any of these situations, you are able to go directly to the patient for payment.
• Have a dedicated person following up on unpaid claims.  Payers have a tendency to "drop" claims that are batched with hundreds of others.  Following up on one or two dates of service may seem like its not cost effective, but not following up with these allows payers to keep what is rightfully yours.
• Do an annual A/R Review.  Yes, the WHOLE A/R.  Review each patient account, decide if it is still worth attempting to collect.  If it is not, you will have to make the necessary adjustments to remove it from your A/R.  Leaving it on there is not going to serve you in any way.

DSO is one metric that is critical for you to know, and takes very little time to calculate.  It will certainly provide you with the necessary insight to make small changes within your organization that will make a huge impact.