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1. What is a Practice Review &
Methods of Benchmarking
Kenneth R. Carr, BA, MS-Law
Vice President
McKesson Practice Consulting Solutions

2. Discussion Agenda
 What is a Practice Review?
 Key Areas Encompassed in a Review
 Assessing the Revenue Cycle Mgmt Process
 Employ Benchmarks to Frame Desired
Outcomes
 Questions
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 2

3. What is a Practice Review?
 A Practice Review (PR) is a comprehensive or
targeted evaluation of key operating assets and
processes of a practice. It is a valuable
management tool, applied to:
─ Accompany the annual budget process
─ Identify, isolate and document practice process
weaknesses
─ Leverage technology and operating methods
─ Outline specific actions required for improvement
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 3

4. Some Drivers of a Practice Review?
Annual Planning Declining Collection
Change in Ownership
Exercise Performance
Desire to change Material Change in Addition of New
technology platform Payor Mix Provider Groups
Managed Care Contract Process bottlenecks Patient
Assistance and delays loss/dissatisfaction
Consistently missing
Key personnel
Rising operating costs established
departures or additions
benchmarks
Lack of operating
Group mergers Bolt on technology
clarity and planning
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 4

5. Typical Practice Review Areas
 Clinical Processes
─ Patient flow, data flow, coding
 Practice Management
─ P&L, compensation, managed care contracts
 Information Technology (IT)
─ Proper use, “black holes”, automation
 Revenue Management Process
─ Resources, Gap analysis, cash maximization
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 5

6. Key Area – Revenue Cycle Management
(RCM) Review
 Framework of an RCM Review:
─ Cost of billing -
• Understand staff, IT & related fixed and variable costs
─ Billing performance
• Determine current operating performance/key metrics
 Review detail of key inputs – charges, payments,
adjustments and AR
 Understand apparent negative & positive trends and
underlying causation
─ Compare internal and external benchmarks &
develop gap analysis
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 6

7. Step 1 – Understand Current Operating
Trends
 Understand trends and variances - drilling down
on key AR metrics:
─ Volume (CPT/Patient) trending, Fee schedule
─ Charges, Adjustments, Payments & AR $ trending
─ AR Aging & AR Days by Payor Category
─ Bad debt & recovery
─ Credit balances
 Summarize and illustrate trend data for broader
investigation
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 7

8. Practice Review - AR Executive Summary
Example Practice
Executive Summary Trend Report - April 2009 to July 2010 Month Reported Jul-10
Key AR Related Trends - Amounts represent AR transactions Posted to Billing System during each fiscal month. Months in Period 16 Practice Consulting Solutions
Period Period
Key Indicator Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Totals Averages
Practice Charges
Gross Charges 1,147,975 1,811,187 2,214,028 1,110,292 2,261,383 1,608,775 2,101,416 1,913,535 1,841,929 1,428,826 1,604,456 1,994,032 1,733,286 1,325,406 1,612,155 1,440,129 27,148,810 1,696,801
Other 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Gross Charges 1,147,975 1,811,187 2,214,028 1,110,292 2,261,383 1,608,775 2,101,416 1,913,535 1,841,929 1,428,826 1,604,456 1,994,032 1,733,286 1,325,406 1,612,155 1,440,129 27,148,810 1,696,801
Adjustments
Write-Offs 750,323 896,645 1,088,467 990,735 1,049,551 1,131,861 1,046,135 1,238,072 859,433 1,109,004 1,078,101 1,124,090 1,057,799 848,291 793,872 1,019,613 16,081,992 1,005,124
Total Adjustments 750,323 896,645 1,088,467 990,735 1,049,551 1,131,861 1,046,135 1,238,072 859,433 1,109,004 1,078,101 1,124,090 1,057,799 848,291 793,872 1,019,613 16,081,992 1,005,124
Net Charges 397,652 914,542 1,125,561 119,557 1,211,832 476,914 1,055,281 675,463 982,496 319,822 526,355 869,942 675,487 477,115 818,283 420,516 11,066,819 691,676
Net Payments 567,640 545,203 731,605 683,095 713,972 803,936 665,942 844,559 545,636 773,509 628,772 773,623 680,283 560,827 556,225 643,111 10,717,938 669,871
Net Payment % 142.7% 59.6% 65.0% 571.4% 58.9% 168.6% 63.1% 125.0% 55.5% 241.9% 119.5% 88.9% 100.7% 117.5% 68.0% 152.9% 96.8% 96.8%
Procedures 11,389 17,382 21,419 10,757 21,091 15,627 15,092 18,928 18,164 14,117 15,874 19,103 16,962 12,959 15,417 13,888 258,169 16,136
Avg. Chg/Visit $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 na
Avg. Chg/Procedure $100.8 $104.2 $103.4 $103.2 $107.2 $102.9 $139.2 $101.1 $101.4 $101.2 $101.1 $104.4 $102.2 $102.3 $104.6 $103.7 $105.2 na
Avg. Pmt/Visit $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 na
Avg. Pmt/Procedure $49.8 $31.4 $34.2 $63.5 $33.9 $51.4 $44.1 $44.6 $30.0 $54.8 $39.6 $40.5 $40.1 $43.3 $36.1 $46.3 $41.5 na
AR Balance 1,648,649 2,021,456 2,394,719 1,833,462 2,331,806 2,004,908 2,418,320 2,249,224 2,690,076 2,236,389 2,136,730 2,233,049 2,228,253 2,144,541 2,406,569 2,188,223 NA 2,174,414
AR Days 34.4 38.5 42.1 32.5 38.0 36.6 36.9 36.4 41.8 39.3 39.9 40.4 38.0 38.6 46.9 45.5 na na
Charge Entry Target 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,900,000 1,800,000 1,700,000 1,700,000 na na
Cash Collection Target 740,000 740,000 740,000 740,000 740,000 740,000 740,000 740,000 740,000 740,000 740,000 740,000 740,000 700,200 661,300 661,300 na na
Bad Debt 32,986 102,183 72,120 27,632 86,249 21,213 93,977 34,050 88,189 82,588 229,295 76,061 73,044 41,788 115,450 91,864 1,268,689 78,455
BD % of Charges 2.9% 5.6% 3.3% 2.5% 3.8% 1.3% 4.5% 1.8% 4.8% 5.8% 14.3% 3.8% 4.2% 3.2% 7.2% 6.4% 4.7%
Analysis of AR Data
Net AR Days Target 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0
Act vs. Target AR Days -0.6 3.5 7.1 -2.5 3.0 1.6 1.9 1.4 6.8 4.3 4.9 5.4 3.0 3.6 11.9 10.5
Avg. Daily Charge (ADC) 47,959 52,539 56,848 56,434 61,381 54,730 65,622 61,799 64,361 56,970 53,574 55,245 58,591 55,524 51,328 48,106
Target AR $$ 1,678,553 1,838,869 1,989,688 1,975,195 2,148,347 1,915,558 2,296,759 2,162,972 2,252,646 1,993,958 1,875,081 1,933,582 2,050,682 1,943,355 1,796,480 1,683,727
Intentionally Blank
Est. Excess AR $$ 0 182,587 405,031 0 183,459 89,350 121,561 86,252 437,430 242,431 261,649 299,467 177,571 201,186 610,089 504,497
Est. Unrealized Adj. 0 108,158 239,926 0 108,674 52,928 72,008 51,093 259,118 143,608 154,991 177,393 105,187 119,175 361,395 298,846
Est. Unrealized Cash 0 65,896 146,177 0 66,211 32,247 43,872 31,129 157,870 87,495 94,430 108,079 64,086 72,609 220,184 182,075
Net Bad Debt/Other 0 8,532 18,927 0 8,573 4,175 5,681 4,031 20,441 11,329 12,227 13,994 8,298 9,402 28,510 23,576
Example Practice Charges, Payments & Adjustments Example Practice AR Trends
$2,500,000 $3,000,000 50.0
45.0
$2,000,000
$2,500,000 40.0
35.0
$2,000,000
$1,500,000 30.0
$1,500,000 25.0
$1,000,000 20.0
$1,000,000 15.0
$500,000 10.0
$500,000
5.0
$0 $0 0.0
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Net Pmts Gross Charges Adjustments Accounts Receivable AR Days AR Days Tgt
Gross Charge Target Cash Target
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 8

9. Step 2 – Begin Process Review
 Management discussion as to how the process
is “supposed” to work
 Walk the process and compare actual-to-
expected processes and note variance
 Document and evaluate interdependencies
 Compare budgets to actual performance
 Profile largest payers for targeted analysis
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 9

10. Step 3 – Determine Max Collection Value
of Largest Payors
 CPT volume for Payor x Contracted Allowable =
Maximum Allowable $ & Gross Collect Rate
(GCR)
 Compare GCR to actual for same to determine
“Gap” between data (add patient responsibility)
 Using compiled analytical tools, determine specific
areas of possible cause (e.g. lack of resources,
incomplete process, over adjustments)
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 10

11. Step 3 (cont.) Profile Largest Payors
Payer Mix % of Gross Charges
Period Period
Insurance Payers Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10
Totals Average
Medicare 42% 43% 45% 43% 45% 42% 43% 44% 41% 42% 43% 43% 42% 43% na
BCBS 25% 26% 26% 26% 26% 27% 28% 27% 28% 27% 26% 27% 26% 27% na
Patient 7% 7% 7% 8% 6% 7% 6% 7% 9% 8% 9% 9% 9% 8% na
Medicaid 5% 4% 3% 4% 4% 4% 4% 4% 3% 4% 4% 3% 4% 4% na
Mercy Hlth 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% na
PHS 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% na
Benefit Mgmt 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% na
United Hlth 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% na
Wis Phys Svc 1% 1% 1% 1% 1% 1% 1% 1% 1% 2% 1% 1% 1% 1% na
Work Comp 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% na
Example Practice Gross Charges by Payer by Quarter
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
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Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 11

12. Step 4 – Develop Report of Findings
Key Area Findings Recommendations
Staff High turnover, lack of Specific goals, training
system knowledge, lack and oversight to
of clear goals implement changes
Front End Coding behind 20 days, Understand cause of
entry behind 30 days, no lags and apply remedy,
productivity tracking develop tracking
Back End No outbound patient Reallocate and train staff
calls, correspondence to payor mix, add
behind 3 weeks, no variable staff, utilize
denial tracking denial tracking
Credit Balances 7 days of average daily Need to assess
charges compliance risk and
resolve
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 12

13. Step 4 (cont.) Convert
Recommendations into Action
Table 1 – Operational Actions and Recommendations for AR Improvement
Potential Short Term Action Long Term Action
Operational Area Issue or Condition Implication (90­days) (Beyond 90­days)
Operating Plan Lack of overall Scattered or Develop plan Utilize feedback loop
action plan, in temporary fix or outline for to drive system,
writing with effort to bring corrective action, process and
prioritized overall AR into identify resources employee training
impacts desired and engage and improvement and to
performance manage to plan. reestablish both
range. Foster focused operational priorities
feedback loop to and sense of urgency.
correct broken or Allocate or reallocate
poor processes. resources as
required.
Relevant Lack of directed Improper Provide all AR Monitor data in
Management and relevant allocation of operational conjunction with
Reporting information for AR resources and leadership with Operating Plan to
leadership team confusion as to current status of ensure that proper
which problem their portfolios to AR drivers are being
to tackle first include baseline, prioritized and
education of the improved as outlined
data, desired in the plan.
performance and
how to get there
Management & Lack of direction Continued drift AR mgmt must Use of focused
Supervision from Senior Mgmt of the AR understand the metrics and operating
– Lack of resources without focus direction and committees among
and plan and on problems. participate in the departments to
inability to Employees not plan development ensure that all drivers
manage current focused and and deployment. of AR are performing
state of operations performing Articulate plan and within desired range.
below expectations to More frequent
expectation staff and begin interactions with staff
weekly meetings to to include staff
monitor plan removal and
progress and accountability.
acknowledge
outstanding
achievement
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 13

14. Decision Framework for Benchmarking –
Is the metric…
Material? Immaterial?
In Your Control? Out of Your Control?
Within the Billing System? Outside the Billing System?
Easily Measurable? Interdependent?
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 14

15. Step 5 - Employ Benchmarks to Frame
Desired Outcomes
Example Practice Target NCR = 96%+
Summary Analysis of AR Liquidation
Credit Est Pmt Var
Ratio to Target Actual vs. Target AR Bal % Net Actual
Entry Month CHARGES PAYMENTS CREDITS DEBITS Pmts GCR% GCR% GCR Remain Remain NCR Months
$ -
Mar-07 $ 11,016,195 $ 2,690,558 $ 8,233,513 $ 30,830 3.06 24.9% 24.4% $ (52,475) $ 61,294 2.2% 95.6% 15
Apr-07 $ 10,555,269 $ 2,562,916 $ 7,958,157 $ 24,927 3.11 24.9% 24.3% $ (65,346) $ 9,269 0.4% 97.7% 14
May-07 $ 11,926,788 $ 2,932,570 $ 8,921,926 $ 35,746 3.04 24.9% 24.6% $ (37,200) $ 36,546 1.2% 96.4% 13
Jun-07 $ 10,454,725 $ 2,582,513 $ 7,799,714 $ 36,060 3.02 24.9% 24.7% $ (20,714) $ 36,438 1.4% 96.0% 12
Jul-07 $ 10,337,201 $ 2,564,429 $ 7,675,129 $ 67,087 2.99 24.9% 24.8% $ (9,534) $ 30,556 1.1% 94.0% 11
Aug-07 $ 11,591,723 $ 2,789,362 $ 8,612,374 $ 53,020 3.09 24.9% 24.1% $ (96,977) $ 136,967 4.5% 92.0% 10
Sep-07 $ 9,346,788 $ 2,250,387 $ 6,918,975 $ 37,254 3.07 24.9% 24.1% $ (76,963) $ 140,172 5.7% 91.3% 9
Oct-07 $ 10,850,426 $ 2,640,264 $ 7,926,028 $ 40,074 3.00 24.9% 24.3% $ (61,492) $ 244,060 8.2% 89.1% 8
Nov-07 $ 8,399,080 $ 2,005,174 $ 6,121,564 $ 31,173 3.05 24.9% 23.9% $ (86,197) $ 241,169 10.4% 86.9% 7
Dec-07 $ 9,148,245 $ 2,147,836 $ 6,676,504 $ 16,685 3.11 24.9% 23.5% $ (130,077) $ 307,220 12.3% 86.3% 6
Jan-08 $ 11,862,366 $ 2,674,148 $ 8,505,943 $ 25,876 3.18 24.0% 22.5% $ (172,820) $ 656,399 19.4% 79.1% 5
Feb-08 $ 10,952,509 $ 2,279,059 $ 7,805,652 $ 16,454 3.42 24.0% 20.8% $ (349,543) $ 851,344 26.9% 72.0% 4
Mar-08 $ 9,511,304 $ 1,942,975 $ 6,416,205 $ 7,588 3.30 24.0% 20.4% $ (339,738) $ 1,144,536 36.9% 62.6% 3
Apr-08 $ 11,333,020 $ 1,925,826 $ 6,413,569 $ 9,039 3.33 24.0% 17.0% $ (794,099) $ 2,984,586 60.6% 39.1% 2
May-08 $ 9,189,917 $ 547,613 $ 1,969,646 $ 67 3.60 24.0% 6.0% $ (1,657,967) $ 6,672,591 92.4% 7.6% 1
Totals $ 156,475,556 $ 34,535,630 $ 107,954,899 $ 431,880 $ (3,951,141) $ 13,553,147
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 15

16. Benchmarking – Some Key RCM Metrics,
Process & Performance
Staff Charges Payments Adjusts AR
Attendance All Visits Captured at Absolute $ Acct
Captured Service Write-offs Throughput
Productivity Coding Lag-to-Entry Quality/ Aging > 90,
Denials 120
Feedback System System System Self Pay
Entry Entry Entry
Quality EDI Net Collect Error AR Days
Transmitted Rate Reporting
Training Gross Credit Bad Debt Appeals/
Collect Rate Balances Denials
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 16

17. Develop “Ranges” within Benchmarks
 AR and process are dynamic and will fluctuate
 Overall goal is to achieve consistency of
throughput while minimizing variation to targets
 Once plan framework is in place, establish
benchmark “ranges”, e.g.:
─ AR Day Benchmark Range 35-40
─ Gross Collect % Range 45-48%
 Sensitivity Based on Size of Impact
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 17

18. Communicate & Monitor Expected
Performance Ranges
 All stakeholder and process resources must
understand the benchmarks and their role in
attainment and be held accountable
 Publish relevant data to stakeholders and
investigate one-time or continuing variances
 Develop contingency plans for correction should
any material benchmark stray from the range
 Periodic review of assumptions for clarity
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 18

19. Some Final Thoughts
 Physician revenue cycle management will continue
to have complexity, cost increase pressure and
reimbursement reduction pressure
 Best practices for optimizing the transfer of clinical services
into ca$h will become even more important
 Resources / methodologies are available to help navigate
these challenges, minimize their impact and position
practices for optimal profitability
Copyright © 2010 McKesson Corporation and/or one of its subsidiaries. All Rights Reserved. The material is not intended to constitute legal, accounting,
financial, investment or other professional advice. Any business decisions should be made in consultation with your legal, professional and/or accounting advisors. 19