Chiropractic Office Billing Performance – Rule-Based Indexing Approach

You’ve got apples and you’ve got oranges, which is fine if you’re making a fruit salad. But if you’re trying to ascertain the relative payment performance of one health insurance company over another, you need all the fruit on the plate to look the same. Because in the chiropractic billing game, even the slightest variation may translate into significant accounts receivable. And to see how this comparative analysis is done, one can look at the indexing models on Wall Street.

The most popular indexing technique on Wall Street is rule-based, where predefined rules select the instruments for inclusion in an index depending on specific parameter values of those instruments at the time of computation. The advantage of rule-driven indexing is that participation is dynamically determined at the time of computation, reflecting the dynamic nature of the entire market. Today’s top-ten list of index performers may not include the same names next week, because some names may drop off or get added to the list. Specific performance of a financial instrument in the index is recomputed every time the index itself is computed, reflecting the dynamic nature of performance relative to the market itself. If an instrument performs well in a strong market, the index takes this into account, since most participants are doing well too. The same is true on the downside – if a financial instrument has poor performance in a down market, the index clarifies that this is not because of some inherent weakness in the company itself, but rather, performance is reflected in context of the entire market environment in which that security trades.

Most large sell-side brokerage firms compute various indices on a daily basis. For example, Lehman Brothers publishes its famous Fixed Income Index using a rule-based computing process that includes both basic characteristics (e.g., trade volume) and advanced risk parameters (e.g., duration and convexity). By comparing the performance of a trader’s investment portfolio to that of an entire index, one can immediately determine if the trader has been successful or is failing relative to the entire market.

A similar indexing approach promises to redefine the Payer-Provider perspective in healthcare, as well. A payer might be considered for inclusion into index computation if total processed volume in the past month exceeded a determined amount (say, $100 million). Participation in the index would be driven by multiple criteria, starting with a necessary minimum threshold of submitted claims and including the all-important Billing Performance Index (BPI – the percentage of accounts receivable beyond 120 days). Payer participation in the index is defined dynamically at the time of computation and not by a static listing of specific payers. Therefore, any specific payer may or may not be included in the index for a given month, depending on that payer’s performance.

For example, in June 2007, Billing Precision’s Chiropractic Billing Performance Index stood at 14.8, almost 3% above the national average of 17.7% (In other words, the average of Billing Precision’s ten top performing Payers have 14.8% of Accounts Receivable beyond 120 days, which is 3% better than the national average). BPI is a key billing performance characteristic, as it is an indicator of claims that are never paid. Obviously, the lower the index, the better the billing performance, but this statistic is only really meaningful when considered in context to the relative performance of other Payers.

So if you’re hungry for a solution to the aging of accounts receivable, take Wall Street’s lead and consider utilizing the power of rule-based indexing to separate the players from the poseurs. Then grab a plate of fruit salad and relax, because with this level of data at your disposal, you’ll know bad apples from good oranges at a glance.

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