Knowing Your Starting Line

So many businesses we’ve worked with and talk to over the years have a strong vision for where they’re going. They have purpose, they have passion, and even have a plan when it comes to achieving their goal. However, some of these companies’ biggest challenges is knowing their starting line.

Those of us who have owned and operated businesses know the ins and outs of cash flow management, economies of scale, cost-controls, efficiency, and so-on. But how many of us really understand how sustainable profits are truly driven when it comes to doing what we do? Do we really know our “starting line”? That is, do we know what our products or services are actually worth? Do we know what it should cost to deliver our goods or services? Are we able to collect what we are worth, and are we able to in turn measure our costs against that baseline?

I was involved in a case recently with a healthcare company with a tremendous growth trajectory, strong contacts and powerful branding, and a firm grasp on their clinical model that offered competitive advantages over the status quo in the marketplace. This company was using a third party billing and collections service to file and collect on the insurance claims for their services— a common and often necessary practice for young and growing healthcare providers who need to focus on patient care and operations rather than the often mundane and tedious minutia of billing and collections. The problem in this healthcare company’s particular case, though, is that they had chosen a billing and collections service partner who neither understood the unique nuances of the company’s business, nor really took an ownership when it came to maximizing those collections and top-line management. As a result, the healthcare company had been unknowingly losing huge sums of revenue and subsequent cash collections on the table for years, falling short of achieving the full value of their service.

The unnamed billing service in question used “industry standards” to basically batch-bill and code the claims, reporting aggregated gross charges with an estimated achievable collection percentage, which the healthcare company would then report as their projected revenue periodically. Any differences between collections and originally reported revenues were just reported as adjustments on subsequent financial reports. The practice is quite common in many healthcare sub-sectors, and extremely common among third party billing services with a “one-size-fits-all”, “industry-standard” approach.

The problem is, as I noted earlier, this healthcare company in focus was not among the “industry standard”. They had a particularly un-standard patient mix, with un-standard insurance situations and un-standard case mix adjusters. Their patient cases too often included criteria that were outliers vs. the aggregated “industry standard”. As a result, the billing service was missing precious opportunities for upcharges and special case-specific add-on payments that were available. That subsequently led to a general under-valuation of the healthcare company’s top line.

Companies need to understand the value in the marketplace for what they provide. And they need to be able to understand the true costs of what they provide. And understanding is only half the battle. After firmly grasping the value and costs of the operation, there needs to be a constant measuring of performance against those standards. What should we actually be collecting on our claims versus what are we collecting? Can we verify specifically down to the single claim level? And what should it be costing us in labor, overhead, and input costs, vs. what we are actually paying? This is the starting line. This healthcare company needed to better understand the true value of what they could charge for their services (and they are now making the necessary adjustments to ensure that they do). It makes me wonder how many more of these opportunities are out there, just waiting to find their starting line.

Without knowing your starting line, there is no way to ever know how far you are from the finish line. Without a starting line, you don’t even know if you’re running in the right direction, if you’re wearing the right footwear for the distance required, dressed appropriately for the terrain, and so-on. The metaphors are endless. And so is the race… unless you’ve firmly established your starting line.