Is your independent practice calculating a DSO?

An independent practice is a business that needs to be managed in the most efficient manner to ensure its financial health, so the independent physician can continue caring for its patients’ health. Businesses must be able to budget appropriately, based on their projected income, and knowing when that income will hit the bank is one of the most important aspects of running a financially efficient independent practice. Calculating the Days Sales Outstanding (DSO) is a valuable way to understand the true financial picture of your practice.

Your DSO is “the time frame in the number of days it takes for you to see a patient and get the final payment posted into your billing system.” In other words, the DSO number indicates the amount of time you wait between the patient visit and the posted income from that visit. The lower the number, the healthier your financial situation.

P.J. Cloud-Moulds, writing in Physicians Practice, urges you to calculate the DSO number for your practice, even if you have an outside billing company doing the accounting work for you. The formula is relatively simple: Total A/R divided by Total Charges multiplied by the number of Days in the billing period. An example given by the author is $360,928.51 / $814,665.78 * 30 = 13.29 DSO.

Cloud-Moulds suggests that if the DSO is more than 60, meaning your average payment is posted 60 days or more after you’ve seen your patient, you should review your practice management and initiate some activities within your practice that will help you better track your revenue:

  • Bill out daily or at least weekly
  • Run your DSO on a monthly basis, consistently
  • Run your A/R reports at least every 20-30 days and clean up any outstanding claims
  • If you have a high lien A/R make a plan to follow up with attorneys on a quarterly basis
  • Have a dedicated person following up on unpaid claims
  • Do an annual A/R Review.