The Path to Greater Value, Part 02: Charge Capture
Paul continues his series on maintaining value in a down market with a look at charge capture, and how to approach therapists through skilled clinical care rather than volume targets to raise EBITDA.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of Paul Martin's guide to finishing well and the Martin rehab M&A advisory. Today we are going to continue in our series and this series we are calling how to maintain value in a down market. And in all of these episodes, the focus is driving EPIDOT increases, earnings before interest, taxes, depreciation, amortization, driving that cash flow up. And today we're going to focus on something that we call charge capture. You know, we've been talking that there is some bad news out there.
The bad news is the economy is struggling. Multiples are down. But what I'm here to tell you today is that we have good news. And the good news is that there are still 20 plus very aggressive solid acquirers in the industry. And the other good news is that you can increase your EPIDA. You can lower your risk which will drive significant value at or above where you may have been had you sold in 21 or 22. Even though the multiples are slightly down, you can still have the same or even greater value.
And that's what we're talking about in this series. So where do you start? H how do you know where what you're capable of in terms of where you can drive that EBITDA up? Well, we get a performance baseline and that performance baseline is compared to high performing companies in this industry as well as in similar settings to you. Size, geography, the patient type, payers. So that's how we're giving you a starting point and then from that we're able to assess how far can you take your company.
Where can you get value? So you can see the end before you start at the beginning. You can see the IPA and the value that you're driving towards from the start. And a big piece of that again is driving that IBITA, that cash flow up. And the most common areas for this significant improvement and opportunities for this improvement are charge capture, professional staff productivity levels, patient duration of care, and also referral generation. We talked about how charge capture, staffing productivity, patient duration of care are proforma changes.
That means once you make those changes, it's in a proforma moving forward. It stays with you. Referral generation is a change over time making improvements and increases in your numbers of referrals. So what I want to talk about today are some of the basics of charge capture. What do we mean when we talk about charge capture? Well, what we're talking about there is what are the units that are being built for the care that your professionals are providing. And what I want to talk about today is not some of the specifics of those and how you rebuild those, but what I want to talk about is the approach.
How do we approach our therapists with making these types of changes? Because I can tell you right now, if we approach our therapists that we would like to improve our charge capture in order to drive our EPIDA, you're going to lose them at drive. You're going to lose them. So, we really have to go back to the basics of really what charge capture is in order for this to actually sink in and become a part of what your therapist will be willing to do in the future.
Therapists believe that they have a lot of autonomy on what services they provide to patients as well as what they bill for. And so we can't go to them with just driving volumes and improving metrics which will drive EBITDA. We really have to talk about things that they care about. Well, I believe that charge capture starts with skilled clinical care. And when we talk about skilled clinical care, the first thing we need to talk about is what is at the center of our care? It's the patient.
So, what does the patient need? And what are we trained to provide? And this is the big question. Are we as professionals, as therapists, in many cases doctors, are we recording and billing for those skilled services that our patients need and that we as therapists are trained to provide. So, this doesn't start with how many units they're billing or what units are they billing for. It starts with clinical care. Best practices. And I can tell you 100,000% that if you go to your therapist talking about improving volumes in order to improve cash flow, that is not going to resonate with them.
Now as we look at charge capture, what we need to do is really create very realistic targets based on the patient case load, which is what do the majority of our patients in our practice need? What do they require to show phenomenal outcomes? And as we look at many therapists across the country, some of the biggest culprits in terms of what they will charge for number one 97110 good old therapeutic exercise. That is the most goto code for many therapists. Why? It's less expensive. It doesn't charge the patient and the insurance company as much as some of the other codes.
But therapeutic exercise does not involve very much skill at all. In fact, little to none. Whereas when we look at 97530 therapeutic activity that's where we are starting to utilize our skills balance coordination function and the other one that can be utilized 97112 neuromuscular re-education. So again, I'm not here today to talk to you about, you know, these codes and what your therapist should be using, should they be using these codes, should they not be using these codes? I don't know the answer to that. But what I do know is over the hundreds and hundreds of practices that we engage, we do our assessment and we look at the codes that they bill, in many cases, therapists are not properly recording and billing for what they are actually doing with the patient for fear of overbilling, for fear of somehow being frowned upon by Medicare.
I don't know. But if your patients require skilled care, we have to focus your therapists on providing that skilled care and then billing for it. Absolutely imperative. And that's not about driving EBITDA. That's all about what we are providing as therapists and what our patients need. So how do you make these changes? And so basically the way we make these changes is we have to measure monitor on an ongoing basis on a ongoing basis and then continually to devise strategies to make improvements in these areas of underperformance.
This will take a lot of training for your therapists and tools to measure and monitor what they're doing on a weekly basis are absolutely essential to creating longterm change. Your commitment to these tools, your commitment to your therapist charging for the right skilled care that they're performing. If you make that a commitment, they will also make a commitment. And the only way to truly commit to that is to measure and monitor and continue to devise strategies. You know, there are some additional opportunities in what we call charge capture.
There is basically increasing the number of units build. Of course, we're not going to go to our therapists and say you have to increase the number of units build. We find many times though that therapists are not billing for all the units that they perform or they are caught up in a conundrum based on Medicare rules and guidelines which are absolutely 100% what you should be following but not for every patient and not for every insurance company. So we have to be careful that our therapists are not making their own rules.
They're making the rules that have been set forth by the payers in your market by the American Physical Therapy Association and certainly from Medicare. So just increasing the number of units build is an additional opportunities and professionals have been so misinformed as it relates to what they actually do and perform and what they actually bill for. They have been very misinformed and in many cases they are being allowed to interpret it the way they want it to be. You can't let them do that. They work in your practice and in many cases their interpretation is going to be on the side of underbilling and billing for less skilled units because it's built at a less high price.
Again, another big opportunity is that many therapists are utilizing Medicare guidelines for every patient. It's a big mistake and we find over and over again in many cases are simply not billing for all the care that is delivered. That's actually fraud. It is actually fraud when you provide the care and you do not bill for it. So finally the improvement opportunity here in charge capture these changes are dramatic and all these changes all of the improvement from these changes will all flow directly to your bottom line.
It doesn't require any increase in expense. You don't need more therapists to do this. We need better training, better education and a more thoughtful approach from your current therapists. And in addition, we have found that if you can increase that epida by greater than 25%, hence value changes can be as high as we have discussed up to 50 to 100%. So small changes in metrics drive large changes in IPA drive enormous changes in value. You know if you're looking at opportunities to maintain the same value that your peers who may have sold in 2021 and 2022 and you're looking to do this in 2023 or 2024, but you want to get the same value. Click below. Let's talk. Thanks and have a great day.
Want to talk about your own business?
Marlton, NJ 08053