Healthcare revenue cycle management is filled with many metrics, but these 5 key metrics aren’t always evaluated in the proper way. The following article defines each revenue cycle best practice metric, demonstrates how it is calculated, and shares advice on using these essential KPIs.
Healthcare revenue cycle management is filled with many metrics, but these 5 key metrics aren’t always evaluated in the proper way. The following article defines each revenue cycle best practice metric, demonstrates how it is calculated, and shares advice on using these essential KPIs.
A KPI (Key Performance Indicator) is a measurable value that healthcare organizations can use to assess the efficiency and effectiveness of their financial processes. A good KPI might measure the success of claims processing, medical billing, collections, or patient payments. KPIs help healthcare organizations understand their current cash flow and optimize future financial performance.
Different medical practices may use different revenue cycle KPIs. While you may wish to add additional metrics to track your own organization’s financial health, we recommend focusing on the following five essential revenue cycle metrics.
Define this KPI
“A/R” stands for “Accounts Receivable.” It represents the average number of days it takes a healthcare practice to get paid (from insurance carriers and payers).
Potential Benefit(s)
Days in accounts receivable can offer insight into the efficiency of your revenue cycle (i.e., the speed at which you obtain revenue).
Best Practice(s)
Days in A/R should stay below 50 days minimum; however 30-40 days is more desirable.
Metric calculation:
(Total Receivables – Credit Balance) / Average Daily Gross Charge Amount (Total Gross Charges / X days)
Sample Calculation:
[$50,000 – ($1,000)] / ($600,000/365 days)
$49,000/1,370 = 35.8 days in A/R
Slow-to-pay carriers: Some insurance carriers fall outside of your average days in A/R. If your average days in A/R is 46.9 but a carrier’s claims average 74 days, you’ll want to address the issue as quickly as possible.
Credit Impact: To avoid a faulty, overly positive impression of your practice, make sure you subtract the credits from the receivables.
Claims older than 90 or 120 days: Use a benchmark of A/R greater than 120 days to avoid masking elevated amounts in older receivables.
Accounts in collection: Once accounts are sent to a collection agency, they are written off of the current receivables, so they may not be accounted for in the A/R days calculation. You’ll likely want to have days in A/R calculated both with and without collection revenue.
Appropriate treatment of payment plans: Days in A/R will go up when patients enter into payment plans, so you’ll need to consider if these payers should be included in the A/R calculation.
Definition
The amount of receivables that are older than 120 days.
Potential Benefit(s)
Knowing more about your receivables that are quite old can show a practice’s ability to get services paid in a timely manner.
Best Practice(s)
A/R over 120 days should stay between 12% and 25% of your total, but anything less than 12% is more desirable.
For best results, base your benchmark of days on date of service.
Metric Calculation: Divide the dollar amount of accounts receivable over 120 days by the dollar amount of total accounts receivable and then multiply by 100.
Sample Calculation:
($110,000 + $135,000/$2,000,000) x 100
245,000/2,000,000 x 100
0.1225 x 100
A/R greater than 120 days = 12.25%
Solution: Avoid using the charge entry date to age claims and be careful of the re-aging approach.
Definition
Adjust Collection Rate is the percentage of total potential reimbursement collected out of the total allowed amount.
Potential Benefit(s)
This metric can reveal how much revenue is lost due to various factors.
Best Practice(s)
An adjusted collection rate of 95% to 99% is the industry average. 95% should be your minimum, since high performers achieve a minimum of 99%.
In order to get the full picture of payment variance on claims, you’ll need to have access to and study your fee schedules and reimbursement schedules.
Metric Calculation: (Payments – Credits) / (Charges – Contractual Agreements) x 100
Divide your payments (net of credits) by the charges (net of approved contractual agreements) for a selected time frame. Then multiply by 100.
Sample Calculation
($485,000 –$10,000) / ($750,000 –$250,000)
$465,000 / $500,000
0.97 x 100
Net adjusted collection rate = 97%
Inappropriate write-offs: Be careful to avoid applying inappropriate adjustments to charges such as lumping all adjustments (contractual and non contractual) as the same adjustment.
Solutions: Try categorizing non-contractual adjustments to uncover issues that need to be resolved (e.g., failure to obtain prior authorization or untimely filing).
Make sure you have all of your fee schedules and reimbursement schedules. If you do not, you cannot make appropriate changes to your chargemaster or appeal underpayments for increased compensation.
Definition
Denial Rate is the percentage of claims denied by insurance carriers/payers.
Potential Benefit(s)
This metric can reflect how effective your RCM process truly is for your practice.
Best Practice(s)
Denial rates between 5% and 10% is industry average, though the lower the rate, the better you are doing.
Using an automated denial management process in your revenue cycle can lower denial rates in many instances.
Metric Calculation: (Total of Claims Denied / Total of Claims Submitted)
Sample Calculation
$15,000/$150,000 = 0.1
Denial rate for the quarter = 10%
Failure to identify mistakes: Without strong internal processes for coding, charge entry, prior authorization, data entry, etc. you’ll find that your denial rate is extremely high. Be sure to evaluate your practice to understand where potential claim submission training is needed.
Definition
Average reimbursement rate is the average amount the practice collects from the total claims submitted.
Potential Benefit(s)
The average reimbursement rate can provide a practice with a sense of how well it is performing out of 100%.
Best Practice(s)
We know that it is ideal to get paid 100% of what is owed; however, that’s not really realistic. The industry average is 35% to 40%.
Metric Calculation: (Sum of Total Payments / Sum of Submitted Charges / Claims)
Sample Calculation:
$100,000/$175,000 = 0.57
0.57 x 100
Average reimbursement = 57%
Metric Calculation:
Sample Calculation for Average Reimbursement Per Encounter:
(Total Reimbursement / Number of Encounters in Time Period)
$50,000/400
$125 per encounter over the past 30 days
Do NOT calculate the overall average reimbursement rate solely for all payers together as that doesn’t accurately reflect what is going on at your practice.
Solution: We recommend that providers find the average reimbursement rate for each payer to get a picture of the most problematic payers. You should also consider breaking down your average reimbursement rate by procedure code to know where problems may lie.
Rivet offers software solutions that integrate with your EHR for up-front patient cost estimates (that comply with the No Surprises Act), as well as denied claim and underpaid claim solutions. To see a demo and discuss billing pain points,request a Rivet demo with a Rivet business development representative.
