If physician practices have proper knowledge about key revenue cycle metrics, they can determine whether the performance is optimal and take stringent efforts to close the gaps.
Critical Revenue Cycle Metrics Practices Must Be Aware Of
1. Outsourced Strategies International 1-800-670-2809
Critical Revenue Cycle Metrics Practices
Must Be Aware Of
Knowledge of industry standard metrics that track revenue
cycle performance is imperative
for physician practices to
manage their revenue cycle
properly and maintain their cash
flow. This awareness will help
to identify the gaps during an
internal audit and take effective
measures to correct them.
However, tracking the right analytics is critical to manage
the medical billing operations and cash flow, and bring
you the desired results. Here, we look at four crucial
revenue cycle metrics that every practice should know and
the ways to manage them.
Rate of Claim Denials
This rate represents the percentage of claims denied by the
payers. A low denial rate is always desirable and it
indicates the practice’s cash flow. The formula to calculate
this rate is:
Total Dollar Amount of Denied Claims ÷ Total Dollar
Amount of Submitted Claims
The average denial rate is normally between 5-10%.
Anything greater than 10% is a sign of poor performance.
2. Outsourced Strategies International 1-800-670-2809
Number of Days in Accounts Receivable (A/R)
Accounts receivable can be defined as a measure of how
long it takes for a service to be paid by the responsible
parties. To be more specific, it will tell you how long to
collect a day’s worth of charges, on average. The days in
A/R can be calculated using the following formula.
(Total Current Receivables after Credits) ÷ (Average Daily
Charge Amount) = Days in A/R, where ‘Average Daily
Charge Amount = 12 months of gross charges/365.’
This value will vary according to the specialty and payer
mix. Normally, 40 to 50 days in A/R can be considered a
reasonable objective for practices while A/R greater than
50 days can be an indicator of poor performance.
Healthcare experts point out that days in A/R can cloak
various areas of underperformance that practices need to
watch out for such as:
· Payer-specific Delays – Though the days in A/R
could be 45 as a whole, Medicaid claims might
average 75, which signals a problem that requires
attention.
· Collection Accounts – Since the accounts sent to
collection agencies are often written off the current
receivables, they are not considered while calculating
days in A/R. Though sending accounts to collections
3. Outsourced Strategies International 1-800-670-2809
can improve days in A/R, it would cover up more
serious issues.
· Payment Plans – These allow days in A/R to rise by
providing extra time for reimbursement.
· Aged Claims – Even though overall days in A/R may
be good, it can still hide high amounts in the older
aging buckets.
We will see how to manage these underperformance areas
later.
Percentage of A/R > 120 Days
This is a measure of the ability of practices to get paid in a
well-timed manner and indicates the amount of receivables
older than 120 days of the total current receivables. It can
be calculated by:
Dollar Amount of A/R>120 from Date of Service ÷ Dollar
Amount of Total A/R
Though 12-25 percent of A/R greater than 120 days is
considered as an average rate, a percentage greater than
25% can be a sign of poor performance. The best
performers may see less than 12 percent.
4. Outsourced Strategies International 1-800-670-2809
Net Collection Rate
This is also known as adjusted collection rate, which is a
measure of the practice’s effectiveness in collecting all
legitimate reimbursement and it shows the percentage
gained out of the reimbursement allowed according to the
contractual obligations of the practice. This rate also
indicates how much revenue lost because of uncollectible
bad debt, untimely filing and other non-contractual
adjustments. It can be calculated by:
Payments (Minus Credits) ÷ Charges (Minus Approved
Contractual Adjustments)
Do this for a specific time frame. Typically, the calculation
should be performed on the basis of matching the payments
to the charges that created them for preventing fluctuations
in results. If it is not possible to match payments with their
originating charges, the practices should use aged data,
typically from six months back, to calculate this rate in
order to make sure that majority of the claims used for the
calculation have had sufficient time to clear. The overall
net collection rate of 95-99% or greater is an average
performance, while an amount less than 95% can be an
indicator of poor performance.
5. Outsourced Strategies International 1-800-670-2809
Tips to Manage Key Metrics
Proper management of these metrics is crucial for billing
claims effectively and maintaining good cash flow. Here
are some tips provided by healthcare experts.
Rejecting claims through internal systems before they
are sent to a payer is the best approach to reduce the
denial rate. Using a clearinghouse or claims scrubber
to identify errors can prevent the denial and avoid
delay in the final payment posting.
To avoid missing potential problems related to payer-specific
delays, calculate the overall days by payer,
apart from calculating the days in A/R.
In order to have a true picture of the situation,
calculate the days in A/R with and without accounts
sent to collections.
Create and designate payment plans as a separate
“payer” so that A/R can be calculated with or without
considering payment plans.
Monitor statistics related to aged claims separately.
Ensure that you base the calculation of percentage of
A/R greater than 120 days on the actual age of a claim
(the date of service) or else when a claim is “re-aged”
to “zero” whenever it moves from one payer to
6. Outsourced Strategies International 1-800-670-2809
another, the practice may project a deceptive
impression of positive performance.
The common mistake of including inappropriate write-offs
in the calculation can happen while applying
inappropriate charge adjustments when posting
payments. This can be solved by distinguishing
between the two sets of adjustments and tracking
contractual adjustments on the basis of reason.
Professional billing services is an ideal alternative if you do
not have enough time to manage these vital metrics. It will
help save time and effort while also ensuring streamlined
A/R collection.