When it comes to revenue cycle management, limited information can lead to poor decisions. Management decisions need analytics. The financial sustainability depends on the performance outcomes but tracking the right analytics is critical to managing the billing operations.
There are 4 key metrics that will determine if your revenue cycle is performing at optimal levels. Whether you are the practice manager or the physician, you should be aware of these 4 key metrics.
Key Metric #1: Days in Accounts Receivable
Accounts receivable (A/R) is a measure of how long it typically takes for a service to be paid by the responsible parties. It tells you how long, on average, to collect a day’s worth of charges.
How to calculate: Total accounts receivable/(12 months of gross charges/365)
The expected outcome will vary by specialty and payer mix. Typically 40 to 50 days in accounts receivable would be a goal for practices. A/R greater than 50 days can be an indicator of poor performance.
Key Metric #2: Percentage of A/R Greater than 120 Days
The percentage of A/R over 120 days is a measure of the practice’s ability to get paid in a timely manner. This percentage represents the amount of receivables older than 120 days of the total current receivables. Although it isn’t the only aging indicator to evaluate, it is an excellent choice.
How to calculate: Take the dollar amount of your receivables, net of credits, that is greater than 120 days and divide that number by your total receivables, net of credits.
Having 15-18 percent of accounts receivable greater than 120 days is an acceptable performance indicator. However, if A/R>120 is greater than 25% it can be an indicator of poor performance.
Key Metric #3: Adjusted Collection Rate
The adjusted collection rate (also known as the net collection rate) is a measure of a practice’s effectiveness in collecting all legitimate reimbursement. This rate shows the percentage achieved out of the reimbursement allowed based on the practice’s contractual obligations. This figure reveals how much revenue is lost due to factors such as uncollectible bad debt, untimely filing and other non-contractual adjustments.
How to calculate: To calculate divide payments (net of credits) by charges (net of approved contractual adjustments) for a specific time frame. Ideally, the calculation should be based on matching the payments to the charges that created them in order to avoid fluctuations in results. If the practice management system can’t match payments with their originating charges, the practice should calculate this using aged data, typically from six months back, to ensure a majority of the claims used for the calculating have had enough time to clear
An overall net collection rate of 95-99% or greater is average performance. If the net collection rate is less than 95% then it can be an indicator of poor performance.
Key Metric #4: Denial Rate
The denial rate is the percentage of claims denied by payers. A low number is desired as it represents a practice’s cash flow and the staff needed to maintain that cash flow. Clean, paid claims do not require the attention that denied claims do by staff members.
How to calculate: Using a specific period of time—the last quarter, for example—total the dollar amount of claims denied by payers. The sum is then divided by the total dollar amount of claims submitted by the practice during that period of time. Practices may want to use charge line items denied divided by total charge line items submitted.
An average denial rate is typically between 5-10%. Denial greater than 10% can be an indication of poor performance.