Critical Revenue Cycle Metrics Practices Must Be Aware Of

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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 á 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.

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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

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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.

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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) á 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.

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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 payerspecific 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

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another, the practice may project a deceptive impression of positive performance. ďƒ˜ The common mistake of including inappropriate writeoffs 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.