Revenue cycle management (RCM) represents one of the most complex aspects of managing any healthcare organization. Step one involves understanding your RCM by analyzing the right revenue cycle management metrics. The problem is that there are so many healthcare revenue cycle KPIs that it can be tough to identify which data points are most relevant.
With that in mind, we’ve compiled a list of the 10 revenue cycle management metrics that you need to be watching. Focus on these data points and explore additional KPIs as necessary to unlock the full story of your cash flow and financial health.
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.
Definition
Average payment delay measures the average number of days it takes for payers to process claims and issue payments from the date of submission.
Potential Benefit(s)
Tracking this metric helps you identify inefficiencies in the billing process and spot issues in payer responsiveness. A longer delay can lead to cash flow constraints and make it difficult for you to manage day-to-day expenses.
Best Practice(s)
Use industry benchmarks to understand what your average payment delay should be and how your organization stacks up. Benchmarking revenue cycle management metrics identifies gaps in your cash flow and helps you understand how to decrease delays.
Metric Calculation: Average Payment Delay = Total Days to Payment / Number of Paid Claims
Sample Calculation:
$45,000/$1,000 = 45 days
Definition
Payer mix refers to the percentage of total revenue that you generate from each payer, such as private insurance, Medicare, Medicaid, and self-pay.
Potential Benefit(s)
Understanding your payer mix helps the organization evaluate risk and improve contract negotiations. You can make decisions about which services deliver the most value based on your patient population. Some payers reimburse at higher rates than others, so a heavy reliance on lower-reimbursing sources can negatively impact profitability.
Best Practice(s)
Payer mix revenue cycle management metrics help you balance where your cash comes from. Use this data to adjust patient intake strategies and prioritize services that deliver the strongest cash flow. Monthly reporting by payer type can reveal trends and help you diversify your base.
Metric Calculation: Payer Mix = (Medicare Revenue / Total Revenue) x 100s
Sample Calculation:
Your organization received $1,000,000 in total revenue last quarter. Here’s the breakdown:
Payer Mix (Medicare) = (Medicare Revenue / Total Revenue) x 100
($400,000/$1,000,000) x 100
40% Medicare
Repeat this calculation for each payer to understand your full payer mix distribution.
Definition
Bad debt rate measures the percentage of billed charges that you write off as uncollectible.
Potential Benefit(s)
These metrics highlight weaknesses in your collection processes and can signal the need for process improvements. High bad debt erodes profitability.
Best Practice(s)
Bad debt rate is one of the most important KPIs for revenue cycle management. Verify patient eligibility and financial responsibility up front to lower your bad debt rate. Clearly communicate how much a person is estimated to owe, and make it easy for them to pay.
Metric Calculation: Bad Debt Rate = (Bad Debt Write-Offs / Total Gross Charges) x 100s
Sample Calculation:
You billed $750,000 to patients during the quarter. Let’s say that $90,000 was written off as uncollectible.
($90,000/$750,000) x 100
12% Bad debt rate
Definition
The claim appeal success rate is the percentage of denied claims that your organization successfully appeals.
Potential Benefit(s)
A high appeal success rate indicates that your denial management processes are effective and help you recover revenue that you would otherwise lose. This metric also reveals your ability to identify appeal-worthy denials.
Best Practice(s)
According to the American Hospital Association, healthcare organizations lose out on hundreds of billions of dollars in claims compensation every year. A high claim appeal success rate can help your practice break this cycle and promote stronger cash flow.
Develop templates for common appeal scenarios and create workflows for each payer. You should also explore RCM technology that assists with appeals.
Learn more about healthcare revenue cycle management solutions and how Rivet Revenue Diagnostics can help you improve your claim appeal success rates.
Metric Calculation: Claim Appeal Success Rate = (Successful Appeals / Total Appeals Submitted) x 100
Sample Calculation:
Let’s say your billing team submitted 500 appeals in a given period. Out of those, 325 were successful in overturning denials.
(325/500) x 100
65% appeal success rate
Definition
Cost to collect measures how much money you spend to collect patient and insurance payments.
Potential Benefit(s)
A lower cost to collect indicates that your RCM is efficient. A higher cost to collect eats into your profit margins.
Best Practice(s)
Aim to keep your cost to collect below 10%. Automate billing workflows, outsource RCM processes, and invest in cutting-edge tools to drive down this metric. Regularly benchmark your organization against similar-sized companies and identify ways that you can become more efficient. This is an ongoing process that requires continuous analysis and optimization.
Metric Calculation: Cost to Collect = (Total RCM Costs / Total Collections) x 100
Sample Calculation:
Let’s say your total collections for the month were $1,200,000, and the combined cost of your RCM operations was $96,000.
($96,000/$1,200,000) x 100
8% cost to collect
That rounds out our list of revenue cycle management KPIs. Now that you know which revenue cycle management metrics you should be watching, the key is to find the right software to help you visualize, track, and leverage these data points.
Rivet offers software solutions that integrate with your EHR for upfront 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 revenue cycle expert.