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5 key metrics to healthcare revenue cycle management

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 metric, how it is calculated and advice on how to get the most out of each metric.

#1: Days in accounts receivable (A/R)

Definition

A/R is the average number of days it takes a practice to get paid (from insurance carriers and payers). 

Potential Benefit(s)

Days in A/R 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.

To Calculate

(Total Receivables – Credit Balance) / Average Daily Gross Charge Amount (Total Gross Charges / X days)


Sample Calculation

Receivables: $50,000

Credit Balance: $1,000

Gross Charges: $600,000


[$50,000 – ($1,000)] / ($600,000/365 days)

$49,000/1,370 = 35.8 days in A/R

Potential Problems/Solutions

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.

 

#2: A/R Greater than 120 Days 

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%, but anything less than 12% is more desirable.


For best results, base your benchmark of days on date of service. 

To Calculate

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

Receivables 121 to 150 days = $110,000

Receivables 151+ days = $135,000

Total receivables = $2,000,000


($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%

Potential Problems/Solutions

Solution: Avoid using the charge entry date to age claims and be careful of the re-aging approach. 

 

#3: Adjusted Collection Rate

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. 

To Calculate

(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

Total payments = $485,000

Refunds/credits = $10,000

Total charges = $750,000

Total write-offs = $250,000


($485,000 –$10,000) / ($750,000 –$250,000)

$465,000 / $500,000

0.97 x 100

Net adjusted collection rate = 97%

Potential Problems/Solutions

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 auth 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 for increased compensation.

 

#4: Denial Rate

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 automated processes in your revenue cycle can lower denial rates in many instances.

To Calculate

(Total of Claims Denied / Total of Claims Submitted)


Sample Calculation

Total claims denied: $15,000

Total claims submitted: $150,000

Time period: 3 months

$15,000/$150,000 = 0.1

Denial rate for the quarter = 10%

Potential Problems/Solutions

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 training is needed.

 

#5: Average Reimbursement Rate

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%.

To Calculate

(Sum of Total Payments / Sum of Submitted Charges / Claims)


Sample Calculation

Sum of total payments: $100,000

Sum of total charges submitted: $175,000

$100,000/$175,000 = 0.57

0.57 x 100

Average reimbursement = 57%


Sample Calculation for Average Reimbursement Per Encounter

(Total Reimbursement / Number of Encounters in Time Period)


Total reimbursement: $50,000

Number of encounters: 400

Time period: 30 days


$50,000/400

$125 per encounter over the past 30 days

Potential Problems

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 finding 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. 

 

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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.