Revenue cycle management, the entire process from patient appointment all the way to the settling of the financial balance for services rendered, can be a tricky beast. The process is long and complex enough to the point where any weakness in the chain can produce negative downstream effects for a medical practice’s bottom line. Anything less than a smooth RCM can seriously disrupt cash flow. Often-shifting rules and regulations within the RCM world creates even more pressure to get all these steps correct.
The best solution is to identify problems using data, analytics, and auditing information about your revenue cycle and modify your protocol accordingly. Because your RCM is so rooted in your electronic medical billing and EHR software, there are plenty of analytics that can be culled and studied to see where your financial efficiency can be improved. This can be
conducted by your in-house medical billing staff or a dedicated outside medical billing firm. We will discuss 5 metrics to track to improve your RCM.
Days in Accounts Receivable
Days in A/R refers to the average number of days it takes for your practice to collect all the payments due for medical services rendered; a lower number is obviously faster and more preferable. You should strive for a maximum of 50 days, and realistically working for a Days in A/R less than 35 days. This number can be calculated as your (Total A/R)/(12 months Gross Charges/365).
When looking at this metric, pay attention to slow-to-pay carriers who take longer than the overall average number of Days in A/R. Be sure to subtract credits from receivables, and look at Days in A/R both with and without the accounts sent to a collection agency to gauge the likeliness of payment.
Days in Accounts Receivable For More Than 120 Days
Days in A/R Greater than 120 Days is another valuable metric that takes a longer view of the Days in A/R metric. This metric will give you the amount of receivables older than 120 days as a fraction of total receivables; it is calculated by dividing the dollar amount of your receivables greater than 120 days (net credits) by total receivables (net credits).
To get the most accurate number, base the days in A/R on the date of service, not the date that the claim was filed. This not only reflects your practice’s ability to process claims and get paid efficiently, but also demonstrates how your staff handles the payer mix or how denied claims are subsequently handled. The higher this value, the sooner your practice needs to address where the problem is with A/R. You are aiming for a number lower than 25%, and ideally less than 12%. Of course, strive for 0%!
Adjusted Collection Rates
Adjusted collection rate is the percentage of total potential reimbursement collected from the total allowed amount. To put it more simply, it is what your practice collected over what you should have collected. Whether it is from late filing, unresolved debt, or anything from a host of other factors, the lower this value, the more revenue lost in your RCM. This value is calculated by dividing (Payments net credits)/(Charges net approved contractual agreements for selected time frame) x 100.
This number should not be lower than 95%, with industry average at about 97%. High performing practices regularly surpass 99%. When calculating this number, it is important to use 12 months as the selected time frame, and keep fee and reimbursement calendars on hand to differentiate what you were paid and what was inaccurately written off.
Denial rate is the percentage of claims denied by payers over a specified period, where the lower the denial rate, the healthier your cash flow and higher your efficiency. To calculate denial rate, divide (Total dollar amount of claims denied by payers over a given time period)/(Total dollar amount of claims submitted).
The industry average denial rate is about 5-10%, but to aim for great RCM efficiency, you want this number below 5%. Problems with high denial rates usually stem from a failure to identify avoidable mistakes prior to submitting a claim, and attempting to automate some processes within your claims can reduce this number dramatically.
Average Reimbursement Rates
Average Reimbursement Rate can have varying definitions, but it is basically the average amount a practice collects as a percentage of total claims submitted. This is perhaps the most straightforward indication of how well you collect and perform in terms of financial efficiency, where the goal for any practice is to reach 100%. Naturally, the higher this metric is, the better. Industry averages are pegged at 35 – 40%, but most practices aim much higher.
This number is especially valuable when you compare it to how your company has performed in the past; hopefully, the outcome is an increasing trend. This number is calculated by dividing the (Sum of total payments)/(sum of total submitted charges/claims). A pitfall is to only calculate average reimbursement rate for all payers together, and not separating by payer to compare.
Whether auditing these metrics yourself or having an outsourced medical billing expert analyze your RCM metrics, it is always a valuable tool at your disposal to make sure you are maximizing your revenue potential.