The trends in revenue cycle management for short-term acute care hospitals for the past five years (FY06-10) are not encouraging.
A basic role of hospital revenue cycle management is to measure how well a hospital maximizes the amount of patient revenue billed and how quickly it collects that revenue. An effective way to analyze patient revenue billed is to consider trends in the percentage of gross revenue written-off versus collectible or net revenue. The speed at which the hospital collects net revenue can be analyzed by looking at trends in the percentage of accounts receivable (A/R) reserved for write-off versus collectible as well as the ratio of net A/R days outstanding.
From FY06 through FY10, the percentage of gross revenue written-off by hospitals rose steadily from 63.2 percent to reach an astounding level of 66.9 percent in FY10. Conversely, the percentage of gross revenue that hospitals expected to collect declined during the study period from 36.8 percent in FY06 to 33.1 percent in FY10. These trends suggest that hospitals spend considerable effort to capture revenues that they will never be able to collect.
The percentage of A/R reserved for write-off also rose steadily during this five-year period, from 46.1 percent in FY06 to 52.3 percent in FY10. Conversely, the percentage of collectible A/R declined from 53.9 percent in FY06 to 47.7 percent in FY10. These trends suggest that the net revenues billed by hospitals are getting harder to collect.
It follows that the trends in percentages of gross revenue collectible and A/R collectible significantly affected the trend in net A/R days outstanding. A/R days declined during the study period from 53.6 in FY06 to 48.3 in FY10. Although this may be seen as a favorable trend, it appears to be more a result of the increases in gross revenue write-offs and reserves for uncollectible accounts discussed above than it is a result of better collection efforts.
This analysis is based on Medicare cost report data in the CMS Healthcare Cost Report Information System file as of March 31, 2011. The following percentages and ratios (with cost report worksheet references) were computed for short-term acute care hospitals for the five-year period of FY06-10:
- Percentage of gross revenue written off-contractual allowance, discounts, and other write-offs (G-3, line 2) divided by total gross patient revenues (G-3, line 1)
- Percentage of gross revenue collectible-net patient revenues (G-3, line 3) divided by total gross patient revenues (G-3, line 1)
- Percentage of A/R reserved for write-off-allowance for uncollectible accounts (G, line 6) divided by total A/R (G, line 4)
- Percentage of A/R collectible-[total A/R (G, line 4) minus allowance for uncollectible accounts (G, line 6)] divided by total A/R (G, line 4)
- Net A/R days outstanding-A/R (G, line 4) less allowances for uncollectible accounts (G, line 6) divided by the average daily net operating revenue (net patient revenues [G-3, line 3] divided by 365)
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Publication Date: Thursday, September 01, 2011