Health systems and provider organizations are facing enormous challenges. In a recent poll, providers ranked five of their most pressing issues, which were staffing (58%), expenses (20%), revenue (17%), technology (2%), and other (2%), according to the MGMA. The poll also found that costs have been outpacing revenue for nine in ten respondents. In addition to rising costs, much of the increase stems from recruiting, incentives, and enhanced benefits.
Financial pressures already present before the pandemic have become even more challenging, which is why providers need to be monitoring metrics most closely tied to revenue performance. The following are seven key performance indicators (KPIs) providers should consider. These include top KPIs for both the front end and back end of the revenue cycle.
Point-of-service (POS) and cash collections
Cash collection KPIs give providers insight into how quickly they can “transfer net patient services revenue to cash,” according to RevCycleIntelligence. This metric gives a picture of the organization’s financial viability. A poor POS or cash collection rate can increase collection costs and bad debt write-offs. Collecting from patients at or before the time of service is significantly more effective than trying to chase revenue on the back end.
Optimally, providers should track cash collections as a percentage of net revenue and aim for 100% of monthly average net revenue for the preceding three months, according to Becker’s ASC Review. To calculate it, divide the total collected patient service cash (from the balance sheet) by the average monthly net patient services revenue (from the income statement), according to the RevCycleIntelligence article. To calculate POS cash collections, divide POS payments by self-pay payments collected for a specific timeframe.
Ensuring accurate and timely charge capture takes effort, especially for providers experiencing labor shortages. Taking the time to audit and monitor charge capture processes gives providers the insight they need to proactively address issues before they have a chance to impact revenue.
Best practices indicate that all complete charges should be captured within three to five days after the time of service, and late charges as a percentage of total charges should be no more than 2% of all charges. To calculate charge lag time, figure the average number of days from date of service to posting date
Accounts receivable (A/R)
The days in A/R metric is the average number of days it takes for a provider to be paid for a service provided. This calculation gives hospital leaders insight into how well their revenue cycle is performing. A well-performing revenue cycle means better cash flow, lower collection costs, and less pressure on already overworked staff.
Ideally, days in A/R should range between 30 to 40. A/R over 90 days should be less than 10%while self-pay A/R over 90 days should be less than 30%. To calculate days in A/R, divide current receivables, net of credits by the average daily charge amount. To calculate net credits, subtract the current credit balance from the total current receivables. To calculate the average daily charge amount, divide gross charges for the previous 12 months by 365. Finally, to calculate net days in A/R, divide net A/R by the average daily net patient service revenue, according to RevCycleIntelligence.
Clean claims rate
Almost everyone has heard of GIGO (garbage in, garbage out). Nowhere is this truer than in claims processing workflows. Ensuring claims are correct and complete upon first submission is critical to achieving accurate and timely reimbursement. Too many rejections can indicate the need for additional staff training to improve coding quality.
Providers should aim for a 98% clean claims rate, according to Beckers ASC. To calculate, divide the total number of claims received by the payer and the total number of claims dropped.
Net adjusted collections
The net adjusted collection metric provides insight into which payer sources (patients included) are providing the greatest revenue. With this information, providers can identify opportunities for improvement. For example, if patient collections lag significantly behind other payer collections, it may indicate the need for a new, more proactive patient collection strategy.
At a minimum, a provider’s net collection rate should be 95%, although 97% to 99% is optimal. Bad debt or unnecessary write-offs should be less than 3% of total expected collections. To calculate the net adjusted collection rate, divide payments (net of credits) by charges (net of approved contractual agreements) for a specific timeframe and multiply by 100. (It is important that the calculation is based on matching payments to the associated charges.)
Denied claims can mean denied revenue. Today, about one in every ten claims submitted is denied. The reason is that payers are using more sophisticated algorithms to perform automated reviews, more complex criteria for claims submission and medical necessity, and more variables in their contracts, such as medical necessity criteria and technical specifications.
The industry average denial rate is between 5% and 10%, while less than 5% is optimal. Providers should aim to resolve 85% of denials within 30 days. To calculate the denied claim rate, divide the total dollar amount of denied claims by the total dollar amount of claims submitted in the same timeframe.
Bad debt is a red flag on revenue cycle performance, and more than one in five providers say that at least 10% of their patient accounts are impacted by debt. Monitoring bad debt gives providers insight into opportunities for process improvements, such as collecting more upfront.
What to do if KPIs aren’t where they should be
According to a recent report by Kaufman Hall, revenue cycle outsourcing has become an increasingly popular option for hospitals and health systems, topping the list of all outsourced solutions. Outsourcing parts or all of the revenue cycle can help relieve growing pressure on leaders and staff alike. It can also bring improved productivity and optimal KPIs that hospitals may not be able to achieve on their own without a great deal of time and resources.
- Labor shortages are expected to continue for some time, with 92% of healthcare leaders reporting difficulties in attracting and retaining support staff.
- Inflation and expenses are putting downward pressure on revenue.
- Monitoring KPIs to identify opportunities for process improvements is essential to achieve financial viability in these challenging times.
- The top KPIs providers should be tracking are:
- Clean claims rate
- Charge capture
- POS and cash collections
- Net-adjusted collection rate
- Initial denial rate
- Bad debt rate
- Outsourcing all or parts of the revenue cycle can help hospitals optimize their KPIs and achieve their revenue goals faster and with less effort.
Author’s note: These benchmarks are general guidelines, but the numbers can vary based on a variety of factors, including specialty, geography and payer mix. For example, some specialists experience more reimbursement-related issues due to medical necessity, prior authorization and documentation requests. Other considerations for what to include or exclude can be found on the American Academy of Family Physicians website.