Evaluating your practice’s financial well-being is a pivotal step toward fostering future growth. By gaining insights into the metrics that influence your revenue cycle, you can proactively enhance your practice’s efficiency and financial stability.
For independent medical practice proprietors and financial executives, the key to success lies in pinpointing areas where their efforts yield the most significant impact. Concentrating your attention on metrics that offer a window into your revenue cycle’s health can be an invaluable strategy.
6 Best Revenue KPIs to Track
Here are six quantifiable metrics within your revenue cycle that you should measure on a regular basis.
Enhancements in each of these domains can significantly enhance the overall financial performance of your medical group. Let’s delve a bit deeper into why accomplished practices assess these metrics and why it’s advisable for you to do the same:
- Days in Accounts Receivable (DAR)
Description: This KPI measures the average number of days it takes to collect payments from insurance companies and patients.
How to Calculate: Divide the total value of outstanding accounts receivable by the average daily charges for services.
DAR = Total Value of Outstanding Accounts Receivable) / (Average Daily Charges for Services)
Benchmark: The benchmark for DAR varies but generally falls between 30 to 40 days. A lower number is more favorable as it indicates quicker payments.
How to Improve:
Streamline Billing Processes: Ensure that your billing team is well-organized, and claims are submitted promptly. Implement efficient coding practices to minimize errors and rejections.
Enhance Patient Payment Options: Offer various payment methods, including online payments, credit card processing, and flexible installment plans to encourage prompt payments from patients.
Staff Training: Provide training for your staff to enhance their knowledge of efficient claims processing, coding, and billing practices. Stay updated with the latest industry changes to avoid claim denials and rejections.
- Denial Rate
Description: The denial rate reflects the percentage of claims submitted that are denied by insurance companies.
How to Calculate: Divide the number of denied claims by the total number of claims submitted, then multiply by 100 to get a percentage.
Denial rate = (Number of Denied Claims) / (Total Number of Claims Submitted) * 100
Benchmark: An ideal denial rate is typically around 5% or lower.
How to Improve:
Improve Coding Accuracy: Invest in training and quality control measures to ensure accurate coding, reducing the chances of claim denials due to coding errors.
Stay Informed: Keep up-to-date with insurance company policies, guidelines, and requirements to ensure that claims are submitted correctly the first time.
Conduct Regular Internal Audits: Regularly review denied claims to identify patterns and areas for improvement. Use this data to implement changes in your claims submission process and minimize future denials.
- Collection Rate
Description: The collection rate represents the percentage of billed charges that a practice successfully collects.
How to Calculate: Divide the total amount collected by the total amount billed, then multiply by 100 to get a percentage.
Collection rate = (Total Amount Collected) / (Total Amount Billed) * 100
Benchmark: An optimal collection rate is typically above 95%.
How to Improve:
Efficient Billing and Follow-Up Procedures: Implement robust billing procedures and ensure that follow-up on unpaid claims is timely and thorough.
Convenient Payment Options: Provide patients with a variety of payment options, making it easy for them to settle their bills promptly.
Train Staff: Train your staff to communicate effectively with patients about billing matters and provide clear explanations of insurance benefits and coverage.
- Clean Claim Rate
Description: This metric measures the percentage of claims submitted without errors or missing information.
How to Calculate: Divide the number of clean claims by the total number of claims submitted, then multiply by 100 to get a percentage.
Clean claim rate = (Number of Clean Claims) / (Total Number of Claims Submitted) * 100
Benchmark: A clean claim rate of 95% or higher is usually considered excellent.
How to Improve:
Staff Training: Invest in staff training to improve claim submission accuracy. Regular updates on the latest coding and billing practices can reduce errors.
Implement Error-Checking Software: Utilize software solutions that can identify and flag errors or missing information before claims are submitted. This can significantly reduce the number of denied claims.
Maintain Provider and Payer Information: Ensure that your practice maintains accurate and up-to-date provider and payer information, reducing the likelihood of errors on claims.
- Net Collection Rate
Description: The net collection rate calculates the amount of money collected compared to the amount billed.
How to Calculate: Subtract the number of contractual adjustments and bad debt from the total amount billed. Then divide the result by the total amount billed and multiply by 100 to get a percentage.
Net collection rate = ((Total Amount Billed) – (Contractual Adjustments + Bad Debt)) / (Total Amount Billed) * 100
Benchmark: An optimal net collection rate typically exceeds 95%.
How to Improve:
Coding Accuracy: Consistently review coding practices to enhance accuracy, reducing the need for contractual adjustments.
Optimize Payer Contracts: Negotiate with payers to optimize contracts, ensuring that your practice is reimbursed fairly for services.
Effective Billing and Collection Processes: Continuously improve your billing and collection processes to minimize bad debt and maximize revenue collection.
- Accounts Receivable Aging
Description: This metric provides insights into the age of unpaid claims and helps prioritize collections efforts.
How to Calculate: Categorize accounts receivable by the number of days outstanding, such as 0-30 days, 31-60 days, 61-90 days, and over 90 days.
Benchmark: A lower percentage of accounts receivable in the 61-90 days and over 90 days categories is preferable.
How to Improve:
Proactive Collections Strategy: Develop a proactive collections strategy, including regular follow-ups, automated reminders, and personalized communication with patients who have overdue accounts.
Offer Flexible Payment Options: Provide patients with flexible payment plans and options to make settling their bills more manageable.
Regular Follow-Ups: Consistently follow up on overdue accounts and implement a robust system for tracking and addressing outstanding balances in different aging categories.
- By using these formulas, you can precisely calculate and track these crucial Revenue KPIs, providing you with valuable insights into the financial health of your medical group.
Conclusion
Healthcare is a delicate balance of providing excellent patient care and maintaining the financial health of your practice. Revenue Cycle Management is the compass that guides this journey. By keeping a watchful eye on essential RCM metrics, you pave the way for a thriving, financially stable practice.
Remember, every day brings an opportunity to refine your revenue cycle processes and enhance your practice’s bottom line. Embrace the power of data-driven decision-making, continuously seek ways to improve, and prioritize transparency and efficiency in billing. With these practices in place, your healthcare establishment can navigate the complexities of the modern healthcare landscape, delivering exceptional care while ensuring the financial vitality of your practice.
