The first two articles in this series discussed the early and middle stages of revenue cycle management where healthcare executives, administrators, controllers, CFOs and collections managers use key performance indicators (KPI) to determine financial stability in their respective organizations.
Metrics play a critical role in a spectrum of industry-specific financials where accurate auditing, reporting, monitoring and collection efforts enable healthcare organizations to provide personalized services to individuals by remaining profitable.
Hospitals, in particular, have evolved into American institutions that coincide with milestones such as childbirth, serious illness or injury, and end-of-life experiences. For this reason alone, individuals within the community anticipate hospitals to transcend the course of multi-generations, enabling them, their children and their children’s children to receive care and make visits to medical facilities with familiarity.
As pointed out in part one, optimized KPIs and properly maintained financials enable healthcare professionals to spend less time on administrative tasks and more time on patient care, their primary objective. (See part two for information about the Account Resolution stage.)
Financial Management KPIs pertaining to late-stage revenue cycle management are discussed in this third and final part of the series. The HFMA Map Keys page provided sources for some of this information.
Financial Management
Average Days in Accounts Receivable
The Average Days in Accounts Receivable KPI describes revenue cycle efficiency by calculating the average number of days that payers take to reimburse claims.
Monthly and quarterly tracking of this KPI can help determine factors affecting prompt payment such as data entry delays or problems collecting from specific providers.
Average Days in Accounts Receivable is calculated by dividing the Net Accounts Receivables for a given period (Total Receivables – Credits) by the Average Daily Net Patient Service Revenue (Total Gross Charge Amounts/365 days). Lower averages indicate that institutions are collecting prompt payments.
Credits include allowances for uncollectible accounts, charity care discounts, and contractual allowances for third-party payers. See the HFMA Map Keys page for the recommended data to include.
An average of 30 – 40 days is ideal with 95 percent of accounts receivables paid in less than 50 days.
Adjusted Collection Rate
The Adjusted Collection Rate measures collected reimbursement as a percentage of total allowable amounts based on contractual adjustments.
Also called the “Net Collection Rate,” this KPI represents the ability to collect all legitimate compensation, and is calculated by dividing the Collected Reimbursement (Payments less Credits) by the Total Allowable Amounts (Charges less Contractual Adjustments) for a given time period.
The reimbursement represents a combination of payments by patients, insurance companies or other third-party payers while credits include refunds, uncollectible bad debt, late/untimely filings, inappropriate adjustments, payment posting errors and claim underpayments.
The benchmark rate for Adjusted Collection Rate is 95 – 99 percent.
Rates below 95 percent call for improvements to billing practices, technology for processing payments or making collection calls, or outsourcing revenue cycle management to increase profitability. Other measures include explaining financial responsibilities to patients, implementing benefits and eligibility checks, obtaining prior authorizations, and processing accurate claims in a timely fashion.
Uncompensated Care Rate
The Uncompensated Care Rate is calculated by dividing the total Uncompensated Care (Bad Debt, Charity Discounts, Uninsured Discounts, and Underpayments from public payers such as Medicare and Medicaid) by the Gross Patient Service Revenue for a given time period.
Definitions:
Accounts registered without insurance are classified as Uninsured Discounts.- Bad debt is generally composed of unpaid co-pays, deductibles and co-insurance by privately insured patients as well as uninsured patients choosing not to pay their balances despite having the financial means.
- Charity care includes services provided for free or at a discount to patients lacking the financial means.
- Since public payment rates (Medicare and Medicaid) do not cover the actual costs of most patient treatments, the ensuing deficit results in an Underpayment, the principal source of uncompensated care.
Accounts registered without insurance are classified as Uninsured Discounts.Cost to Collect Rate
The Cost to Collect Rate demonstrates the efficiency and productivity of a healthcare revenue cycle, and is calculated by dividing Total Revenue Cycle Costs by Total Patient Service Revenue for a given period.
The Cost to Collect Rate should be less than 2.5 percent.
Costs are widely accepted as all direct expenses for the patient billing, follow-up, cash posting and fees paid to debt collection agencies, but they should not include the cost of patient access, medical records assembly or coding.
According to claims management expert Andrew Woughter, “Cost to collect can be difficult to accurately measure, as a hospital may reallocate costs into different departments or business units year over year.”
He recommends “addressing process gaps at the front, middle and back of the revenue cycle, educating and engaging patients as partners, and automating routine daily functions like appropriately routing denials” to maintain benchmark rates.
Summary
The “curators” of revenue cycle management use financial data points to help monitor the key performance indicators that are necessary to increase efficiency and patient satisfaction in their organization. This three-part series discusses 13 KPIs, but is important to remember there are hundreds more.
Comparing numbers with industry standards is always important, but the focus should be on KPIs offering relevance and impact to a particular organization versus simply replicating systems employed by neighboring or competing institutions. This point is further made by acknowledging the individuality of financial reporting systems where specific tracking or financials may not exist. Nevertheless, analytical and reporting systems can be added or augmented to provide the metrics needed to create KPIs and ultimately refine the revenue cycle.
Experts also recommend tracking both positive and negative KPIs in order to make informed decisions about policies, practices and procedures.
When revenue cycle managers have exhausted all in-house means of collecting payments, it is important to partner with a best-in-class debt collection agency that will positively contribute to the organization without harm to brand protection or patient retention.
Help in Revenue Cycle Management
Optio Solutions was established with a commitment to surpassing the collection services of existing agencies using a foundation of experience, compliance, certification, data security and technology.
In the areas of compliance and certification, for example, Optio maintains SSAE 16 SOC I Type II audited financial reporting and Professional Practices Management System by ACA International (less than 2 percent of organizations worldwide have garnered this distinction). It also employs several individuals with Credit and Collection Compliance Officer certification (the legal team and a handful of managers) as well as several collectors who have taken part of the required coursework.
Optio understands the importance of revenue cycle management. Contact us today to learn more about Optio’s unique offering of favorable ROI, brand protection and customer retention.
