Management is most often used nowadays in connection to any sphere. Management decisions drive every company. But like anything, these decisions require analytics; and with regards to the healthcare industry, the management of billing operations is crucial.
From top managers to everyday physicians, if you want to know whether or not your revenue cycle is sustainable, use these four key metrics to guide your decision.
Key Metric #1: Accounts Receivable
Accounts receivable is the number of days it takes the responsible party to pay; it tells you how long it takes you to collect a day’s charges and the outcomes differ on a case by case basis. It should take 50 days on average, if it takes more than 50 days – it’s a drawback, and can signify poor revenue performance.
How to calculate: Total accounts receivable (12 months of gross charges/365)
Key Metric #2: If accounts receivable are more than 120 days
If accounts receivable extend past 120 days, the practice is promptly paid. The admissible percentage number of accounts over 120 days is around 15 -18. Although, if it is bigger than 25 percent – this signifies that your practice is performing poorly.
How to calculate: Take the dollar amount of receivables more than 120 days and divide by the total number of your receivables. Count the net credits in both cases as well.
Key Metric #3: Net Collection Rate
The net collection rate (sometimes referred to as the adjusted collection rate) is a means by which you can measure your practice’s effectiveness in collecting payments. The rate shows the percentage of payment based on the obligations stated in the contract of the practice. The number shows how much was lost due to bad debt, untimely filling and other adjustments not stated in the contract. The average net collection rate should be around 95-99% which is the sign of an average performance. If this rate is lower than 95% – it is a sign of poor performance.
How to calculate: In order to calculate, divide the net credits payments by charges (as stated in the contract) for a specific time. The payments should match the charges created in order to avoid fluctuations in results. If you experience problems in matching payments with the original charges, this means that your practice should use past data. Use data no more than six months old to be sure that most of the claims had enough time to clear.
Key Metric #4: Denial Rate
The last key is the denial rate. This rate, as it has in its name, is the percentage of claims denied by payers. A very low number is expected here, as it directly influences the cash flow. Your attention should be on the denied claims. The average rate here would be between 5-10%. As usual, a number greater than 10% is a sign of poor performance.
How to calculate: In order to calculate the denial rate, use a period of time, for example: the last quarter, and the total dollar amount of the denied claims. Then divide this sum by the total dollar amount of submitted claims during the chosen period of time. You might want to use charge line items denied divided by the total number of submitted charge line items.
