December 27, 2016
By Patti Peets
In an era when healthcare reimbursements are plummeting and the costs associated with caring for patients are climbing, medical groups are finding it exponentially more difficult to thread the profitability needle.
With 2017 just around the corner, most physician administrators’ top New Year’s resolution is to improve operational performance and shore up next year’s bottom line. A recent survey of more than 5,000 physicians1 pinpointed the top four targets for boosting efficiency: billing and collections processes, staffing, technology and analytics. In fact, more than 25% of respondents saw the promise of analytics in maximizing efficiencies.
Yet even with analytics, it can be challenging to find profitability indicators in a haystack of data. That’s why it’s important to start the new year off right and focus on Key Performance Indicators that bring to light issues that have the potential to undermine a medical group’s revenue cycle management processes. Harvesting the right data generates a handful of KPIs that reveal whether a practice is reaping financial rewards or leaving money on the table.
The truth is, most practices leak money – typically 5% to 10% of revenue – due to issues with claims denial management, aging accounts receivable, underpayments and billing processes. Using analytics to access these eight KPIs can expose trends and support data-driven decisions regarding information technology, operations, vendors and even staffing to boost profitability in the coming year.
3 Aging Accounts Receivable KPIs
The three KPIs relating to aged accounts receivable that provide actionable information are the:
1. total A/R aged 120+ days;
2. patient A/R aged 120+ days;
3. and total number of days in A/R.
Ideally, 85% to 90% of total A/R should be in the barn before hitting the 120-day mark. At minimum, 75% should be collected prior to 120 days. Rooting out patient A/R vs. payer A/R aged 120+ days – using the second KPI – unearths important information about where improvements can be made.
If a practice’s aged A/R is primarily patient collectibles, it’s probably time to shore up processes for conducting advance eligibility verifications, submitting pre-authorizations and collecting co-pays and deductible amounts from patients. Because only 21% of 120+ day patient A/R is ever collected, it pays to ensure that patient collectibles don’t reach that tipping point. On the other hand, if 120+ day A/R is primarily due from payers, it begs a review of how the practice conducts insurer follow-ups and addresses denials.
The third KPI – the number of days in A/R – can illuminate equally troublesome issues at two ends of the spectrum. The benchmark for total days in A/R differs by specialty, but the overall goal is to keep it below 50 days – and 30 to 40 days if possible. A high number is an indicator that collection or insurer processes need to be shored up, while a low number could mean that the practice’s write-off policy is too aggressive and that money continues to leak out. Although a healthy Days in A/R typically means you have effective and timely collection processes in place, you should be aware that this can sometimes disguise trouble if write-off policies are too aggressive. Although a healthy Days in A/R typically means you have effective and timely collection processes in place, you should be aware that this can sometimes disguise trouble if write-off policies are too aggressive.
3 Reimbursement Rate KPIs
Three reimbursement rate KPIs harvest data on dates of service ranging from three months previously to 12 months previously and clear the way for insights into profitability trends. While the gross collection rate (GCR) of a practice varies by specialty, the goal is to meet the specialty’s benchmark and to remain consistent over time. A stable, high GCR may mean that a group’s fee schedule is low, while a predictable but low GCR can be the signal that a fee schedule is too high. If there’s a large variance from the benchmark, it can be an indicator that there’s an issue with a particular payer. If there are hills and valleys on a month-to-month basis, it could indicate a problem with a practice’s billing and collection processes.
The second reimbursement rate KPI, the revenue realization rate (RRR), goes hand-in-glove with the third KPI, the net collection rate (NCR). The RRR reflects collected and written off charges, while the NCR illuminates potential collections vs. actual collections. Without knowing the NCR, a high RRR could reflect impeccable claim adjudication and collection processes – but be careful because an aggressive policy of writing off denied claims and patient balances may lend itself to a high RRR but disguise leaking of money through ineffective write-off policies. The NCR uses contractual adjustments in the equation vs all adjustments. A high NCR typically reflects timely billing, adjudicated claims and collected patient balances, while a low NCR can be evidence of uncollected balances and faulty billing procedures. Never look at RRR without understanding your NCR as well.
Resolve Rate KPI
If a medical group’s first-pass resolve rate KPI is high – at least 95% – personnel and processes are firing on all cylinders. If the unexpected claim denial is more than 4%, however, the practice is likely bogged down in a morass of problems with eligibility verification, coding, authorizations, enrollment or credentialing. Because an unexpected claim denial costs a medical group an average of $49 to rework, a low first-pass resolve rate not only impacts cash flow, but it also adds to staffing costs.
Course Correction KPI
The final KPI – average reimbursement per encounter – enables a medical group to make course corrections before it becomes lost in the wilderness. When benchmarked to the group’s specialty, this KPI reveals the practice’s potential for bringing in additional revenue. If the KPI is on the upswing when compared with historical results, it’s typically a positive indicator that performance is optimized. If it’s on a downward trajectory, the KPI is a driver for assessing and improving collections, coding or fee schedules, or for diversifying the group’s patient or payer mix to get back on the road to financial health.
Regularly running analytics that matter clears away the haystacks of useless data and enables medical groups to thread the needle of profitability through data-driven decisions – in 2017 and beyond. Don’t let another year go by without resolving to track your practice’s KPIs
Patti Peets is the Director of Revenue Cycle Management for CareCloud. An expert in revenue cycle management (RCM) with more than 20 years of experience, Patti works closely with medical practices to improve business processes and results. For more information, to understand both what metrics to look at and how to interpret them to boost financial performance, view Patti’s free webinar “Are You Tracking the Right Metrics in 2017?” or download her free ebook, “Solve the Medical Group Profitability Puzzle: Track the Metrics That Matter.“
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