Revenue cycle is a critical component of any medical practice, as it directly impacts the financial health and success of the organization. Key performance indicators (KPIs) are essential metrics that help medical practices measure and track their revenue cycle performance. 80% of medical groups look at their KPIs less than once a quarter. By monitoring these KPIs more closely, at least monthly, it allows practices to identify areas for improvement, streamline processes, and maximize revenue.
There are several key performance indicators that medical practices should regularly monitor to ensure the efficiency and effectiveness of their revenue cycle processes and overall operations.
Some of the most important KPIs include:
Accounts Receivable (AR) Aging: This KPI measures the amount of time it takes for a practice to collect payment from patients and insurance companies. Practices should aim to keep their AR aging at less than 25% over 120 days (AR > 120). Ideally no more than 9-15% of AR should be over 120 days old. A higher number of outstanding AR over 120 days can indicate inefficiencies in the billing process and create patient dissatisfaction, decreased cash flow, and an increase in administrative costs for staff correcting the issues.
Days in Accounts Receivable (AR Days): This KPI measures the average number of days it takes for practice to collect payment for services rendered. Benchmark should be 30 days, however some specialties are 40 days. Less than 30 days in AR is preferred and shows the health of a practice’s revenue cycle. A lower number of days in AR can be indicative of a more efficient revenue cycle process but only if it is combined with the net collection rate. An unhealthy AR days rate can reflect errors in claims submissions, coding issues, insurance verification errors, credentialing issues, and more, so it is critical to determine the root cause of the errors in order to rectify the issues.
Net Collection Rate: This KPI measures the percentage of revenue collected after deducting any contractual adjustments or write-offs. A higher net collection rate indicates that the practice is effectively managing its revenue cycle and maximizing revenue. Benchmark is 95-96%. If the net collection rate is lower than 95-96%, it may reduce your margins and revenue.
Denial Rate: The denial rate measures the percentage of claims that are rejected or denied by insurance companies compared to the number of claims submitted. Benchmark should be from 6-10% for an initial denial rate and reviewed monthly, as a high denial rate can result in delayed payments and lost revenue for the practice. A review of the final denial rate is important to reflect how many of the appealed claims were denied again.
Clean Claim Rate: This KPI measures the percentage of claims that are processed and paid on the first submission. A high clean claim rate indicates that the practice is submitting accurate and complete claims, which can help expedite the payment process. Benchmark 95% on first pass.
These KPIs work hand in hand and monitoring these key performance indicators monthly can help medical practices quickly identify challenging areas that require immediate attention. When unmonitored, losses in revenue and patient dissatisfaction can arise. By regularly tracking these metrics and implementing strategies to address any issues that arise, practices can optimize their revenue cycle performance and achieve financial success.
Andie Tena is Assistant Vice President, Practice Management Services. Questions or comments related to this column should be directed to ATena@CAPphysicians.com.