- Lack of accurate and regular KPI reporting
- Days in AR > 60 days
- Denial rates > 10%
- AR 90+days > 30%
For everyone involved in healthcare finances, it is important to understand the red flags in revenue cycle management. For all healthcare providersa, revenue cycle is a key cog in cash flow and financial health. However, monitoring a providers’ financial performance by tracking key performance indicators (KPIs) is not a skill set that everyone needs to master. The first indicator of poor performance is the lack of KPI reports. Some organizations are not producing accurate and reliable KPI reports on a daily, weekly, or monthly basis. The lack of these key reports should be your first red flag in quickly assessing the revenue cycle.
Here are some critical, yet simple, key performance indicators (KPIs) to start your review. If two out of three of these metrics are above the red flag zone, additional analysis is need to identify the root causes.
1. Days in Accounts Receivable (DAR)b
This allows you to see how long it takes a provider to get paid for services provided. The lower the number, the faster a provider is receiving payment on average. AAFP recommends practices aim for an average of 30-40 days in AR. Kareo recommends all providers work towards a 40-day average for smooth cash flow and operations. When a provider’s DAR rises above 60 days, the organization may have substantial revenue cycle issues. Common causes for elevated DAR include:
- Ability of an organization to send claims timely – check the days billing outstanding
- Credentialing issues by facility or practitioner
- IT issues with clearinghouse or billing system – check any recent changes to systems or payor policies
2. Denial Ratec
Denial rate is an indicator of a provider’s cash flow. Lower denial rates mean more cash. A providers’ ability to transmit clean claims will also impact the downstream workload, increasing the cost of revenue cycle. The American Medical Association (AMA) estimates physician offices have lost more than $43B in incorrectly denied or rejected claims by insurers since 2010 while the health care system loses as much as $210B annually from the inefficient and unpredictable system of processing claims.
Are your denial rates in line with industry benchmarks? 6.5% is the benchmark for multispecialty practices per MGMA’s 2019 DataDrive Practice Operations Report. While the American Academy of Family Physicians (AAFP) recommends aiming for 5%. A denial rate above 10% is a red flag, and the next level analysis should include:
- Insurance verification and authorization
- Coding and charge entry errors
- Lack of a pre-filing coding audit – check the billing system/clearinghouse rejection protocols
3. Percentage of Accounts Receivable (AR) > 90 Daysd
This is a generally accepted industry indicator that measures the ability of a provider to collect on claims prior to 90 days. Claims more than 90 days are less likely to be collected for many reasons including the timely filing deadlines imposed by health insurance carriers. To ensure a provider does not lose money for services provided, it is critical to address these claims.
According to MGMA, the median % of AR > 90 days is 21%, and the top tenth percentile is 14%. Based on the best practices of EqualizeRCM clients, the top performing providers have an AR > 90 days less than 10% of the total. Providers’ with an AR > 90 days above 30% are performing poorly and require an analysis of the common root causes:
- AR management protocols creating claim leakage
- Lack of denial protocols designed to address electronic and other denials – check the zero-payment posting process
- Non covered services by carrier – potential holes in the patient collection process
If a provider is not meeting the industry benchmarks, it is critical to dive deeper to understand the root cause. Providers with any of these red flags indicate potential financial jeopardy. These organizations need to move quickly to assess the underlying problems. Providers, who aren’t on par with within the industry, are leaving money on the table. If you know a provider, who can improve their revenue cycle management, contact EqualizeRCM for a free consultation till April 30.
- Healthcare providers refers to hospitals, physician practices, urgent care centers, community health centers, laboratories, DME suppliers, and all other providers of healthcare services. However, the metrics utilized in this document are focused on physician practices, urgent care centers, community health centers, and all other professional fee services.
- Days in AR = Total outstanding AR balance divided by average daily gross charge amount or (gross charges/365 days).
- Denial Rate = Total amount of denied claims within a selected time frame divided by the total amount of claims submitted within that time frame.
- % of AR > 90 days = AR > 90 days divided by the total AR. Calculate separately by patient and specific insurance carrier.
- ^ Eramo, L. (2016, March 7). 10 Tips to Improve Your Average Days in A/R. Retrieved from Kareo, Inc.: https://www.kareo.com/blog/article/10-tips-improve-your-average-days-ar
- ^ Academy of Medicine of Cleveland & Northern Ohio (AMCNO). (n.d.). AMA Unveils New Health Insurer Report Card. Retrieved from Academy of Medicine of Cleveland & Northern Ohio (AMCNO): http://www.amcno.org/archive/main/ama_unveils_new_health_insurer_062008.htm
- ^ Hurt, A. (2019, September 4). Resubmitting claims: Get it right the second time. Retrieved from Physicians Practice: https://www.physicianspractice.com/medical-billing-collections/resubmitting-claims-get-it-right-second-time
- ^ LaPointe, J. (2017, March 10). Top 4 Claims Denial Management Challenges Impacting Revenue. Retrieved from RevCycleIntelligence, part of the Xtelligent Healthcare Media: https://revcycleintelligence.com/news/top-4-claims-denial-management-challenges-impacting-revenue