Breaking Down the Top 5 Healthcare Revenue Cycle KPIs

Net Days in Accounts Receivable

The KPI for net days in accounts receivable (A/R) indicates revenue cycle efficiency. Providers can establish the KPI by dividing the net A/R by the average daily net patient service revenue, according to HFMA. The KPI is a key metric of financial management.

HFMA clarifies that providers can find the data for the KPI on the balance sheet. The data comprises the net of credit balance, allowances for uncollectible accounts, charity care discounts, and contractual allowances for third-party payers. The data needed includes:

• A/R outsourced to a third-party company but not classified as bad debt
• Medicare Disproportionate Share Hospital (DSH) payments
• Medicare Indirect Medical Education (IME) paid on an MS-DRG account basis
• A/R related to patient-specific third-party settlements where a “patient-specific settlement” is a payment applied to an individual patient account
• Critical access hospital (CAH) payments and settlements

However, providers should omit non-patient A/R, 340B drug purchasing program revenue (if it is not recognized as a patient receivable in the patient accounting system), and capitation and premium revenue related to value- or risk-based contracts.

Additionally, providers should exclude non-patient-specific third-party settlements (i.e., payments not applied directly to patient accounts that may appear as separate, lump-sum payments unrelated to a specific account). These settlements may include DSH, CRNA, and Direct Graduate Medical Education (DGME) payments, as well as cost report settlements.

HFMA also notes that organizations reporting hospital data should exclude state or county subsidies, ambulance services, tax and match type assessments, retail pharmacy, post-acute services, and physician practices or clinics unless Medicare-recognized, provider-based status clinics.

If the organization reports ambulatory data, they should also exclude post-acute care services, hospital services, and physician practices or clinics that are Medicare-recognized, provider-based clinics already included in the hospital data reported. But, if organizations are not reporting hospital data or not reporting Medicare-recognized provider-based clinics, they do not need to exclude these clinics.

Finally, if organizations report post-acute care data, they should exclude patient cash collected for ambulance, hospital, and all ambulatory services.

To determine the average daily net patient service revenue, providers should look at the most recent three-month daily average on the organization’s income statement. The value is the gross patient service revenue minus contractual allowances, charity care, and doubtful accounts. HFMA notes that the average daily net patient service revenue does not appear on the audited income statement.

The average daily net patient service revenue includes Medicare DSH payments and Medicare Indirect Medical Education (IME) paid on an MS-DRG basis. It excludes the same financial data as net A/R.

The higher the net days in A/R, the rockier the revenue cycle. The American Academy of Family Physicians (AAFP) recommends days in A/R to stay below 50 days at a minimum, while 30 to 40 days is preferable.

Cost to Collect

Another key financial management metric is cost to collect. The KPI is a trending indicator of operational performance and indicates the efficiency and productivity of revenue cycle processes, HFMA explains.

To find the cost to collect KPI, providers should divide the total revenue cycle cost, as seen on the income statement, by the total patient service cash collected, which is on the balance sheet.

HFMA clarifies that revenue cycle costs include:

• Expenses related to patient access (e.g., eligibility and insurance verification, cashiers, centralized scheduling, pre-registration, admissions/registration, authorization/pre-certification, financial clearance, Medicaid eligibility, and financial counseling)
• Patient accounting (e.g., billing, collections, denials, customer service, subscription fees, collection agency fees, charge description master/revenue integrity, cash application, and payment variances)
• Health information management (e.g., transcription, coding, clinical documentation improvement, chart completion, and imaging)

These costs, according to HFMA, “should be reported with their respective functional area’s costs as applicable: salaries and fringe benefits, subscription fees, outsourced arrangements, purchased services, software maintenance fees, bolt-on application costs and their associated support staff, IT operational expenses related to the revenue cycle, record storage, contingency fees, and transaction fees.”

Revenue cycle costs to avoid are “hard” IT costs, such as licensing fees, servers, hardware, and any full-time equivalent (FTE) that supports those costs, as well as lease and renting expenses, physical space costs, and scheduling if performed in the service departments.

Meanwhile, total patient service cash collected should include all patient service payments posted to patient accounts (including undistributed payments), bad debt recoveries, Medicare DSH payments, and Medicare IME payments. The metric excludes patient-related payments and settlements, like capitation, DGME, and Medicaid DSH, as well as the reporting requirements listed above for net days in A/R.

Various sources say the industry standard for cost to collect is typically around 2 to 4 percent of net patient revenue.

Clean Claim Rate

Claim denials are a significant and costly problem for healthcare organizations, so ensuring a high clean claim rate is vital to optimal performance. The metric uses claims data to assess revenue cycle performance and indicate the quality of data collected and reported, HFMA states.

The clean claim rate is the proportion of claims that pass edits with no manual intervention, which providers can find using the number of claims accepted into the claims processing tool for billing. HFMA says the amount includes primary, secondary, and tertiary claims or all applicable 837 types. However, the KPI excludes claims flagged with warnings because intervention is required, claims directly submitted to a third-party payer, and claims “warned” in the tool for print and hardcopy submission.

Providers should divide the number of claims accepted into the claims processing tool for billing before submission by the value found using the above data. This value includes primary, secondary, and tertiary claims, as well as claims “warned” because intervention other than printing is required. However, it excludes direct submissions to third-party payers and “warned” claims for print and hardcopy submission.

A clean claim rate is essential to reducing the number of denied claims and identifying areas for claims management improvements. This rate may indicate issues with patient data collection, timely claim submission, and coding.

Healthcare organizations should aim for a clean claim rate of 90 percent or higher, with some sources citing a 95 percent rate as industry standard.

Bad Debt

Healthcare organizations incur bad debt when they cannot get payment for the care they provide. Bad debt levels are elevated compared to a year ago as providers experience shifts in insurance, such as the unwinding of Medicaid continuous enrollment flexibilities. Providers also see more bad debt as their patients owe more out of pocket for medical care.

To identify an organization’s bad debt position, HFMA suggests using an account resolution KPI that is a trending indicator of collections effectiveness and financial counseling. By dividing bad debt by gross patient service revenue, providers can better understand their organization’s ability to collect accounts and identify payer sources causing revenue leakage.

The KPI is relatively straightforward compared to other commonly tracked metrics since bad debt and gross patient service revenue can be found on an organization’s income statement. However, HFMA states that bad debt is the total deduction shown on the income statement for the reporting month and is not the amount written off from A/R. Bad debt may also be called “Provision for Uncollectible Accounts” or “Provision for Bad Debt,” HFMA says.

Acceptable bad debt levels will vary by organization type, with hospitals typically reporting higher levels than physician practices. Patients tend to present to the hospital or emergency department when they do not have insurance or are underinsured. However, every organization should minimize bad debt to prevent revenue leakage and losses.

Cash Collection As A Percentage of Net Patient Services Revenue

A KPI for cash collection as a percentage of net patient services revenue assesses an organization’s financial health by understanding its revenue cycle’s ability to transfer revenue to cash.

The financial management KPI divides the total patient service cash collected by the average monthly net patient service revenue statement to give insight into an organization’s fiscal integrity.

The total collected service cash is the monthly revenue from patient service payments posted to patient accounts, including undistributed payments, bad debt recoveries, Medicare DSH reimbursement, and Medicare IME payments. The value is net refunds, HFMA says.

Provider organizations should exclude some total collected patient service cash, including remittances for which the cash has not been deposited in the bank, non-patient-related settlements or payments, and non-patient cash (e.g., retail pharmacy, gift store, and cafeteria).

Reporting requirements also apply. Organizations reporting hospital data should exclude state or county subsidy, ambulance services, tax and match type assessments, retail pharmacy, post-acute and ambulatory services, and physician practices or clinics unless they are Medicare-recognized, provider-based status clinics.

If organizations report ambulatory data, they should exclude state or county subsidy, tax and match type assessments, post-acute care services, and hospital services, as well as physician practices or clinics that are Medicare-recognized, provider-based clinics already included in the hospital data reported. The latter should only be included if organizations do not report hospital data or include Medicare-recognized, provider-based clinics in hospital data.

Finally, organizations reporting post-acute care data should exclude patient cash collected for ambulance, hospital, and ambulatory services.

The KPI should be close to 100 percent to ensure strong financial health and integrity. Values between 90 and 95 percent may indicate revenue leakage and warrant further investigation.

Conclusion

Starting with basic healthcare revenue cycle performance KPIs can jump-start an organization’s journey to financial success. These five KPIs can establish a picture of an organization’s financial health and help leaders identify potential sources of revenue leakage.

From here, organizations should be purposeful in selecting other revenue cycle KPIs to track financial health. HFMA’s MAP Keys have expanded to 29 KPIs for hospitals and systems, ambulatory providers, physician organizations, post-acute care, and integrated delivery systems. Organizations can select which KPIs across patient access, pre-billing, claims, account resolution, and financial management categories to track depending on where they want to improve, whether reducing denial rates, increasing point-of-service cash collections, or targeting aged A/R by payer.

Whatever KPIs an organization decides to track, providers must ensure they track consistently to identify trends. Providers can use that information to compare their performance to their peers to identify more areas of improvement and ways to gain a competitive advantage.