Key Performance Indicators (KPIs) within the healthcare revenue cycle play a vital role in monitoring financial well-being and optimizing revenue capture for physician practices, clinics, hospitals, integrated health systems and other entities when the goal is to provide financially sustainable, high-quality, cost-effective care—especially in rural America.
The most valuable insight provided when monitoring your revenue cycle KPIs frequently is to find opportunities for improvement, whether it is investing in education for your team, or — if KPIs are severely underperforming — identify that you urgently need professional revenue cycle management services.
In our day to day, we use industry-standard metrics from the Healthcare Financial Management Association’s (HFMA’s) MAP Keys, which serve as benchmarks for excellence in the healthcare industry’s revenue cycle. Here are the top 5 KPIs that help us identify bottlenecks, make informed decisions, and implement effective strategies for continuous improvement in each one of our clients:
Duration of Net Accounts Receivable
The KPI focusing on net days in accounts receivable (A/R), stands as a barometer of efficiency within the revenue cycle. According to HFMA, providers calculate this KPI by dividing the net A/R by the average daily net patient service revenue.
Determining the average daily net patient service revenue involves examining the most recent three-month daily average from the organization’s income statement.
The higher the net days in A/R, the more unstable the revenue cycle. Industry leaders suggest keeping days in A/R below 50 days at a minimum, with 30 to 40 days being a more favorable range.
Expense of Collection
Another crucial metric in financial management is the cost-to-collect ratio. Which results from dividing the total revenue cycle cost, reflected in the income statement, by the total cash collected from patient services on the balance sheet and the results show the efficiency and effectiveness of revenue-related operations.
The total patient service cash collected should comprise all payments posted to patient accounts for services rendered, including undistributed payments, bad debt recoveries, Medicare and Medicare payments. However, it excludes patient-related payments and settlements like capitation, DGME, Medicaid DSH, along with specific reporting requirements for net days in A/R.
Industry benchmarks suggest that the standard cost-to-collect ratio typically ranges between 2 to 4% of net patient revenue.
Clean Claim Rate
The clean claim rate represents the percentage of claims that successfully pass without requiring manual intervention, including all claims accepted into your claims processing tool for billing, with primary, secondary, and tertiary claims or all relevant 837 types.
A high clean claim rate is vital for reducing claim denials and identifying areas for enhancement in claims management. It serves as an indicator of potential issues in patient data collection, timely claim submission, and coding accuracy within the revenue cycle.
Healthcare organizations are encouraged to target a clean claim rate of 90% or higher, with some industry sources advocating for a standard of 95%. Achieving and maintaining such rates is fundamental for an efficient revenue cycle management and minimizing financial losses associated with claim denials.
Healthcare organizations encounter bad debt when they are unable to secure payment for the care they provide. This is an affliction we see increasing, as higher levels of debt continue to rise with shifts in insurance dynamics and out-of-pocket expenses for medical services in underserved areas with low-income population.
By dividing the bad debt by the gross patient service revenue, providers can gain insights into their ability to collect accounts and pinpoint payer sources contributing to revenue loss. Acceptable levels of bad debt vary based on the type of organization, with hospitals typically reporting higher levels compared to physician practices.
Percentage of Net Patient Service Revenue Collected in Cash
This KPI evaluates cash collection as a percentage of net patient services revenue measuring your organization’s financial well-being by assessing its revenue cycle’s efficiency in converting revenue to cash.
This financial management KPI involves dividing the total cash collected from patient services by the average monthly net patient service revenue statement, offering valuable insights into an organization’s fiscal robustness.
Ideally, if this metric reaches 100%, shows strong financial health and integrity in your organization. However, values falling within the range of 90 to 95% might indicate potential revenue leakage, requiring a further assessment.
AMS: Your Revenue Cycle Manager
When your Revenue is on the line, AMS Solutions can help. With over 30 years of experience, we are your full-service healthcare revenue cycle management partner. Schedule a Free Consultation with our team now!