The United States spends an astronomical amount of money each year on healthcare. That’s not news. As we pointed out in a recent blog, it averages about $11,582 per person for a total of $4 trillion annually. 

A less known fact is that approximately fifteen cents of every U.S. healthcare dollar goes toward revenue cycle inefficiencies. For healthcare providers, those inefficiencies typically result in an increased number of billing errors, slower payment, lost revenue, and unnecessary administrative time and expense. Such issues put a financial strain on providers striving to achieve value-based care in an already tight market. Even before the COVID-19 pandemic, the median hospital margin was only 3.5%.

hospital gloves

By building and maintaining a strong revenue cycle, healthcare providers can mitigate the costly effects correlated with reimbursement delays and poor cash flow. They can benefit from increased cash flow, reduced cost-to-collect, greater point-of-service cash collections, and fewer denials. 

A key to engineering a strong revenue cycle is tracking key performance indicators (KPIs) specific to revenue cycle management (RCM). Below, let’s examine 3 impactful KPIs:

  • net days in accounts receivable (A/R)
  • cash collection as a percentage of net patient services revenue
  • clean claim rate

Each of these is 1 of the 29 Measure, Apply, Perform (MAP) Keys developed by the Healthcare Financial Management Association (HFMA).

KPI #1: Net days in accounts receivable

This particular KPI is designed to give an overview of the efficiency of the revenue cycle. It’s not the same as the days to pay KPI.

Providers can calculate this metric by dividing their net A/R by their average daily net patient service revenue. The net A/R amount is found on their balance sheet while data for their average daily net patient service revenue is located on their income statement.

Below is the equation:

Net A/R                                 =                               Balance sheet
Average daily net patient service revenue            Income statement

The average daily net patient service revenue also can be tabulated by dividing a provider’s total annual sales by 365. Either way, the industry standard for this KPI is 35 days, which is an average collection period. According to the Medical Group Management Association (MGMA), days in A/R should stay below 40 days at minimum. Providers with a number much higher than the benchmark most likely have RCM issues that should be addressed or risk continued cash flow problems.

KPI #2: Cash collection as a percentage of net patient services revenue

Designed to examine a provider’s ability to transfer net patient services revenue to cash, this KPI is figured by taking the total patient service cash collected and dividing it by the average monthly net patient services revenue. The collection goal should be, at a minimum, 100% of the provider’s monthly average net revenue for the preceding 3 months.

The higher the percentage, the better.

Below is the equation:

Total patient service cash collected                  =      General ledger
Average monthly net patient service revenue           Income statement

KPI #3: Clean claim rate

Providers’ claims processing workflows determine how fast they get paid. Clean claim rate is calculated by dividing the number of claims paid on first submission by the total number of claims accepted into the claims processing tool for billing.

Below is the equation:

Number of claims that pass edits requiring no manual intervention   =   Claims processing tool
Number of claims accepted into claims processing tool for billing           Claims processing tool

The industry standard for this KPI is between 75% – 85%, and a lower number means a provider is ineffectively processing her claims. Ideally, a provider’s clean claim percentage should be 95% or higher because it results in accelerated cash collection and lower revenue collection costs.

revenue cycle expert

Here at Harmony Healthcare, we deliver expert revenue cycle management consultants to providers of all sizes on a national basis and across all care settings. We can identify processes to ensure compliance adherence and reimbursement accuracy and to boost organizational revenue.

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