At a Glance
- DRO is a crucial measure of billing performance, calculated by adding current total receivables outstanding and credit balances and dividing by the average daily charge.
- Other important KPIs are the percentage of receivables over 120 days, ideally less than 10%, and the net collection rate, which reflects the ability to collect contracted allowable rates from both payers and guarantors.
In today’s challenging reimbursement era, there seems to be no end in sight to the complexities of medical billing.
Despite the obstacles, you must be on top of your game to ensure that the revenue cycle is optimized. There’s always plenty of work to do, but how do you know if your revenue cycle — and the staff you employ to carry out your game plan — is performing at full speed? Developing a dashboard of vital performance metrics can maintain your focus on success.
Consider these key performance indicators (KPIs) to establish the framework for your revenue cycle dashboard.
Days in receivables outstanding (DRO)
Without a doubt, the best overall indicator of billing performance is days in receivable outstanding (DRO). DRO must be measured consistently to be meaningful.
Calculate DRO by adding your current total receivables outstanding and the sum of your credit balances.
Note: Adjusting for credits is important, as credits offset receivables, thus masking the possibility of poor performance.
Divide that figure by your average daily charge. You can calculate your average daily charge by taking the previous 3 months’ worth of charges, and dividing by 90.
Although you can determine the average daily charge based on 365 days, using 90 days accounts for seasonality, growth, and other fluctuations in business.
Your DRO should be in the range of 30 to 40 days, although there are several factors that may cause it to fall outside of this target. The lower, the better.
You can improve DRO results through robust time-of-service collections, including collection of copayments, coinsurance, unmet deductibles, and pre-service deposits. Insurance verification and timely, clean charges contribute to success as well.
“Your DRO should be in the range of 30 to 40 days, although there are several factors that may cause it to fall outside of this target. The lower, the better. ”
Factors outside of your control, such as dealing with challenging payers like workers’ compensation and having a bevy of patients on payment plans, may lead to above-range DRO results, even if your revenue cycle operations are in order.
In sum, DRO is a terrific KPI. However, the result is a blend of internal and external factors.
Receivables outstanding over 120 days
Monitor the receivables sitting in your aged trial balance to determine if your efforts are paying off.
Obviously, you’d prefer to see that 100% of your receivables are under 120 days, but that’s unrealistic.
Shoot for less than 10% being over 120 days. As noted above, be sure to exclude the credits when analyzing the receivables over 120 days.
The same factors cited above for DRO may positively — or negatively — impact your ability to beat or fall short of the 10 percent range.
Although focusing on the “over 120 day” category is recommended, you can certainly measure your success by evaluating the percent over (or under) any of the aging categories. The key is to choose a category — and stick to it.
Net collection rate
Although it’s nice to measure your collections as a percent of gross charges (commonly referred to as the gross collection rate), you can’t use the result to judge the performance of your revenue cycle.
Since fee schedules, payer mix, and contracts vary among providers, your gross collection rate will naturally be different. Instead, focus on the net — also known as “adjusted” — collection rate.
Of each dollar you’re allowed to collect, what percentage of it do you actually collect? For example, if the allowable for USA Insurance is $76.40 for a 99212, did you collect all of that money?
You’ll have to chase down that money from USA Insurance and, particularly in today’s era of patient financial responsibility, from the guarantor, too. As a result, the net collection rate reflects your ability to collect the contracted allowable rate, which is a combination of payments made from both the payer and the guarantor.
A 100% net collection rate would be ideal, but the range to look for is 96% to 99%. There are a couple of important factors to recognize: the 1% to 4% left on the table is bad debt, including monies you’ve written off to a collection agency and other uncollectables.
Furthermore, if your rate is too good to be true, it probably is. Indeed, if you’re reporting 100% (or more), month after month, it may be a result of wide variability in productivity or revenue (and thus signal a potential need to redesign billing processes) — or it may be a function of how your staff is treating adjustments.
Let’s say you contract with USA Insurance for $76.40 for a 99212. Assume that the claim is denied due to untimely filing, which is a non-contractual adjustment. Missing a timely filing deadline — and having to adjust off the expected money — is one of those uncollectables that causes the net collection rate to dip below 100%, as it should.
If your staff incorrectly categorizes the adjustment as a contractual adjustment, then neither the payment nor the allowable are included in the rate. If uncollectables are all written off as contractual adjustments, you’ll appear to be collecting 100% of the dollar — even when you’re really not.
To keep it real (and thus, find opportunities to improve collections), you need to differentiate between contractual and non-contractual adjustments — and work on reducing the latter. This dynamic is challenging to monitor, but it opens a treasure chest of opportunities.
The last, but certainly not least, key performance indicator is measuring collections on a weekly, if not daily, basis.
Although cash — or more formally referred to as net patient services revenue (NPSR) — can’t be benchmarked, you can ensure that its flow is the same as — or better than — the previous time period.
You’ll also want to keep in mind that cash may vary from week to week (or day to day). It may increase when new physicians and/or services are added or decrease if patients cancel procedures, physicians take time off or resign, or other events that may choke off cash.
Fixing common revenue cycle problems
While some percentage of the complaints that patients bring to your office will inevitably get better with the passage of time, the same cannot be said for the performance of the revenue cycle. Once the car’s wheels go off the paved highway, it’s not too long before you are in a ditch, financially speaking.
Here’s what to do with the knowledge you gain by monitoring key performance indicators:
Use your KPI data
Falling within the industry norms on key measures should certainly be your goal, but it’s easy to be distracted by the multitude of external challenges that influence your performance. For this reason, recognize the upper limits — that is, the OMG (“oh, my gosh,” for my non-texting friends) factors:
- For DRO, get nervous when it rises past 50 days
- For receivables over 120 days, set the panic alarm to go off at 20%
- For net collection rate, investigate staff performance and office policies when it hits 90% or lower
While underperforming at times on some or several of these indicators may be a fact of life in your situation, it pays to have a line in the sand that will signal you to dig deeper for opportunities to improve performance.
Don’t allow too many excuses
Verify insurance before patients present, and don’t forget to check coverage on hospital and other non-office services. For the latter, even if the services have already been performed, you are better off identifying insurance problems before the claim is transmitted instead of 30 or 60 days later when the claim finally bounces back to you.
“Many low-performance revenue cycle leaders hide behind the complexity of the revenue cycle; don’t let them fool you. ”
Encourage collections at the time of service, focus efforts on identifying and reducing denials, and work accounts fully every 30 days. Most of all, never accept the response, “It’s all too complicated to explain; you wouldn’t understand …”
Many low-performance revenue cycle leaders hide behind the complexity of the revenue cycle; don’t let them fool you.
Don’t be misled
Carrying credit balances masks your true performance, making it look much better than it really is. Keep a tight rein on credits; use the 60-day mark for getting those processed back to the correct party.
Although payment plans may be a necessity of your patient collections process, categorize them with a different payer class. Don’t bury payment plans in the middle of your patient receivables. Classify these accounts separately, and report your DRO and receivables over 120% with — and without — payment plans.
The influence of automation can’t be overstated. Improve your cash flow by automating everything you can — from insurance coverage and benefits eligibility verification to charge scrubbing. Create macros for appeals, automatically pulling in data to boost staff efficiency — and execute sophisticated work queues to keep outstanding work effectively prioritized.
Deploy robotic process automation (RPA) for repetitive tasks like claims status lookups, and chats for customer service.
In sum, embrace the multitude of technological tools available for revenue cycle operations.
Writing off a bunch of uncollected money will certainly bring your DRO and percentage of receivables over 120 days into alignment with industry standards, but it won’t tell the whole story of your financial performance.
Worse, it will give you an inaccurate snapshot of the health of your operations. Monitoring all the key performance indicators together — and doing so weekly, or even daily — means there is nowhere for poor financial performance to hide.
You simply can’t get better until you know where improvement is needed. Ultimately, that’s the goal of the key performance indicators — not to judge, but to improve.
|When to be concerned
|30 to 40
|A/R over 120
|96% to 99%
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