Six fundamental revenue cycle management metrics

December 26, 2018

Here are six financial indicators that physicians and practice leaders/administrators should review and discuss each month.

Monitoring standard revenue cycle management metrics is a smart way to focus on the financial indicators that matter most. Consistent review is essential to identifying collection slow downs, productivity fall offs, and potential risk issues before they become acute.

Here are six financial indicators that physicians and practice leaders/administrators should review and discuss each month. Report them in a dashboard, using an Excel spreadsheet or a business intelligence platform. Most practice management systems can generate charge, payment, adjustment, and receivables data by physician, payer, location, and high-volume CPT codes. We recommend that the management metrics be calculated for each of these categories. To compare yourself to industry norms, include MGMA's benchmark data for your specialty in your dashboard.

1. Gross collection percentage. The gross collection percentage is a comparison of the total payments received during the period, net of refunds, to the total amount of charges billed. Due to fee schedule, subspecialty focus, and payer mix variations, it is not possible to compare this figure to other practices or even between physicians within a practice, because service differences exist. This metric is useful for tracking a physician, sub-specialty, or site over time to assess whether relative collections are improving or not. 

Formula: [Total Payments - Refunds] / Total Charges

2. Net collection percentage. This metric assesses collection team performance.Subtract contractual adjustments from charges before comparing the result to receipts and you neutralize the skewing factors of fee schedule and contract rate variance. In effect, net collection percentage measures your success collecting ‘collectible’ dollars. 

Formula: [Total Receipts - Refunds] / [Total Charges - Contractual Adjustments]

Note: To ensure accuracy, the contractual adjustments amount must excludeany non-contractual adjustments- such as “no pre-certification" and "beyond filing deadline." 

Keep in mind that the net collection percentage can shift based on three factors: charges, payments, and adjustments. If adjustments increase in comparison to payments and charges, the net collection percentage result will appear improved.  This makes it important to confirm that staff are accurately posting adjustments, and that accounts are not being written off, rather than collected or appealed. 

3. Days in receivables (days in accounts receivable (A/R)). Days in A/R measures the average number of days it takes for an account to be paid. Turnaround expectations will vary by payer. Our firm suggests a best practice target of 20-35 days depending on payer mix and specialty. Surgical specialties typical have higher days in A/R than office-based specialties. 

Formula: [Total Accounts Receivable / Average Daily Charges]. Average Daily Charges = 3 Months of Charges/90 Days.

4. Percentage of A/R over 90 Days old. As claims become older, they are more difficult and expensive to collect. Large amounts of claims over 90 days old can indicate problems with account management and/or lack of timely payment, which is why successful practices aim for 20 percent of less of total A/R in the 90 day or older category. 

Formula: [Total Receivables > 90 Days / Total A/R]. Many practice management systems calculate the percentages on the A/R report.

5. Work relative value units (RVUs).The best measure of productivity is benchmarking a provider’s work RVUs (wRVUs) against published figures for their specialty. Many practice management systems will calculate wRVUs. If not, CMS publishes work RVUs in the physician fee schedule

6. Credit balances. Credit balances are often overlooked as a key metric, and many practices don't review them regularly. Because they are a potential liability, managers must keep tabs on total credit balances outstanding. 

Practices must refund plan and patient credit balances. "We wait until the payer requests it" puts your practice at risk. We recently worked with a practice that had more than $370,000 in credit balances and no standard process for issuing refunds. They were ripe for an audit. Don't let this be your practice. Verify then refund credit balances as part of accounts payable, every month.

Cheyenne Brinson, MBA, CPA, is a Chicago-based, senior consultant with KarenZupko & Associates Inc., a consulting and education firm that has been helping physicians increase revenue, optimize efficiency, reduce risk and improve the patient experience for more than 30 years.