Five Revenue Cycle Metrics Profitable Practices Are Measuring

Measuring your practice’s financial health plays a significant role in future growth. When you understand the metrics that impact your revenue cycle, you can manage your overall process better by making strategic changes to increase revenue and lower costs.

Independent medical practice owners and financial executives have many responsibilities. Those who are most successful focus their efforts where it has the greatest impact. You can learn a lot by focusing your attention on metrics that help you assess revenue cycle health.

Here are five quantifiable metrics within your revenue cycle that you should measure on a regular basis.

1. First pass resolution rate 
2. Net collection rate 
3. Denial rate 
4. Days in accounts receivable 
5. Cost to collect 

Improvements in each of these areas can have a substantial positive impact on your medical group´s overall financial outcomes. Here is a little more detail on why successful practices measure these metrics and why you should too:

1.  First pass resolution rate

The first pass resolution rate, or FPRR, measures the number of claims that get resolved the first time they are submitted. FPRR is an indication of the success of your revenue cycle management process, which spans from the moment a patient schedules an appointment to post-visit tasks, such as coding and billing.

Incorrect or missing data are the most common reasons for claims rejections. Submitting claims correctly the first time is a more efficient use of staff time, reduces rework costs and leads to claims being settled more quickly, thus bolstering the bottom line.

To measure your FPRR, take the total number of claims resolved on the initial submission divided by the total number of claims resolved during the same period of time. An ideal benchmark for this metric is 90 percent or above.

2.  Net collection rate

The net collection rate measures a practice´s effectiveness in collecting reimbursements. It refers to the percentage of reimbursements achieved out of the total amount of reimbursements allowed based on payer contracts.

Calculating your net collection rate is useful in determining how much revenue you´ve collected out of the total amount of revenue you expect to collect, and in turn the amount of potential revenue left to collect for a given period.

To calculate your net collection rate, divide payments received by charges net of adjustments for a given time period. We recommend using a 12-month rotating schedule for analysis reporting to keep calculations consistent.

3.  Denial rate

The denial rate is the percentage of claims denied by payers during a given time period. A low denial rate typically reflects a healthy cash flow within your practice, while a high denial rate tends to indicate a myriad of internal problems which result in revenue capture delays and losses.

According to the Medical Group Management Association, the top reasons claims get denied include lack of prior authorization, non-covered procedure, medical necessity requirements not met, incorrect information on the claim, payer processing errors, duplicate claims and the provider is out of network.

To calculate your practice’s denial rate, add the total dollar amount of claims denied within a time period and divide it by the total fiscal number of claims submitted within that same time period.

The industry average is five to ten percent; keeping your denial rate below five percent is a benchmark to shoot for. Some of R1´s clients have denial rates that are even lower than that.  (To learn why,  email contact@R1rcm.com)

4.  Days in accounts receivable

Days in accounts receivable, or A/R, refers to the average number of days it takes a practice to collect a payment. The lower the number, the faster payments are being received. Measuring days in A/R will help you forecast practice income and further evaluate the effectiveness of your revenue cycle.

To calculate days in A/R, you must first calculate your practice’s daily charges for a set amount of time. For example, say you decide to evaluate days in A/R every quarter.  First, add up your practice’s total amount of daily charges over a three-month period. Then divide the total charges by the number of days, in this case, 90 days. Next, divide your total receivables by your average daily charges to get the days in A/R.

Days in A/R should ideally stay below 50, but many physician practices struggle with hitting that number. R1 has helped clients decrease time in A/R by as much as 15%, which can have a tremendous positive impact on cash flow.  (Learn how, contact R1@r1cm.com)

 5. Cost to collect

It’s important to not only keep track of how much money you’re collecting but also what you’re spending to collect those revenues. An efficient revenue cycle optimizes the collection process so that costs are minimized. In working with clients across the US, R1 finds that it can reduce the costs to collect by up to 20 and sometimes even 40% for its clients.

Cost to collect is the total revenue cycle cost divided by the total cash collected. Total revenue costs include expenses from administrative functions including office and IT expenses plus labor costs for patient accounting, patient access and HIM staff. Software or third-party fees associated with collections should also be considered in the total cost to collect.

The industry median cost-to-collect is 3%.

Don’t operate in the dark: keep a close eye on revenue cycle metrics that matter most

When evaluating your revenue cycle management process, it’s essential that you understand where your practice stands.

Regularly measuring and analyzing a set number of data points is a manageable first step to making changes necessary to increase your practice’s profit.

Need help?  Email us at contact@R1rcm.com or download our newest guidebook, Three keys to a more profitable physician practice.