5 Metrics to Identify Weaknesses and Improve Profitability
August 18, 2015
With reimbursements falling and operating costs rising, it’s important to squeeze every bit of profitability out of your practice. In today’s environment where data is abundant, it’s hard to know what to focus on to improve profitability. A great place to start is your revenue cycle management. Your pre and post visit activities affect your practice’s ability to get paid. These five metrics will help you analyze these activities to identify weaknesses and improve profitability.
First-Pass Resolution Rate (FPRR)
In a perfect world, an insurer would pay a claim the first time they receive it. In the real world, that doesn’t always happen. To determine the percentage of your claims that do get paid on the first submission, use this equation:
total number of claims paid / total number of claims submitted = First-Pass Resolution Rate (FPRR)
The FPRR is directly correlated to the effectiveness of your revenue management processes. If your practice’s FPRR is 90 percent or above, you’re in good shape. If your FPRR is below 90 percent, review your pre-visit and post-visit processes. Mistakes like failure to obtain authorization or verify insurance eligibility can disrupt the reimbursement process. Getting it right the first time is crucial to improving your FPRR and your profitability.
Days in Accounts Receivable (A/R)
Slow reimbursements can hinder daily operations and long-term objectives. To determine the average number of days it takes for your practice to get paid, use the Days in Accounts Receivable (A/R) metric. Days in A/R is calculated using this equation:
(total current receivables - credits) / average daily gross charge amount = Days in A/R
A healthy practice keeps this under 50 days in A/R, but an even better goal is the 30-40-day range. Monitoring this metric will help you identify weaknesses in your collection process. For example, you may notice that a certain payer takes an average of 90 days to pay a claim that can significantly increase your days in A/R. With this information, you can address the issue and work with the payer to find a resolution.
Percentage of Accounts Receivable >120 Days
When calculating your Days in A/R, you may find it’s not just one payer that’s consistently late with reimbursements. A/R is typically grouped into aging buckets based on 30-day increments (30, 60, 90 and 120 days). Any payments that are over 120 days fall into the A/R >120 days bucket. Use this equation to determine the percentage of your payments that fall into this bucket:
dollar value of A/R >120 Days / dollar value of total A/R = Percentage of A/R >120
Your practice should have less than 25 percent of A/R in the >120 days bucket. If your practice’s percentage is greater than 25 percent, it may be time to review your ability to secure payments promptly.
Net Collection Rate
It’s estimated that every year $125 billion is left uncollected by American medical practices. Make sure you’re collecting every penny you earn. To identify any missed revenue opportunities, calculate your Net Collection Rate. This metric gives you the percentage of total reimbursements your practice actually collected out of what you should have been collected. To calculate this metric:
(payments – credits) / (charges - contractual adjustments) = Net Collection Rate
An industry standard is to collect at least 95 percent of your reimbursements. Some of these missed opportunities come from internal errors, like untimely filing, and some are external factors, like uncollectable debt. If you continue to see weak collection rates, you may need to review processes or outsource your revenue cycle management to improve your collect rate.
Average Reimbursement per Encounter
Another important metric to measure is the Average Reimbursement per Customer. This metric tells you the average amount a practice collects per patient encounter. To calculate this number:
total reimbursement / number of encounters in a given time period.
The industry standard for this metric varies across specialties, but when tracked over time and compared to historical practice results, gives you a good sense of how you’re performing. If you find that your practice is trending in a negative direction, there are a few areas to examine to increase returns.
- Evaluate your payer mix. A large share of your returns should come from insurers with high reimbursement rates.
- Ensure services are covered by insurers before performing them.
- Collect co-payments before the service is provided.
- Review contract provider relationships. If the provider isn’t providing the number of clients it promised, call them to correct the error.
- End relationships with providers that provide contractual reimbursements below a certain rate.
These five metrics are key performance indicators that allow you to identify any weaknesses in your practice’s revenue cycle management. While these number are useful on their own, the real benefit comes from tracking them overtime and comparing to internal and external benchmarks. Understanding and improving these vital measurements will help you take control of your collections and improve your profitability.