Tracking the traditional accounts receivable metrics is a good start, but they don’t provide enough insight to guide you to what actions to take to improve your cash flow. The traditional metrics to which I am referring are important indicators of overall revenue cycle and accounts receivable health:
Total Outstanding Accounts Receivable – Identifies how much cash do you have invested in uncollected charges.
Accounts Receivable Aging – Measures the delay in collecting these charges. (If you could cut this in half, how much more cash would you have in your bank account?)
Gross Days Revenue Outstanding – A normalize measure of Total A/R compared with your charge volume.
Collection Percentage – A rather crude measurement of collection efficiency. Can be misleading due to fluctuations in charge volume and payer mix.
In addition to the overall health of your revenue cycle, you would like to monitor metrics that can provide you with insights on where to take action to improve the health of your revenue cycle and increase your cash flow. Good Key Performance Indicators (KPIs) help you answer questions such as these:
What to change?
What to change it to?
Did the change make any difference?
Here is a non-exhaustive list of KPIs that can help provide clues to opportunities for revenue cycle and cash flow improvement. Beside each metric, I’ve included a comment about what it may tell you.
Unbilled visits -> identify delays in claim submission work flow.
Cycle time from visit to cash by payer -> identify payer compliance issues.
Timely filing write-offs -> identify understaffing or prioritization problems.
Outliers: high dollar claims; repeated denials; non-adjudicated claims -> identify bottlenecks.
Denials by payer -> identify contract or payer problems.
Denials by reason -> identify process problems.
Denials by procedure -> identify coding problems.
Denials by associate -> identify training opportunities.
Staff cost per dollar collected -> identify process inefficiencies or staff performance issues.
Claims and dollars past claim response time by payer -> identify payer compliance issues.
Collection percentages by payer -> identify low reimbursement payers and possible contractual underpayments.
Small balance aging -> identify neglected small balances.
Small balance write-offs -> identify write-offs vs. cost to collect.
Tracking the right combination of traditional metrics plus selected KPIs can provide you with
an early warning system for collection problems
a systematic way to identify opportunities for revenue cycle improvement
the baseline to measure the results of your improvement initiatives
Create a periodic and systematic way to collect and review the KPIs. This can be done with simple tools (like Microsoft Excel and/or Access) and the data already available from your patient accounting or claims processing system. Start by collecting this data:
Now review your KPIs and measure your starting point to establish a baseline against which to gauge improvement. You can now prioritize your improvement initiatives based on areas that you expect to have the biggest impact to your cash flow. Develop and launch improvement actions and quantify expected impact. Finally, monitor results of improvement action and refine your approach.
If you are interested in more detail, I recommend reading about the DMAIC process improvement approach in the Six Sigma literature. This is a data-driven improvement methodology used for improving, optimizing and stabilizing business processes. In brief, the acronym stands for:
Define – Seek to clarify facts, set objectives, and define the business process scope.
Measure – Define the critical inputs and outputs. Develop a measurement system. Collect data.
Analyze – Study the data to determine root causes of collection delay. Identify gaps between current performance and goal performance. List and prioritize potential opportunities to improve
Improve – Identify creative solutions to fix and prevent problems.
Control – Monitor the results of improvement initiatives to ensure continued progress.
Your patient accounting system can provide you with all the data you need to build the KPI metrics. Collect data from standard or custom reports produced by your patient accounting system, registration system, denials management system, and/or claims processing system. Build a dashboard, and monitor changes and trends.
Meet with your patient accounting manager to review periodically. Use this time to identify areas of potential opportunity and areas for further inquiry. Develop improvement initiatives and quantified expected outcomes. Gauge effect of improvement initiatives and fine tune.
Tracking limited to traditional A/R and the collection ratio is not very helpful because these don’t tell you where to take action to address the root causes of collection delay. Monitoring KPI metrics can help you achieve your collection improvement goals by pinpointing bottlenecks, leading you to the cause or source of the problem, and measuring the effect of changes and improvement initiatives.