Six Fundamental Revenue Cycle Management Metrics

For many healthcare providers, maintaining optimal cash flow and improving payment collection has become a challenge. They are losing money due to lack of rigorous and regular monitoring of their revenue cycles.

Mentioned-below are six key revenue cycle performance metrics that should be discussed and analysed monthly by practices:

1. Number of days in A/R. This is one of the most important metrics that helps in understanding the efficiency of the current revenue cycle. Calculating the total number of days in A/R lets a provider know how many days it takes for a debt to be cleared.

Formula: 

(Total current receivables – credits) ÷ (Average daily net patient revenue)

Average daily charge amount can be calculated by dividing 3 months of net charge by 90 days.

1. Monitoring percentage of A/R over 90 days. With this metric, providers can evaluate the amount of claims left to be collected, which are over 90 days old. An amount greater than 20% of total A/R indicates issues in account management.

Formula: 

(Net amount of A/R>90 days) ÷ (Amount of total A/R)

1. Net collection rate. This indicates how efficiently a practice collects reimbursements. A collection rate higher than 95% is satisfactory, however a healthcare organisation should aim for 98.5 – 99% rate.

Formula: 

(Total Payments – Refunds) ÷ (Total Charges – Contractual Adjustments)

Net collection charge changes with the change in adjustments, charges, and payments.

1. Claim denial rate. This indicator is also a part of claim denials management. Denial rate is the percentage of claims denied by the payers. A denial rate higher than 10% is considered poor, and requires proper evaluation.

Formula: 

(Total amount of claims denied) ÷ (Total amount of claims remitted)

1. First pass recovery rate. This indicates how much amount your hospital receives in full payment for claims submitted the first time. A recovery rate of 80% or high is a positive sign.
2. Cost of collection. As an organisation, providers are spending on their facility, internal staffs, and vendors to maximise their collection rate. Collection cost helps them understand how much they are spending on their collection team, and how efficient and profitable they are for their organisation.

Formula: 

(Net A/R) ÷ (Average daily net patient service revenue)

Regular assessment of these metrics will lead to improved revenue cycle performance. It will also help healthcare providers effectively assess the financial strength of their practice and boost revenue.