Top 10 Revenue Cycle Management metrics hospitals and physician groups should master
Amid rising costs of care delivery, workforce shortages, and reimbursement challenges, it’s more important than ever for hospitals and physician groups to reduce complexity in the revenue cycle. That begins with measuring financial performance to understand what’s holding the organization back from optimizing profits. This Ingenious Med Revenue Cycle Management (RCM) Scorecard can help healthcare providers determine where they’re successfully meeting key revenue cycle metrics — and identify areas that are urgently in need of improvement.
The following is a detailed explanation of each of the top 10 metrics we identified.
1) Days in Accounts Receivable (AR)
Days in AR is a crucial metric in understanding the efficiency of the revenue cycle. When the days in AR are low, it means that the healthcare organization can collect payments on a timely basis, which positively affects cash flow. Conversely, high Days in AR might indicate issues in billing processes, which can be due to incorrect claim submission or inefficient communication. Organizations should aim for a low number of days in AR, as this indicates efficient revenue cycle management.
2) Denial Rate
This metric reflects how often claims are denied by payors. A high denial rate can indicate problems such as inaccurate coding, lack of necessary documentation, or not meeting the payor’s policies. A low denial rate implies that the claims are being submitted correctly and compliantly. Monitoring and actively working to reduce denial rates can improve an organization’s revenue cycle and cash flow.
3) Clean Claim Rate
The clean claim rate reflects the efficiency and accuracy of the claims submission process. When the clean claim rate is high, it means that claims are being submitted with minimal errors, reducing the need for re-submissions and follow-ups. This in turn leads to faster payment and fewer resources spent on corrections, leading to an efficient revenue cycle.
4) Collection Rate
Collection rate gauges the effectiveness of an organization in collecting patient balances. A high collection rate implies that the organization is able to effectively communicate the patient’s financial responsibilities and ensure these are met. It’s vital for healthcare organizations to maintain a high collection rate to ensure a steady cash flow and to provide ongoing services.
5) Cost to Collect
The cost to collect represents how much it costs an organization to collect payments. This can include staff salaries, overhead costs, and other expenses related to billing and collections. A low cost to collect indicates that the organization is running efficiently, while a high cost can imply inefficiencies and the need for process improvement. It’s essential to minimize the cost to collect to maximize revenue and ensure financial health.
6) Net Collection Rate
This differs from the regular collection rate by considering the amount of money that was expected to be collected. A high net collection rate means that the organization is collecting a large portion of the payments it expected, reflecting effective revenue cycle management. This comprehensive metric takes into account contractual allowances and write-offs.
7) Patient Satisfaction
Though not a direct financial metric, patient satisfaction is critical for the long-term success of a healthcare organization. When patients are satisfied with the billing and payment process, they are more likely to return for services and recommend the organization to others. This can lead to increased revenue and a positive reputation.
8) Daily Encounters Closed
This metric measures the efficiency of clinical workflows. In the example provided, providers closing 88% of encounters on the same day using a streamlined workflow application indicates that the application is effective in reducing after-hours documentation. This can contribute to physician satisfaction and reduce errors that occur when documentation is delayed.
9) Charge Lag
Charge lag measures the time taken between providing a service and entering the charge for that service. A shorter charge lag (ideally within 24 hours as mentioned in the benchmark) ensures that billing cycles are faster, which can positively affect days in AR. It’s crucial to monitor and optimize this process, as delays in charge entry can affect cash flow and revenue.
10) Gross and/or Net Collections
Gross collections refers to the total sum of money collected by a healthcare organization before any adjustments. Gross collections include all payments received from patients, insurance companies, and other payors. This metric is important to assess the total income, but it doesn’t account for contractual obligations, write-offs, or other adjustments.
Net collections measures the amount of money collected after adjustments such as contractual allowances, write-offs, and patient discounts. Net collections provide a more accurate picture of the actual revenue that the healthcare organization retains. It is important for financial analysis and revenue cycle management because it reflects what the organization actually can spend on operational expenses, reinvestment, or profit.
Important: Comparing gross and net collections is also an essential practice. The difference between the two can provide insights into how much revenue is lost due to adjustments and write-offs. A large gap between gross and net collections could signify issues with payor contracts or an excessive amount of write-offs and might warrant further investigation.
Don’t Let RCM Shortcomings Keep You From Optimizing Profits
There are many ways in which your RCM could be leaving money on the table. The great news is, there are also expedient tactics to address those issues—thanks to digital-powered solutions.
Ingenious Med’s easily implemented web and mobile solutions help physician practices and health systems gain more insights from healthcare data, align workflows with value-based care, and strengthen revenue integrity. In just five to seven months, clients have seen an average annual revenue increase of $30,000 per physician and 13-15x average ROI.