Are you looking for an optimized cash flow for your healthcare organization? There are certain KPIs that help your healthcare facility track its financial performance and ensure steady revenue collection.
Key Performance Indicators (KPIs) in the healthcare revenue cycle are measurable metrics that are used to evaluate the effectiveness of the organization. Days in Account Receivable A/R, Clean Claim Rate, Bad Debt Rate, and Charge Lag are some of the vitally important KPIs, crucial to understand.
This blog highlights the top 8 essential KPIs. Their basic definition, goal, formula, and importance are all discussed together.
Top 8 Revenue Cycle Management KPIs You Must Track
Days in Account Receivable A/R
Days in Account Receivable A/R is the average number of days a healthcare facility takes to collect payments from the insurance company and patients for healthcare services rendered.
KPI Goal
The primary goal of this KPI is to measure the effectiveness of Healthcare revenue cycle management. A lower number of ARs indicates that the healthcare facility takes less time to convert its services into reimbursement. 35 days is considered the ideal state of the facility.
Formula
The formula for Days in AR is calculated as:
Days in AR = Average Daily Charges / Total Accounts Receivable
Where Average Daily Charges is the per-day charge generated by the healthcare facility.
Total Accounts Receivable is the sum of all the payments received from insurance companies as well as patients.
Importance
Monitoring DAR helps the organization stabilize its financial health. Any potential issue in the operations of the revenue cycle can easily be pinpointed. An effective and lower AR enhances operational efficiency and improves liquidity.
Clean Claim Rate
Definition
The clean claim rate is an important KPI that measures the percentage of clean claims submitted to the healthcare insurance company. A clean claim is one that is free from any error and is not denied or rejected by the healthcare payer.
Goal
The goal of this KPI is to check the accuracy with which claims are submitted. It is a check on the workings of billers and coders. Healthcare providers have the aim of increasing the clean rate. An ideal clean claim rate is >95%.
Formula
A clean claim rate is calculated as:
Clean Claim Rate=(Number of Clean Claims/ Total Number of Claims)×100
Where the number of clean claims is the total number of claims submitted without error.
Importance
Monitoring the clean claim rate ensures timely reimbursement. This KPI is the key indicator of accuracy and error-free claim submission. The organization is financially stabilized as consistent revenue is generated without any delays or denials in payment processing.
Claim Denial Rate
Definition
As the name indicates, the claim denial rate is the measure of the total number of claims denied by the healthcare insurance company.
Goal
The central goal of this KPI is to keep the denial rate at <8%. Healthcare facilities aim to lower this percentage to escalate reimbursement and reduce the extra operational and financial burden of managing the denials.
Formula
The formula for the claim denial rate is calculated as follows:
Claim Denial Rate = (Number of Denied Claims/Total Number of Claims)×100
The number of denied claims is the total number of claims denied or rejected by the healthcare insurance company.
Importance
A higher claim denial rate means the organization has lost a huge sum of money that impacts the overall financial health of the facility. Monitoring this KPI pinpoints the key factors that contribute to the denials and, hence, improves financial stability.
Bad Debt Rate
Definition
Bad debt is the percentage of payment that the patient is unwilling to pay or that the healthcare provider fails to collect from the patient.
Goal
To monitor the bad debt rate is to minimize the influence of uncollectible amounts on the financial health of a healthcare organization.
Formula
Bad Debt Rate is calculated as:
Bad Debt Rate=(Total Bad Debt / Total Patient Services Revenue)×100
Total Patient Services Revenue is the total revenue generated through delivering services to patients.
Importance
Bad debt rates directly influence cash flow, operational efficiency, and resource allocation. This issue can be resolved through improved billing practices, effective revenue cycle management, and effective financial counseling. A lower bad debt rate enhances the reputation of the organization in the community.
Charge Lag
Charge lag, in simple words, is the delay between service delivery and the initiation of the billing process. It measures the time a healthcare facility takes to submit charges after the delivery of services to the patient.
Goal
Organizations aim to keep the charge lag within a few days to a week. A shorter charge lag leads to prompt reimbursement and improved cash flow.
Formula
The formula for Charge Lag calculation is:
Charge Lag = Total Time for Charge Submission / Total Number of Services Provided
Importance of charge lag
Charge lag directly impacts the operational efficiency and financial health of the healthcare organization. Monitoring charge lag reinforces trust between healthcare providers and their patients. A shorter charge lag improves the overall patient experience.
Accounts Receivable Rate
The account receivable rate is also known as the account receivable turnover ratio. It measures the efficiency with which the healthcare organization manages its account receivables. It is considered a financial KPI in healthcare.
Goal
A higher accounts receivable rate is considered ideal as it indicates that the healthcare organization efficiently converts accounts receivable into reimbursement.
Formula
The Formula for Account Receivable Rate calculation is:
Accounts Receivable Rate=Net Patient Revenue / Average Accounts Receivable
Where Net Patient Revenue is the total amount of payment generated from the services delivered to the patients. Average Accounts Receivable is the average amount of outstanding receivables over a specific time frame.
Importance
Monitoring this KPI helps contribute towards optimized cash flow. The whole medical billing and coding process is effectively managed. A lower account receivable rate highlights the issues with the payment collection method.
Net Collection Rate
Definition
The net collection rate is another financial KPI that measures the efficiency with which the healthcare organization processes its revenue collection. It is the percentage of total revenue collected from patients after all the deductions.
Goal
The healthcare organization aims for a high net collection rate to maximize revenue collection from patients.
Formula
The formula for Net collection Rate is:
Net Collection Rate=(Net Payments / Total Billed Amount )×100
Where the net payment is the total amount collected after all the deductions, adjustments, denials, etc. The total billed amount is the total payment that is initially billed for healthcare services.
Importance
Monitoring the financial KPI helps the organization check the effectiveness of contractual adjustments with insurance companies. A stable financial position helps the facility deliver quality patient care.
Days in Total Discharged Not Final Billed (DNFB)
Definition
Days in Total Discharged Not Final Billed (DNFB) is the key indicator that measures the total days a healthcare organization takes to bill the services once the patient is discharged from the hospital.
Goal
The primary goal of this KPI is to minimize the days between the patient’s discharge and the initiation of the patient billing process.
Formula
The DNFB is calculated as
Days in DNFB=Total DNFB Days / Total Number of Discharged Patients
The total number of DNFB days is the total time the organization takes when the patient record is not finalized.
Importance
A shorter DNFB span ensures that there is effective communication between the hospital and its billing department. This in turn reduces the delays in reimbursement.
Conclusion
Tracking these essential KPIs in the healthcare revenue cycle contributes to financial stability. Healthcare providers can implement effective strategies to minimize the risk of denials and delays in reimbursement.
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