26 Jun Understanding 3 Crucial RCM KPIs
In order to manage your revenue cycle effectively, you need to monitor several key performance indicators (KPI) to help protect and increase your cash flow. It’s crucial that you understand what these KPIs are and how they impact your practice.
A/R Days | Days in Revenue Outstanding (DRO)
Definition: DRO is the average number of days it takes for a claim to be paid.
Why is this important? The faster your claims are paid, the sooner you receive your payments for the services your practice has provided.
DRO Calculation: [Total A/R Outstanding – Credits] / [Your Average Daily Gross Charges (Note: Average charges per day based on the last 90 days of charges)]
This number is affected when your daily charges drop dramatically, if you divide your total A/R by a lower number, it artificially increases your days in A/R. With the fluctuations due to COVID, this has caused fluctuations in this standard calculation that traditionally provides a stable way to evaluate your A/R. In order to understand if this is a true change in your days in A/R or just an artificial increase, review your claims to ensure that they are getting billed and followed up on in a timely manner and check that your payments are getting posted in an acceptable time frame.
Imagine, for ease in calculation sake, that your total A/R outstanding is $110,000, your credits are $10,000 and your average daily charges are $4,000. 110,000-10,000 / 4,000 = 25 days in A/R. If your average daily charges drop to $3,000, your days in A/R increases to 33 days (110,000 100,000/3,000). Often organizations use a rolling 3 month average to avoid fluctuations in seasonality and volumes.
What is my target? Practices should aim for the industry benchmark of 30-35 days in A/R. It is important to keep in mind that Days in A/R is affected by your payer mix (the main payers that your families have) and the percentage of your families that have state programs like Medicaid. Some payers pay providers more swiftly than others.
Net Collection Ratio (NCR)
Definition: NCR reflects how effective we are in collecting the reimbursements that you are allowed. We calculate NCR to see how much revenue is uncollected due to factors such as uncollectible debt or other non-contractual adjustments.
Why is this important? NCR shows how effective we are at collecting payments from payers.
NCR Calculation: [Payments / (Charges – Contractual Adjustments)] X 100%
What is my target? The net collection ratio should be in the 95-98% range after factoring in write offs. Keep in mind, the net collection rate may vary depending on your practice’s payer mix.
Clean Claim Rate (CCR)
Definition: Percentage of claims paid upon the first submission to the payer without any
rejections or denials.
Why this is important: CCR provides your practice with insight on the quality of the information captured at the front desk. Although OP RCM will assist addressing many of the rejections and denials, improving the CCR will not only result in reducing cost and improving the pace to collect, but also reducing your accounts receivable. To improve your CCR, it is important that your practice updates the patient demographic often, verify insurance eligibility, and ensure correct coding and modifiers usage.
CCR Calculation: Clean claims / Total claims submitted
What is my target? 95% or higher reflects a successful RCM strategy.
To assist you in improving your financial outcomes, you and/or your revenue cycle management – RCM should be tracking and measuring these 3 crucial RCM key performance indicators (KPIs), as well as several others.