Key Performance Indicators for Medical Billing

By Elizabeth Woodcock  |  October 11, 2010

In today’s challenging reimbursement era, there seems to be no end in sight to the complexities of medical billing. Despite the obstacles, you have to be on top of your game to ensure that collections are optimized. There’s always plenty of work to do, but how do you know if your operation – and the staff you employ to carry out your game plan – is performing at full speed? Developing a dashboard of key performance indicators can maintain your focus on success.

Consider these key performance indicators to establish the framework for your dashboard.

Days in receivables outstanding (DRO). Without a doubt, the best overall indicator of billing performance, DRO must be measured consistently in order to be meaningful. Calculate DRO by adding your current total receivables outstanding and the sum of your credit balances. (Adjusting for credits is important, as credits offset receivables, thus masking performance.) Divide that figure by your average daily charge. You can calculate your average daily charge by taking the previous three months’ worth of charges, and dividing by 90. Although you can determine the average daily charge based on 365 days, using 90 days accounts for seasonality, growth and other fluctuations in business.

Your DRO should be in the range of 40 to 45 days, although there are several factors that may cause it to fall outside of this target. You can improve DRO results through robust time-of-service collections, including collection of copayments, coinsurance, unmet deductibles and pre-service deposits. Insurance verification and timely, clean charges contribute to success as well. Factors outside of your control, such as dealing with challenging payers like Workers’ Compensation and having a bevy of patients on payment plans, may lead to above-range DRO results, even if your operations are in order.

Receivables outstanding over 120 days. Monitor the aged receivables sitting in your aged trial balance to determine if your efforts are paying off. Obviously, you’d prefer to see that 100 percent of your receivables are under 120 days, but that’s unrealistic. Shoot for less than 12 percent being over 120 days. (As noted above, be sure to exclude the credits when analyzing the amount of accounts receivables over 120 days.) The same factors cited above for DRO may positively – or negatively – impact your ability to beat or fall short of the 12 percent range.

Although focusing on the ‘over 120 day’ category is recommended, you can certainly measure your success by evaluating the percent over (or under) any of the aging categories. The key is to choose a category – and stick to it.

Net collection rate. Although it’s nice to measure your collections as a percent of gross charges (commonly referred to as the gross collection rate), you can’t use the result to judge the performance of your operation. Since each medical practice’s fee schedules, payer mix, and contracts vary, your gross collection rate also will be different. Instead, focus on the net – also known as ‘adjusted’ – collection rate. Of each dollar you’re allowed to collect, what percentage of it do you actually collect? For example, if the allowable for USA Insurance is $56.40 for a 99212, did you collect all of that money? You’ll have to chase down that money from USA Insurance and, particularly in today’s consumer-directed health care era, from the guarantor, too. As a result, the net collection rate reflects your ability to collect the contracted allowable rate, which is a combination of payments made from both the payer and the guarantor.

A 100 percent net collection rate would be ideal, but the range to look for is 96 to 98 percent. There are a couple of important factors to recognize: the two to four percent left on the table is bad debt, including monies you’ve written off to a collection agency and other uncollectables. Furthermore, if your rate is too good to be true, it probably is. Indeed, if you’re reporting 100 percent (or more), month after month, it may be a result of wide variability in productivity or revenue (and thus signal a potential need to redesign billing processes) - or it may be a function of how your staff is treating adjustments. Let’s say you contract with USA Insurance for $56.40 for a 99212.  Assume that the claim is denied due to untimely filing, which is a non-contractual adjustment. Missing a timely filing deadline – and having to adjust off the expected money -- is one of those uncollectables that causes the net collection rate to dip below 100 percent, as it should.  If your staff incorrectly categorizes the adjustment as a contractual adjustment, then neither the payment nor the allowable are included in the rate. If uncollectables are all written off as contractual adjustments, you’ll appear to be collecting 100 percent of the dollar – even when you’re really not.  To keep it real (and thus, find opportunities to improve collections), you need to differentiate between contractual and non-contractual adjustments – and work on reducing the latter.

Cash. The last, but certainly not least, key performance indicator is measuring collections on a weekly, if not daily, basis. Although cash can’t be benchmarked, you can ensure that its flow is the same as – or better than – the previous time period. You’ll also want to keep in mind that cash may vary from week to week (or day to day). It may increase when new physicians and/or services are added or decrease if patients cancel procedures, physicians take time off or resign, or other events that may choke off cash.

Fixing the problems

While some percentage of the complaints that patients bring to your office will inevitably get better with the passage of time, the same cannot be said for medical billing financial performance. Once the car’s wheels go off the paved highway, it’s not too long before you are in a ditch, financially speaking. Here’s what to do with the knowledge you gain by monitoring key performance indicators:

Use your KPI data. Falling within the industry norms on key measures should certainly be your goal, but it’s easy to be distracted by the multitude of external challenges that influence your performance. For this reason, recognize the upper limits – that is, the OMG (‘oh, my gosh,’ for my non-texting friends) factors:

  • For DRO, get nervous when it rises past 65 days;
  • For receivables over 120 days, set the panic alarm to go off at 20 percent; and
  • For net collection, investigate staff performance and office policies when it hits 90 percent or lower.

While underperforming at times on some or several of these indicators may be a fact of life in your situation, it pays to have a line in the sand that will signal you to dig deeper for opportunities to improve performance.

Don’t allow too many excuses. Verify insurance before patients present, and don’t forget to check coverage on hospital and other non-office services. For the latter, even if the services have already been performed, you are better off identifying insurance problems before the claim is transmitted instead of 30 or 60 days later when the claim finally bounces back to you. Encourage collections at the time of service, focus efforts on identifying and reducing denials, and work accounts fully every 60 days.

Don’t be misled. Carrying credits masks your true performance, making it look much better than it really is. Keep a tight rein on credits; use the 60-day mark for getting those processed back to the correct party. Although payment plans may be a necessity of your patient collections process, categorize them with a different payer class. Don’t bury payment plans in the middle of your patient receivables. Classify these accounts separately, and report your DRO and receivables over 120 percent with – and without – payment plans.

Use automation. The influence of automation can’t be overstated. Improve your cash flow by automating insurance coverage and benefits eligibility verification, charge scrubbing, electronic remittance, funds transfer, remote deposit and the many other technological tools available to the medical billing industry.

Writing off a bunch of uncollected money will certainly bring your DRO and percentage of receivables over 120 days into alignment with industry standards, but it won’t tell the whole story of your financial performance. Worse, it will give you an inaccurate snapshot of the health of your operations. Monitoring all of the key performance indicators together – and doing so weekly, or even daily – means there is nowhere for poor financial performance to hide. You simply can’t get better until you know where improvement is needed. Ultimately, that’s the goal of the key performance indicators – not to judge, but to improve.

KPI                            Industry norm                                   OMG (‘Oh, my gosh!’)

DRO:                         40 to 45                                                      65

A/R over 120:             <12 percent                                                 20%

NCR:                          96 to 98%                                                    90%

Cash:                         $?
 

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