Effective revenue cycle management (RCM) is the cornerstone of financial stability and operational efficiency in healthcare. As a revenue leader, understanding and monitoring key RCM metrics is crucial for optimizing the revenue cycle, reducing costs, and ensuring timely revenue collection. Here are 10 metrics every revenue leader should know and look to improve in order to allow for smooth revenue collection.
1. Days in Accounts Receivable (AR)
Days in AR measures the average number of days it takes to collect payments from patients and payers and can be calculated using the following formula:
Where:
Total Accounts Receivable is the amount of money owed to the healthcare provider by patients and insurers at a given point in time.
Total Credit Sales refers to the total amount of revenue generated from services provided on credit during a specific period.
Number of Days is the length of the period you’re measuring (e.g. 30 days for a month, 365 days for a year).
An example scenario would be a provider with $500,000 in total AR generating $2,000,000 in total credit sales for the past year. The days in AR for this provider would be calculated as:
A lower number (ideally less than 40 days) indicates efficient collection processes and quicker cash flow.
2. Net Collection Rate
The net collection rate reflects the percentage of payments collected out of the total amount billed, after adjustments for contractual allowances and bad debt, and can be calculated using the following formula:
Payments Collected is the actual amount of money collected from patients and insurers for services provided.
Payments Expected is the total amount expected to be collected after adjustments for contractual allowances, bad debt, and other discounts.
An example scenario would be a provider expecting to collect $1,000,000 after all adjustments (Payments Expected), but only collects $950,000 (Payments Collected). The net collection rate would be calculated as:
A high net collection rate (greater than 95%) signifies effective revenue capture and minimal revenue loss.
3. Denial Rate
The denial rate represents the percentage of claims denied by payers. High denial rates can significantly impact cash flow and require additional resources to manage, and can be represented by the following formula:
Total Denied Claims is the number of claims that were denied by payers during a specific period.
Total Submitted Claims is the total number of claims submitted to payers during the same period.
An example of an acceptable denial rate would be a provider submitting 10,000 claims in one month with 500 of them being denied, resulting in a 5% denial rate from the following calculation:
Identifying denial reasons and implementing corrective measures is critical to maintaining an acceptable denial rate (less than 5%). Here is a calculator we created that can assess the impact your denial rate has on your revenue cycle.
4. First Pass Resolution Rate (FPRR)
FPRR indicates the percentage of claims paid upon first submission without any need for rework, calculated below:
Number of Claims Paid on First Submission is the number of claims that were successfully paid without needing any rework, additional information, or resubmission.
Total Number of Claims Submitted is the total number of claims submitted to payers during the same period.
If a healthcare provider submits 8,000 claims in a month and 7,200 of those claims are paid on the first submission, the FPRR would be 90%, shown below:
A high FPRR (greater than 90%) demonstrates efficient claim processing and reduces the administrative burden of reworking denied or rejected claims.
5. Bad Debt Rate
Bad debt rate measures the percentage of uncollected revenue written off as bad debt. High bad debt rates can indicate issues with patient eligibility verification, inadequate follow-up on unpaid balances, or ineffective financial counseling.
Total Bad Debt is the amount of revenue that is deemed uncollectible and written off as bad debt during a specific period.
Total Revenue is the total amount of revenue generated during the same period.
If a provider writes off $50,000 as bad debt in a year and generates $2,000,000 in total revenue in the same year, bad debt rate would be calculated as:
Keeping this rate below 3% is generally considered good practice.
6. Cost to Collect
This metric calculates the cost incurred to collect payments, including staff salaries, technology expenses, and outsourced services. A lower cost to collect indicates more efficient revenue cycle processes.
Total Revenue Cycle Costs include all costs associated with the revenue cycle process, such as staff salaries, technology expenses, and outsourced services.
Total Collections is the total amount of money collected from patients and insurers during the same period.
Suppose a healthcare provider incurs $200,000 in revenue cycle costs and collects $5,000,000 during a specific period. The cost to collect can be shown below:
Providers should strive to keep this cost under 3% of the total revenue.
7. Claim Submission to Payment Time
This metric measures the average time taken from submitting a claim to receiving payment. Shorter times indicate efficient claim processing and quicker revenue realization.
Sum of Days from Submission to Payment for All Claims is the total number of days taken from the date of submission to the date of payment for each claim.
Total Number of Claims is the total number of claims submitted during the period being measured.
Suppose a healthcare provider submitted 3 claims, and the payment was received as follows:
Claim 1: 30 days from submission to payment
Claim 2: 45 days from submission to payment
Claim 3: 35 days from submission to payment
The claim submission to payment time would be:
Healthcare providers should aim for an average of 30 days or less to maintain efficient claim processing.
8. Patient Financial Responsibility Collection Rate
With the rise of high-deductible health plans, collecting patient payments has become increasingly important. This metric tracks the percentage of patient-responsible balances collected.
Total Payments Collected from Patients is the total amount of money collected from patients, including co-pays, deductibles, and any other out-of-pocket expenses.
Total Patient Financial Responsibility is the total amount that patients are responsible for paying after insurance has been applied.
Suppose a healthcare provider’s patients are responsible for $500,000 after insurance adjustments, and the provider collects $425,000 from those patients. The patient financial responsibility collection rate would be calculated as:
Effective strategies, such as clear communication and convenient payment options, can help providers maintain a desirable rate (greater than 85%).
9. Clean Claim Rate
The clean claim rate represents the percentage of claims submitted without errors. Higher clean claim rates reduce the likelihood of denials and rework.
Number of Clean Claims Submitted is the number of claims submitted without any errors that are processed and paid without the need for rework or resubmission.
Total Number of Claims Submitted is the total number of claims submitted to payers during the same period.
Suppose a healthcare provider submits 1,000 claims in a month, and 950 of those claims are submitted without errors (i.e. they are clean claims). The clean claim rate would be calculated as:
Investing in robust claim scrubbing tools and thorough staff training can help maintain a high clean claim rate (greater than 95%).
10. Revenue Per Encounter
This metric calculates the average revenue generated per patient encounter. Tracking revenue per encounter helps identify trends in service utilization, pricing, and reimbursement rates.
Total Revenue is the total amount of revenue generated during a specific period.
Total Number of Patient Encounters is the total number of individual patient visits or encounters during the same period.
If a healthcare provider generates $1,500,000 in total revenue over a month and has 3,000 patient encounters during that period, their revenue per encounter would be calculated as:
Conclusion
Monitoring and optimizing these RCM metrics is vital for healthcare providers aiming to enhance financial performance, reduce operational costs, and improve patient satisfaction. These metrics provide valuable insights for revenue leaders to identify areas for improvement and ensure financial stability. By regularly analyzing these metrics and implementing best practices, providers can achieve a more efficient and effective revenue cycle, ensuring long-term sustainability and growth, enhance financial outcomes, and ultimately, provide better care for their patients.
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