If I only had clarity.  

One of my clients always told me, "If I only had clarity." She wanted to understand what the number meant. The only sure way to get clarity is to review your data systematically. In today's medical world, Medicare and commercial payors reimbursements are dropping, and the dramatic cost of staffing has increased so much in the last few years, and only if you can find new employees. The need for more intelligent business decisions has never been more critical than today.  

 

Gathering the data and correctly correlating and interpreting the data is the science of what KPIs are all about. Employing financial KPIs is crucial for medical offices to track the health of their business, make innovative changes, and avoid knee-jerk reactions. By monitoring these metrics, medical practices can identify areas for improvement, make informed financial decisions, and ensure long-term sustainability. Here are some critical financial KPIs for medical offices:

 

Revenue Cycle KPIs

• Accounts Receivable (A/R): This measures how efficiently a practice resolves claims and collects cash. It is generally measured by "buckets" such as 30, 60, 90, and 90+, but it can vary depending on the software. Our best practice is that the 60-day bucket should not be over ten percent of the overall AR, and the 90 and 120 buckets should not exceed five percent of the total AR.
• Net Collection Ratio: This shows the percentage of billed charges collected after adjustments and write-offs. We would like to further split this into payments by payers, also called payer mix, and further divide net collections by CPT code, allowing for contract compliance and
• Days in Accounts Receivable (DAR): This reflects the average time it takes to collect payment on an outstanding invoice. A lower DAR is preferable. Use this calculation by adding the total charged in the last 12 months, dividing by 365, and dividing the total AR by the prior number. For example, billed $645,000 / 365 = 1767, then the AR Current is $68,000, so 1,767 / 68000 = 38.48 days. This number is a broad yardstick of the health of your office. DAR is typically used in more extensive facilities to summarize the performance of the revenue cycle team.

Profitability KPIs

• Net Patient Revenue (NPR) is the total revenue from patient services minus deductions for contractual allowances, bad debt, and charity care.
• Operating Margin: This reveals the percentage of revenue remaining after covering all operating expenses. A positive margin indicates profitability.
• Average reimbursement per payer per unit: This measurement allows for multiple indicators that include your reimbursement per payor. When combined with other units or modifiers, units are not always paid the same. 
• Average units per visit: In offices with multiple units per visit, this will indicate where some providers are following office policies.

Cost Management KPIs

• Cost Per Encounter: This tracks the average price of providing care to a single patient. It helps identify areas for cost reduction.
• Labor Expense as a Percentage of Operating Revenue: This shows how much of the practice's revenue goes towards staff salaries and benefits.
• Correct coding. Monitoring and updating all of your code sets can avoid denials and audits. 

Additional KPIs

• Days Cash on Hand: This indicates a practice's ability to maintain a cash flow buffer.
• Claim Denial Rate: This measures the frequency of insurance claim denials, highlighting potential billing or coding issues.

 

By tracking these KPIs and comparing them to industry benchmarks or the practice's historical performance, medical offices can gain valuable insights into their financial health and make data-driven decisions to improve their bottom line. Please let me know if you have any questions or want further information.