Financial metrics not only help to track the performance of your practice but also can be used to increase accountability of your in-house staff.
A metric is a verifiable measure stated in either quantitative terms (e.g. financial ratios) or qualitative terms (e.g. patient satisfaction surveys).
Metrics are important for a number of reasons.
How do you know that the overall business is healthy?
How do you know that the business processes you perform are working properly?
Now, how would others in your practice know?
For starters, if you don’t know how well you are doing, how do you know what to keep doing and what to change?
Words without verifiable numbers are just opinions because what gets measured gets done. While metrics come in many flavors, they all have one thing in common metrics tell the world what you think is important.
Average revenue per patient
This measure relates to the Average Cost per Patient ratio. Your target is high revenue per patient combined with low cost per patient.
Average revenue per day
Comparing this ratio to your daily charges shows you if each day’s work—at least in terms of revenue production—is above or below average. In effect, it shows how busy you are. Many factors, including surgery schedules and the number of physicians working a day’s sessions, greatly affect daily charges. Investigate the reasons behind any significant variance. If your adjusted charges per day increase by more than inflation over time, it suggests your practice is growing.
The first metric is Days in Accounts Receivable (A/R). Days in A/R refers to the average number of days it takes a practice to collect payments due. The lower the number, the faster the practice is obtaining payment, on average.
Percentage of Accounts Receivable >120 Days
Accounts Receivable is generally grouped into aging buckets based on 30-day increments of elapsed time (30, 60, 90, 120 days). All A/R aged over 120 days falls in the inclusive A/R >120 day bucket. A/R greater than 120 days is a clear indicator of how effective your practice is at securing reimbursements in a timely manner.
For example, your staff may not be acting quickly enough on denials or aged claims.
Days in Accounts Receivable
Tracking days in A/R helps monitor billing and collections. The greater this number becomes, the longer it takes insurance plans and patients to pay you. You absolutely must find out why that’s happening.
This calculation represents the average number of days it takes a practice to get paid. The lower the number, the faster a practice is obtaining payment on average. It is said that this number should stay below 50 days at a minimum, but should generally be more in the 30-40 day range. In addition to providing insight into the efficiency of your revenue cycle management processes, monitoring this metric can help you unearth factors hurting your finances.
For example, when assessing the cause of an increase, you may spot a problem with a certain payor and can then work to resolve it quickly.
Other Considerations
Understanding your practice’s revenue cycle will help you anticipate income and address issues preventing timely payments. Keep the following in mind when evaluating your revenue cycle and A/R processes.
Slow‐to‐pay carriers
Some insurance carriers take longer to pay claims than the overall average number of days in A/R.
For example, if your practice’s average days in A/R is 49.94, but Medicaid claims average 75 days, this should be addressed.
The impact of credits
Be sure to subtract the credits from receivables to avoid a false, overly positive impression of your practice.
Accounts in collection
Accounts sent to a collection agency are written off of the current receivables, and the revenue may not be accounted for in the calculation of days in A/R. Be sure to calculate days in A/R with and without the inclusion of collection revenue.
Appropriate treatment of payment plans
Payment plans that extend the time 6 patients have to pay accounts can result in an increase in days in A/R. Consider creating a separate account that includes all patients on payment plans and determine whether your practice should or should not include this “payer” in the calculation of days in A/R.
Claims that have aged past 90 or 120 days
Good overall days in A/R can also mask elevated amounts in older receivables, and therefore it is important to use the “A/R greater than 120 days” benchmark.
Benchmarking
While using national benchmarks is acceptable, that data should not be viewed as the gospel.
For example, if a national benchmark is 92% but you are currently sitting at 80%, then your immediate goal should be to get to, say, 85% and then 90% and so on.
If you set the bar too high initially, staff will become frustrated and see the national benchmark as unattainable. On the other hand, if your practice is at 96%, do you simply stop improvement efforts? Or do you continue to strive to make the best better?
You must remember to measure what matters. Find out the key essentials to your practice, not just what others in your specialty are measuring. And by all means, keep it simple, simple to operate, simple to understand, and simple to action.
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