Measuring the financial health of your practice plays an important role in future growth. When you understand the metrics that impact your revenue cycle, you can better manage your overall process by making strategic changes to increase revenue and lower costs.
Independent medical practice owners have a large number of responsibilities. Therefore, it is important to focus on a few quantifiable metrics within your revenue cycle that you can objectively measure and improve.
Here are five metrics that profitable practices are measuring, and you should too:
The first pass resolution rate, or FPRR, measures the amount of claims that get resolved the first time they are submitted. FPRR is an indication of the success of your revenue cycle management process, which spans from the moment a patient schedules an appointment to post-visit tasks, such as coding and billing.
To measure your FPRR, take the total number of claims resolved on the initial submission divided by the total number of claims resolved during the same period of time. An ideal benchmark for this metric is 90 percent or above.
Calculation: Total Number of Claims resolved ÷ Total Number of Claims resolved during same period of time
The net collection rate measures a practice’s effectiveness in collecting reimbursements. It refers to the percentage of reimbursements achieved out of the total amount of reimbursements allowed based on payer contracts. Calculating your net collection rate is useful in determining how much revenue you’ve collected out of the total amount of revenue you expect to collect, and in turn the amount of potential revenue left to collect for a given period.
To calculate your net collection rate, divide payments received by charges net of adjustments for a given time period. We recommend using a 12-month rotating schedule for analysis reporting to keep calculations consistent.
Calculation: Payments Received ÷ (Charges – Adjustments)
The denial rate is the percentage of claims denied by payers during a given time period. A low denial rate reflects a healthy cash flow within your practice, while a high denial rate tends to indicate an unhealthy cash flow.
To calculate your practice’s denial rate, add the total dollar amount of claims denied within a time period and divide it by the total fiscal amount of claims submitted within that time period. The industry average is 5 to 10 percent, so keeping your denial rate below 5 percent is an ideal benchmark.
Calculation: Total Dollar Amount of Claims Denied ÷ Total Dollar Amount of Claims Submitted
Days in accounts receivable, or A/R, refers to the average number of days it takes a practice to collect a payment. The lower the number, the faster payments are being procured. Measuring days in A/R will help you forecast practice income and further evaluate your revenue cycle.
To calculate days in A/R, you must first calculate your practice’s daily charges for a set amount of time. For example, say you decide to evaluate days in A/R every quarter, add up your practice’s total amount of daily charges over a three month period. Then divide the total charges by the number of days, in this case 90 days. Next, divide your total receivables by your average daily charges to get the days in A/R. Days in A/R should ideally stay below 50 for success in this field.
Calculation: Gross Charges Posted in 90 Days ÷ 90 = Daily Charges; then Total A/R for 90 Days ÷ Average Daily Charge = Days in A/R
The average reimbursement rate is the amount your practice collects from the total amount of claims submitted. In a perfect world, every claim submitted would be paid in full. However, this is rarely the case.
To calculate the average reimbursement rate of your practice, divide the sum of total payments by the sum of total submitted charges. According to the American Academy of Family Physicians, the industry average is 35 to 40 percent. Understanding your practice average allows you to discover problem areas to avoid moving forward.
Calculation: Sum of Total Payments Received ÷ Sum of Total Fees Billed
When evaluating your revenue cycle management process it’s valuable to understand where your practice stands. Regularly measuring and analyzing a set number of data points is a manageable first step to making changes necessary to increase your practice’s profit.
Richard Lopez del Rincon is the senior vice president of office-based physician services at R1. Richard obtained his degree from the University of Miami.