Key performance indicators (KPIs) are the best way to evaluate the revenue cycle team’s contribution toward reaching your hospital’s annual financial goals. Without these important hospital revenue cycle metrics, your cash balance is the only measurement – and cash can fluctuate.
KPIs give you an objective view of the efficiency and effectiveness of your hospital revenue cycle staff and model. They allow you to monitor patient financials, identify strengths and trouble spots, and prioritize activities that positively impact the bottom line.
Monitoring KPIs weekly, if not daily, is standard procedure for many hospitals and health systems. But did you know certain metrics can hide problems that may lead to poor financial performance? What causes these secret, underlying problems usually isn’t obvious or intuitive, so a closer look is needed. Five KPIs warrant this extra scrutiny to identify opportunities to increase revenue, accelerate payment and reduce costs to collect. They are:
- Discharged, not final billed (DNFB)
- Clean claim rate
- Payer aging over 90 days
- Net collection percentage
- Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS)
DNFB is the ratio of accounts held for billing for some reason. It’s important to measure and improve this metric because if bills don’t go out, payments can’t come in – hindering cash flow and decreasing opportunities to earn interest on cash balances. It also is a key metric that can be a leading indicator of a variety of issues that can affect the revenue cycle.
Many hospitals allow three days after discharge for accounts to be coded or dropped before putting them on DNFB.1 There are a number of reasons accounts end up with this status, including coding backlogs, codes that don’t correspond to charges, invalid codes, missing or incorrect patient data and inaccurate payer designator coding. Sometimes physicians don’t respond to requests for diagnosis codes, or they dictate incorrect information into their notes. Just one error such as a wrong birth date can put a bill into a rejection status, affecting your bottom line indefinitely.
What is DNFB hiding? High rates can indicate serious, systemic problems. Many people in a healthcare organization touch a patient’s medical record, but if disparate systems don’t talk to each other, data must be entered and reentered, increasing the risk of errors and delays at every step. Dependencies among departments also impede billing. If the anesthesiologist, radiologist and others who care for patients don’t get what they need from the surgeon, the hospital can’t generate a bill. Systems should be in place that allow a medical record to be created electronically up front, then transmitted from one function to another throughout the episode of care. Clean, updated patient data across all platforms facilitate turning a discharge into a final bill quicker and with less expense.
2. Clean Claim Rate
A clean claim is one that can be paid on the first submission to the primary payer, so the higher your clean claim rate, the better your operating margins. The average U.S. hospital achieves about 75-85% clean claims2 — not terrible, but still below ideal. Providers should strive to achieve a clean claim rate above 90%.
A below average clean claims rate can suggest underlying problems you may not be aware of. As the majority of claims are now submitted automatically and with little human intervention, most hospitals apply pre-billing edits on claims to validate claim accuracy, correct codes, proper filing formats, and more, before claims are sent to payers. Not following this best practice can actually lower your clean claims rate unless you or your vendor create custom edits based on hospital requirements, coding requirements, format rules and especially each payer’s rules. An analysis of denied claims usually reveals surprisingly few denial reasons that can’t often be easily corrected.
Your clean claims rate can also uncover hidden gaps in workflow, billing staff education and analytics and reporting. Your staff needs the knowledge and tools to review new medical necessity or billing changes, a process to detect claims errors and a protocol to send them to the right area for correction before submitting to payers. To resolve issues related to a poor clean claims rate and thus improve the speed of the revenue cycle, a formal task force should be established to immediately investigate, address and settle issues that delay a claim from being submitted programmatically.
3. Payer Aging Over 90 Days
One way to measure accounts receivable performance is to look at the total amount billed to contracted payers and the percentage unpaid 90 days or more after discharge. These figures should exclude DNFB, credit balances and in-house accounts and ideally be under 17% for hospitals and health systems.3
Examining payer aging over 90 days is critical because of its effect on cash flow. A high ratio could mean you have problems collecting from certain payers or certain categories of payers. Your staff may leave those more difficult claims for later, or forget them altogether. High payer aging could be trying to tell that you your staff is not submitting claims in a timely manner, the claims they submit have missing or incorrect data, or pieces of episode of care documentation are missing or out of order.
Provided everything is submitted correctly, your staff should start working accounts receivable after 30 days, rather than waiting 60 or 90 days. A simple tickler system that puts accounts not paid in 30 days into the call queue can yield valuable information to prevent future payment delays.
4. Net Collection Percentage
Net collection percentage is the ratio of collectible dollars (after negotiated contract write-offs) a hospital actually collects. Ninety-five percent or above is a good hospital benchmark, but 100% is a realistic target.
Net collection percentage measures a hospital’s effectiveness in collecting all legitimate reimbursement. It exposes the amount of revenue lost to uncollectible bad debt, late filing, inappropriate adjustments, payment posting errors and claim underpayments.4 A low number may suggest the need for better technology for making collection calls, tools for efficient focus on smaller balances and adoption of patient-friendly billing practices. Especially in an environment with increasing numbers of first-time healthcare users, hospitals hoping to increase their net collection percentage must have staff who can explain to patients what they’ll be financially responsible for, do benefits and eligibility checks and counsel patients on their financial options.
HCAHPS is a standardized patient satisfaction survey required by the Centers for Medicare and Medicaid Services (CMS) for all hospitals in the U.S. The HCAHPS results are published publicly on the Hospital Compare website or through a link on www.medicare.gov. It is designed to give objective, meaningful comparisons of hospitals in areas important to consumers, create incentives for hospitals to improve quality of care and enhance hospitals’ accountability for quality care.
With healthcare being so personal, however, it may be difficult for patients to be completely objective. A study of 35,000 online reviews of physicians showed 96% of patient complaints are related to customer service, while only 4% cite clinical care quality or misdiagnoses.5 The hidden message in HCAHPS scores may be that you need to improve front desk staff, physicians’ bedside manner, scheduling and billing processes and other aspects of the patient experience. Investing in this “softer” side of healthcare may be well worth it. A recent Deloitte study showed a direct correlation between HCAHPS scores and financial success. Hospitals with “excellent” patient ratings between 2008 and 2014, had an average net margin of 4.7% compared to 1.8% for hospitals with “low” ratings.6
Our Revenue Cycle Management Services can help you learn more about finding the secrets hidden in your revenue cycle performance metrics. As an extension of your team, we have the resources and depth of experience you need to help strengthen the financial health and profitability of your whole organization.
1 “ Don’t Let DNFB Cripple Hospital Cash Flow.” Dom Nicastro. Jan. 23, 2013.
2 “How to Improve Your Clean Claims Rates.” Mary Guarino, HIMSS, Oct. 9, 2010.
3 ”5 KPIs that Require Revenue Cycle Managers’ Attention”. Devendra Saharia, HFMA Magazine. September 2014.
4 “Using Benchmarks Correctly: Days in A/R and Net Collections Percentage.” Bryan Koch, June 15, 2010.
5 “ Patients’ No. 1 complaint? Front-desk staff.” Kelly Gooch. April 26, 2016, Becker’s Hospital Review.
6 “The value of patient experience.” Deloitte, accessed Oct. 28, 2016.
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