Putting your healthcare revenue cycle KPIs to work

Colleen O. Hall, Matt Szaflarski, Clay Schmerber

Increased awareness of KPIs can highlight opportunities for healthcare revenue cycle improvement.

In a precarious financial environment, fluctuating key performance indicators (KPIs) can understandably stress out today’s healthcare revenue cycle leaders. Although leaders might not be able to control the external factors affecting revenue cycle KPIs, these metrics can be useful tools in myriad circumstances, such as payor negotiations.

The following are some top accounts receivable (AR) and denials KPIs healthcare revenue cycle leaders should know to help them make informed decisions that contribute to strong operational performance, no matter the market climate.¹

Accounts receivable metrics

AR metric 1: True AR greater than 90 days

Since 2021, true AR greater than 90 days has increased 8.2%.

Why it’s important

The true AR greater than 90 days metric measures effectiveness of an organization’s collections process. A higher percentage could indicate an organization is struggling to collect payments, which could negatively affect cash flow and financial performance overall.

What leaders can do

Two frequent causes of true AR greater than 90 days are increased denials and delayed follow-up. To address delayed follow-up, provider organizations can make sure their follow-up processes are as streamlined as possible. This includes making sure work queues are appropriately prioritized and team members are consistently working the right account at the right time.

An organization’s denial management process also should be streamlined. Providers should be able to identify denials’ root causes quickly using specific reason categories. Denials prevention strategies should include the reduction of denials that create administrative cost but don’t bring in additional cash, such as line-item denials on claims that already have received their expected reimbursement. Then, organizations should have efficient processes in place to correct denials quickly.

AR metric 2: AR greater than 90 days from commercial payors

The percentage of AR greater than 90 days from commercial payors is up 13.4% – and has been steadily increasing – since 2021.

Why it’s important

As an extension of the true AR greater than 90 days metric, this KPI gives organizations insight into which payors might be causing the greater than 90-day percentage. The higher the percentage, the slower a provider organization is receiving payments from commercial payors.

What leaders can do

Organizations should share this data with payors, especially during regular performance meetings and contract negotiations. These discussions can help the parties determine why payments are slow to come in and identify solutions for receiving payments more quickly.

AR metric 3: Six-month lagged cash to net revenue

Six-month lagged cash to net revenue is down 5.1% since 2021.

Why it’s important

This metric shows how much revenue provider organizations have received compared to what they originally expected to be paid six months prior. It measures how efficiently net revenue is converted to actual cash within a healthcare organization’s revenue cycle.

What leaders can do

To address a slowing of cash to net revenue, provider organizations should make sure accounts are prioritized appropriately and that back-office staff is efficiently resolving open denials when possible.

AR metric 4: Late charges as a percentage of GPSR

Late charges as a percentage of gross patient services revenue (GPSR) is up 8.9% since 2021.

Why it's important

This metric helps provider organizations identify opportunities to improve revenue capture, reduce unnecessary costs, and accelerate cash flow. It is calculated by aggregating charges with post dates that are greater than four days from a discharge date (inpatient) or admit date (outpatient or emergency department) within the current month and dividing by GPSR generated in the current month.

What leaders can do

Because late posting of charges could affect the reimbursement of claims, providers should make sure they are resolving late charges appropriately and resubmitting claims when reimbursement would be materially affected.

Denials metrics

Denials metric 1: Initial denial rate

The initial denial rate for inpatient and outpatient claims for commercial payors in Q1 2023 was 15.1% compared with Medicare’s initial denial rate for the same period, which was 3.9%.

Why it’s important

Typically, a high initial denial rate indicates issues with a provider organization’s documentation and coding. Poor performance with this KPI can result in financial pain when dollars are slow to come in the door – or aren’t collected at all.

What leaders can do

Taking a retrospective look at past denials and studying denials patterns can provide leaders clues to which areas can benefit from improvement. Proactive, corrective measures organizations can consider include improving documentation and coding accuracy and streamlining billing processes.

Denials metric 2: Initial prior authorization/precertification denial rate

The initial prior authorization/precertification denial rate for inpatient claims (commercial payors) in Q1 2023 was 3.2%, up from 2.8% in 2022.

Why it’s important

These denials play a large role in provider organizations’ reimbursement processes and therefore can have a significant effect on organizations’ financial stability. The current data indicates providers are struggling more to gain approval from commercial insurers than from Medicare, which produced a denial rate of only 0.2% in the same period.

What leaders can do

Common factors contributing to prior authorization or precertification denials are complex, ever-changing insurance policies; insufficient documentation sent to insurers; and administrative errors. To address these issues, provider organizations should have effective communication channels with insurers, and staff should have a solid understanding of each payor’s requirements and criteria. Improving documentation practices also is essential, as providing all the necessary information to insurers up front can go a long way toward streamlining claims. These improvements can be achieved through staff training and education on documentation processes.

Provider organizations also can implement technology to further streamline their prior authorization/precertification processes. Examples include applying automation or using solutions that enable real-time communication with payors or that alert healthcare revenue cycle staff members about missing or incomplete documentation before claims are sent out.

In addition, implementing strong denial management and appeals processes is essential. These processes should include a diligent review of claims and reasons for denials to help avoid future denials.

Denials metric 3: RFI denials

Why it’s important

Request for information (RFI) denials occur when a payor refuses to process a claim due to missing documentation. These denials result in delayed reimbursement to provider organizations and revenue loss. They also require a substantial investment in time, resources, and effort to gather and submit requested information to payors. The RFI denial rate for commercial payors in Q1 2023 was 12 times higher than for Medicare.

What leaders can do

Accuracy is crucial when it comes to submitting requested information to payors. All payors have different policies about what information should be submitted with authorizations. Prioritizing staff education and training on requirements can help team members more effectively navigate the complex payor environment and reimbursement process.

As with the denials metrics mentioned previously, having effective processes in place for exchanging information with payors quickly and accurately also is crucial. In addition, technology solutions, such as automated systems that can verify information before submission, can help streamline the information submission process.

Take back control amid uncertainty

Using healthcare revenue cycle data such as the KPIs mentioned here can increase healthcare organizations’ awareness of their current performance and help them reclaim a sense of control over their business – no matter the environment.

¹ Metrics are based on RCA benchmarking solution data, 2021-2023.

Colleen O. Hall

Senior Vice President, Revenue Cycle, Kodiak Solutions

+1 615 515 3813

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Matt Szaflarski

Director, Revenue Cycle, Kodiak Solutions

+1 630 586 5229

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Clay Schmerber

+1 615 515 3911

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