Key Performance Indicators (KPIs) in Revenue Cycle Management

Last week, I published an article discussing the book Extreme Ownership and the war in Iraq.? Obviously, I applied it to the revenue cycle.? If you want to read more, click here.

This week, I will continue the theme of military conflict and the revenue cycle by discussing how to overcome the fog of war by focusing on revenue cycle reporting.? The military battle I will use as an example is the 1993 October 3 and 4 gunfight in Mogadishu, Somalia made famous in the movie, Black Hawk Down.

The Mission:? In early October, Ranger and Delta Forces in Somalia were assigned to capture and extract top lieutenants of Somali warlord Mohamed Farrah Aidid.? Helicopters, Humvees, and soldiers would support them.

The Plan:? The Black Hawk Helicopters would drop rangers on ropes into the compound to secure the persons of interest.? Then a Humvee convoy would pick them up and take them back to the US base.

The Fog of War:? The plan went off the rails when one of the helicopters dropping off the rangers was struck by a rocket-propelled grenade.? The situation was complicated further when a second helicopter was also hit at a different location.? Both Black Hawks crashed.? The Delt and Ranger forces now had to rescue the pilots and get everyone back to the base with the prisoners.?

Unfortunately, their rescue mission was complicated by their lack of information, knowledge of the terrain, and understanding of the forces they were engaging.

Revenue cycle managers also have to deal with the fog of war.? Every day, claims are submitted, adjudicated, and posted and resources need to be deployed across registration, denial management, and collections.? The only way to manage all of this is with information.

Here are five key reports that revenue cycle managers need in order to see through the fog of war:

1. Days in Accounts Receivable (Days in AR) - Measures the average number of days it takes for a healthcare organization to collect payments after a service is provided.

• Formula: Days?in?AR = (Total?AR Average / Average Daily?Charges)
• Target: Typically, 30-40 days is considered a good benchmark.? In pharmacy, it is about half that.

2. Clean Claim Rate - The percentage of claims submitted without errors on the first attempt.

• Formula: Clean?Claim?Rate=(Number?of?Clean?Claims / Total?Claims?Submitted) × 100
• Target: A clean claim rate of 90-95% or higher is ideal.? 100% is always the goal.

3. Denial Rate - The percentage of claims that are denied by payers.

• Formula: ?Denial?Rate = (Number?of?Denied?Claims / Total?Claims?Submitted)×100
• Target: A denial rate of 5-10% is considered acceptable; lower is better.? This will vary by industry.

4. Average Reimbursement Rate - The average amount reimbursed per claim compared to the total charges.

• Formula: Average?Reimbursement?Rate = (Total?Reimbursement/Total?Charges) × 100
• Target: This varies by specialty and payer mix, but higher percentages indicate better reimbursement performance.

5. Percentage of Patient Payments Collected Upfront - The percentage of patient payments collected at the time of service.

• Formula: Percentage?of?Patient?Payments?Collected?Upfront = (Total?Upfront?Payments / Total?Patient?Payments)×100
• Target: Higher percentages are better, reducing the need for post-service collections.

The Black Hawk Down engagement in Somalia reaffirmed the importance of information in order to overcome the fog of war.? Similarly, Revenue Cycle leaders need good information in order to deploy the right resources where they are needed most.