The financial success of your practice can’t be evaluated through cash flow alone—it’s just one of several important factors. Use this series of quick, easily digestible videos to help you gain a better understanding of how to measure the financial health of your practice.
Revenue cycle management includes:
Calculating these three metrics can help you determine whether your revenue management cycle processes are efficient and effective.
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Days in accounts receivable (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.
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First, calculate the practice’s average daily charges:
Next, calculate the days in A/R by dividing the total receivables by the average daily charges.
Best Practice Tip
Days in A/R should stay below 50 days at minimum; however, 30 to 40 days is preferable.
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:
The adjusted collection rate represents the percentage of reimbursement collected from the total amount allowed based on contractual agreements and other payments—i.e., what you collected versus what you could have/should have collected. This metric shows how much revenue is lost due to factors in the revenue cycle such as uncollectible bad debt, untimely filing, and other noncontractual adjustments.
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To calculate the adjusted collection rate, divide payments (net of credits) by charges (net of approved contractual agreements) for the selected time frame and multiply by 100.
Best Practice Tips
Inappropriate write-offs.
One of the most common mistakes when posting payments is applying inappropriate adjustments to charges.
The denial rate represents the percentage of claims denied by payers during a given period. This metric quantifies the effectiveness of your revenue cycle management processes. A low denial rate indicates cash flow is healthy, and fewer staff members are needed to maintain that cash flow.
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To calculate your practice’s denial rate, add the total dollar amount of claims denied by payers within a given period and divide by the total dollar amount of claims submitted within the given period.
Best Practice Tips
Failure to identify mistakes prior to claim submission. Mistakes made during coding and charge entry can result in claims that are adjudicated and rejected by a payer. Establishing an internal process to identify and correct any mistakes prior to claim submission will decrease denial rates and produce a healthier cash flow.
The denial rate represents the percentage of claims denied by payers during a given period. This metric quantifies the effectiveness of your revenue cycle management processes. A low denial rate indicates cash flow is healthy, and fewer staff members are needed to maintain that cash flow.