Revenue Cycle Metrics: AR Days, Collection & Denial Rates, Avg. Reimbursement, Study notes of Finance

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Many providers are under the impression they can assess the financial health of their practice by evaluating cash flow only. However, cash flow is just one factor. You don't have to be a finance expert to understand the other important metrics that should be calculated and reviewed when evaluating the revenue cycle. The AAFP has put together a series of online education modules to help you understand the five key metrics in revenue cycle management. Obtain a better understanding of the following topics and why they are important for your practice:

Days in Accounts Receivable Days in Accounts Receivable Greater Than 120 Days Adjusted Collection Rate Denial Rate Average Reimbursement Rate

Calculating Days in A/R

First, calculate the practice’s average daily charges:

Add all of the charges posted for a given period (e.g., 3 months, 6 months, 12 months).

Subtract all credits received from the total number of charges.

Divide the total charges, less credits received, by the total number of days in the selected period (e.g., 30 days, 90 days, 120 days, etc.).

Next, calculate the days in A/R by dividing the total receivables by the average daily charges.

Sample Calculation

(Total Receivables ‐ Credit Balance)/Average Daily Gross Charge Amount (Gross charges/365 days)

Example: Receivables: $70, Credit balance: $5, Gross charges: $600,

Math: [$70,000 – ($5000)] / ($600,000/365 days)= $65,000/1644 = 39.54 days in A/R

patients have to pay accounts can result in an increase in days in A/R. Consider creating a separate account that includes all patients on payment plans and determine whether your practice should or should not include this “payer” in the calculation of days in A/R.

Claims that have aged past 90 or 120 days. Good overall days in A/R can also mask elevated amounts in older receivables, and therefore it is important to use the “A/R greater than 120 days” benchmark.

Calculating accounts receivable (A/R) greater than 120 days will give you the amount of receivables older than 120 days expressed as a percentage of total current receivables. This metric is a good indicator of your practice’s ability to collect timely payments. Factors that can influence timely payment include your payer mix and/or your staff’s efficiency in addressing denied or aged claims. High or rising percentages indicate there may be problems with your practice’s revenue cycle management.

Best Practice Tips The amount of receivables older than 120 days should be between 12% and 25%; however, less than 12% is preferable. To get the most accurate picture of your practice’s financial standing, base your calculations on the actual age of the claim, i.e., the date of service, not the date on which the claim was filed or when it changes hands from one financially responsible party to another (primary insurance to secondary insurance; insurance to patient).

Sample Calculation

(Total Receivables Greater Than 120 days/Total Receivables) X 100

ExampleL Receivables 121 to 150 days: $114, Receivables 151+ days: $145, Total receivables: $2,120,

Math: ($114,000 + $145,000/$2,120,000) x 100 = ($259,000/$2,120,000) x 100 = 0.1222 x 100 = 12.22% Receivables greater than 120 days: 12.22%

Calculating Adjusted Collection Rate 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

Sample Calculation: (Payments – Credits) / (Charges – Contractual Agreements) x 100

Example: Total payments: $500, Refunds/credits: $14, Total charges: $850, Total write‐offs: $350,

Math: ($500,000 – $14,000) / ($850,000 – $350,000)= $486,000 / $500,000 =0.972 x 100 =97.2% Adjusted collection rate: 97.2%

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.

Best Practice Tips A 5% to 10% denial rate is the industry average; keeping the denial rate below 5% is more desirable. Automated processes can help ensure your practice has lower denial rates and healthy cash flow.

Calculating Denial Rate

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.

Other Considerations

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.

The average reimbursement rate represents the average amount your practice collects from the total claims submitted. When tracked over time and compared with historical practice results, it provides an accurate picture of your practice’s financial health. It also helps determine if your practice could realistically bring in more revenue. Claim‐specific negotiated discounts, payment bundling, and bad debt can adversely affect average reimbursement rate.

Best Practice Tip The industry average is 35% to 40%.