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Spring Cleaning in January - Benchmarking the A/R

January 16, 2019

January is the optimal time to check on the health of your accounts receivable (A/R). Using key performance indicators (KPIs), you can benchmark your A/R performance against industry standards and set the course for improvement in the New Year.

Here are five essential KPIs to include in your annual A/R health check-up:

1. Collection Rates

Plain and simple, net collections evaluates how much you are collecting compared to how much you were expecting to collect. To get to this all-important number, exclude all contractual adjustments and use net charges in the calculation. In the example below, we used a charge of $150 with an allowable of $100, and collections of 95%.

Net collection KPI should hover near 95%, and top performers achieve close to 97%. Anything 90% or less is a danger sign.

If your practice is performing above 95% – great work! If you are not there yet, consider looking at time-of-service collections as well as demographic gathering and insurance verification processes.

Remember: To ensure accuracy of this KPI, evaluate all adjustment types and be certain that only true contractual adjustments are classified as ‘contractual.’ Otherwise, this KPI can provide skewed results.

2. Days in AR (DAR)

The famous ‘DAR’ metric helps evaluate the timeframe between charge creation and payment. Tallying it by days indicates how many days it takes to collect an average day’s charges. Here is the formula that will get you to the ever-popular DAR:

Total A/R Balances / Average Daily Charge Amount = DAR

The trick to assuring you get accurate results is to start with a solid definition of Total A/R Balances. Simply, this is insurance and patient accounts receivable net of credit balances or collection agency accounts. As for the average daily charge, you should take a full year of gross charges / 365.

Industry average DAR ranges between mid-30s to mid-40s, and this depends on the make-up of your practice (single specialty versus multi-specialty, for example.). If your practice is near a DAR of 30 – congrats! Work this year to do even better on this. One option is to look at charge lag data (more detail below), as well as denial and appeal processes.

3. A/R Aging – % over 120 days

Monitoring all aging buckets is important. But a telltale indicator of potential problems is the percent of A/R over 120 days. We all know that as accounts age, the likelihood of collecting declines. So, keeping this KPI at a manageable rate is paramount. Your PM software should provide reports that allow you to look at this data based on patient, insurance, or total aging. Produce and share these reports with the physicians on a monthly basis.

The industry standard is approximately 15%. If you are meeting or beating this, share the good news with your physicians.

When you benchmark your practice to this KPI and find that your percentage is higher, consider looking at your bad debt and collection agency write-off policies. Keeping uncollectable accounts on the books artificially inflates the A/R. I recognize that getting the right balance is definitely a combination of art and science – working accounts long enough to ensure maximum reimbursement but not keeping them so long that doing so provides a false indicator of monies yet to come in.

The next two are less glamorous, but still very important benchmarks.

4. Credit Balances

No one’s favorite topic. But don’t let that stop you from keeping credit balances in check. As a percent of A/R, the amount should be less than 5%.

Remember that not all credit balances are true credits; there are duplicate postings of contractuals and other issues that can artificially inflate this number. Evaluate your refund policy carefully, and be sure to include refund totals as part of monthly financial reporting to physicians.

5. Lag Time

Lag time, a.k.a. the hidden enemy. This metric is impacted by workflow, so it may feel a little more operational than financial. However, any lag time between a service rendered and a charge submitted pushes up your DAR. Your PM system should be able to report the number of days (lag time) between:

o Date of service and date of charge posting; and

o Date of service and insurance claim (or statement, if self-pay)

The closer these lag days are to zero, the better. Run the data by provider, and be sure to share the comparisons with them. A little competition never hurts.

In addition to these five essential KPI, here are a couple other important housekeeping items that will keep your AR in shape:

Clean claims rate. Indicates the quality of demographic gathering and insurance verification. Should be above 95%, with top decile performers at 99%.

Fee schedule. Fees that are way above market norms will inflate the A/R. Be sure to evaluate fees annually against contracted rates and other factors. Make certain your PM system has up-to-date CPT codes, ICD-10 codes, as well as current wRVU values.

Here’s to a healthy AR in 2019!