5 KPIs That Require Revenue Cycle Managers' Attention

FEATURE STORY

Devendra Saharia

healthcare financial management association www.hfma.org

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REPRINT September 2014

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healthcare financial management association hfma.org

Devendra Saharia

Revenue cycle management literature is replete with methods for measuringteam performance, whether in patient access, health information manage-ment (HIM), patient accounting, or physician practice areas. Variousarticles within hfm alone have listed more than 300 key performance indi-cators (KPIs) within revenue cycle management, not including the criticalmeasures involved in contract negotiation and general accounting. TheseKPIs are all important indicators of an organization’s health—but the volumecan overwhelm the management team.

The best way to address this challenge is to limit the in-depth review of KPIsto those that fall outside acceptable value ranges.

In the current environment, with implementation of the Affordable CareAct (ACA) and the transition to value-based pricing well underway, the fol-lowing five KPIs, in particular, warrant the attention of the revenue cyclemanagement team because of the extent of their potential impact onaccounts receivable (A/R) and cash flow.

Cash RatioThe cash ratio (cash collected as a percentage of net revenue) is the first andbest KPI to monitor for success because it represents an objective standardthat serves as a sentinel for performance issues. This measure does not rep-resent the monthly collection goal, however. Monthly cash goals shouldinclude cash expected from trended net revenue figures (generally the

AT A GLANCE

Revenue cycle leaders can gain the clearest insight intotheir organizations’ revenue cycle performance byfocusing in particular on five key performance indicators:> Cash ratio> Medicare-billed accounts receivable (A/R) over 30 days as a percentage of total Medicare A/R> Third-party aging over 90 days> Bad debt expense> Customer experience

Given the sheer number of revenue cycle key performance indicators(KPIs), the best approach to use when assessing performance is to focuson KPIs that have the greatest potential impact on A/R and cash flow.

5 KPIs that require revenue cyclemanagers’ attention

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monthly average of last 90 days of net revenue)and shortfalls in collections from previousperiods that are expected to be recovered in this period.

Whether net revenue is tracked monthly orbimonthly or trended, the cash ratio over timeshould be between 97.5 and 103.5 percent in anygiven month—and trending to 100 percent of expected cash, as Zane Newitt and Brian Robertson indicate in a toolbox published in the May 2007 issue of hfm.a

There are many variations in cash goal-setting;what is most important is to understand theunderlying drivers of good or bad performanceand to act on the results of the cash ratio eachmonth. To understand the variances involved, itis important to monitor trends by tracking dailycash against monthly targets and to respondimmediately to cash shortfalls as they occur inany given month.

Key concept No. 1. Trended A/R performance(opening balance, new charges, adjustments, andcash) by payer will help disclose problems early.

Key concept No. 2. Cash targets should reflectbooked net revenue, valid shortfalls in previousmonths’ collections, and expected shortfalls incurrent-month insurance payments resulting fromextraordinary circumstances outside the control ofrevenue cycle management. State budget shortfallsare an example of such circumstances.

Medicare Billed A/R over 30 DaysThe revenue cycle management team shouldexamine the trend in Medicare inpatient A/R agedgreater than 30 days from discharge as a percent-age of total Medicare A/R. If the trend regardingthis measure shows an increase or stagnation at alevel over 5 percent, the organization may need to address a number of issues. Net days receivable outstanding for Medicare A/R should not exceed 22 days overall, according to Robertson and Newitt.

For many hospitals, Medicare (traditionalMedicare, not the managed care replacementplans) is one of the largest payers. Any issuesthat cause delays in processing Medicare claimstherefore are likely to have an immediate andmeasurable impact on a hospital’s cash flow.When Medicare A/R over 30 days is greater than5 percent of total Medicare A/R, the revenuecycle management team should examine causesof the delays, denials, or suspended accounts.

It is important to ensure the billing profile contains clear and correct rules for managingcharges according to Medicare rules. Most governmental billing will be quickly adjudicated(if not paid) within a few weeks of submission.Attaining a 95 percent clean-claims rate forbills sent to Medicare (and other governmentalpayers) is a reasonable goal for a high-performing manager.

A short-term task force should be established toidentify and correct all issues relating to delayedor rejected Medicare claims. The task forceshould be charged with ensuring clean inputs andresolving throughput errors quickly.

The goal should be to correct errors in as timely a manner as possible, with a clear benefit to begained from making corrections on the day ofbilling. Claims processing and payment can beunnecessarily delayed if the organization tends notto review claims until after they are accepted byMedicare or, worse, until it receives return-to-provider (RTP) reports.

Key concept No. 1. Hospitals should have processesand technology in place to address standardMedicare billing routines in an efficient andtimely manner (daily—before submission).

Key concept No. 2. Processes and supporting tech-nology also should be in place to assist in fixingMedicare RTP issues in real time. A recommendedtarget is to limit RTP rejections to no more than 3 percent of claims with an RTP report.

FEATURE STORY

a. Newitt, Z., and Robertson, B., “Key Revenue Cycle Metrics,”hfm , May 2007.

Key concept No. 3. Developing best practicesregarding clean claim submission to Medicarewill help ensure a compliant posture within theorganization, and a clear profile with Medicare.

Third-Party Aging over 90 DaysThe key components affecting the cash ratioinclude billing input and throughput, payerresponse, and both internal and outsourced productivity relating to A/R workflows. A/R management is dynamic, but clear performanceindicators begin to show after 90 days, making it useful to review billed A/R aged over 90 daysfrom discharge as a percentage of total billed A/R.For the average business office, this measure maybe 22 to 25 percent, but for a high-performingbusiness office, it will be less than 17 percent.

Revenue cycle managers should watch for declin-ing performance from nongovernmental payerswhere net insurance cash falls below projections,where patient coinsurance and deductibles arerising, and where unresolved accounts areincreasing. Based on the best-practice measurecited by Newitt and Robertson, the revenue cycle management team should consider inter-vening when this KPI is stagnant and higher than20 percent, depending on factors such as the typeof hospital and its case mix.

Efforts to manage this nongovernmental KPIinclude various audits of the A/R by groups ofaccounts; by service type, payer, and balancerange; and by account activity. The revenue cyclemanagement team should look for underpaymentor adjustment trends by service line to determinewhether major payers or employers have changedhow they pay for treatment. These basic auditsmay include:>Open insurance balances with payments but noadjustments

>Open insurance balances with adjustments butno payments

>Open insurance balances with adjustments andpayments

The team also should monitor shifts in case mix,level of care, and treatment setting (inpatient

versus outpatient, for example) and whetherlength of stay has been reduced to determine theextent that these variables contribute to changesin A/R aging.b

Key concept No. 1. Managing volumes of accountsis critical to success; a Pareto Analysis—i.e.,applying the 80/20 rule—could help highlightproblem accounts that the hospital might con-sider outsourcing to alleviate the burden oninternal staff who have too many competing pri-orities to address these problems.

Key concept No. 2. The revenue cycle managementteam should ascertain the extent to which out-of-pocket values (e.g., copays, coinsurance amounts,and deductibles) per case might be increasing,both for newly obtained ACA policies and existingpolicies from major employers. This analysis willanticipate the growth in self-pay A/R and helpestablish the priority for increased point-of-service collection efforts, including improvedquality of preregistration, additional tools forpatient balance estimation, and enhanced train-ing for registrars regarding collections.

Bad Debt ExpenseIn states with expanded Medicaid (post-ACAimplementation), the revenue cycle managementteam should watch for bad debt expense that isincreasing or stagnant and over 3 percent of totalgross revenues. The team also should monitorcharity care levels after Medicaid expansion; thereshould be a drop in charity care due to the transferof patients from “uninsured” to Medicaid-eligible (eligible for presumptive coverage as wellas expanded coverage), and from uninsured toACA-insured. Charity care in most non-safety-net hospitals should not exceed 2 percent of gross A/R.

True self-pay accounts—where patients have no insurance at the time of final billing—alsoshould decline significantly. A recent study by the Colorado Hospital Association showed a

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FEATURE STORY

b. See, for example,Osten, J., “Leave No Money on the Table,”hfm, March 2011.

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25 percent decrease in self-pay accounts as aresult of enrollment in both Medicaid (Coloradois an expansion state) and newly purchased ACAinsurance policies. In states where the Medicaidprogram has not been expanded, the key valueswill be the traditional ones—rising bad debt andbad debt costs, increased charity care, lowerpoint-of-service collections, and lower overallself-pay collections from all sources.

An increase in presumptive Medicaid classes ofpatients should help decrease both charity careand bad debt, as these patients are reclassifiedfrom self-pay to Medicaid. Every state has theopportunity to work with uninsured poor popula-tions to determine who might be presumptivelyeligible for Medicaid, and this effort will have animmediate impact on self-pay A/R for hospitalsin the state. As the accounts migrate from self-pay to other payer types, the hospital should beable to reduce its allowance for doubtful accountsproportionately.

Key concept No. 1. Expanded Medicaid populationsshould have a measurable impact on both charitycare and bad debt. If a hospital’s state has chosento expand its Medicaid program under the ACAand the hospital does not see an increase in Med-icaid volumes and a decrease in both bad debtand charity care, its revenue cycle leaders shouldlaunch an investigation.

Key concept No. 2. The team should monitor the growth of the self-pay population, in termsof both the number of accounts and actualdollars involved. Many recent studies have projected a growth trend for the self-pay popu-lation of up to 200 percent of its current level(from about 10 percent to more than 30 percentof revenues).

Customer ExperienceKey components of the value-based pricingmechanism for Medicare DRG reimbursementare the HCAHPS questionnaires, which measurepatient satisfaction. The revenue cycle manage-ment team should ensure that the overall goals ofthe hospital’s revenue integrity program are

clearly defined and easy to achieve so the clinicalteams can focus a high percentage of their effortson delivering exemplary patient care and provid-ing high-quality clinical documentation.HCAHPS responders (patients and their families)are contacted within weeks of their discharge, sothe on-site experience, including patient accessand financial counseling services, will have ameasurable impact on the hospital’s value-basedpurchasing scores (and thus on the hospital’sfuture Medicare payments).

Patients want to know what they will be expectedto pay for the services they receive. The prevailingpractice has been to avoid talking about thepatient’s financial responsibility until late in therevenue cycle. Reports show, however, that effec-tive up-front financial counseling actuallypromotes rather than negatively influencespatient satisfaction.c At the highest level, excellent financial counselors have a clear under-standing of what patients want from the hospitaland are able to inform patients of the hospital’sexpectation for payment in clear and simple lan-guage, up front and in writing.

Now is a good time, in light of the IRS’s soon-to-be implemented 501(r) regulationsregarding financial assistance and billing andcollections requirements for providers, toreview all financial counseling policies, especially those that relate to patient balances,charity care, and “amount generally billed” discounts.d Again, clarity in communicatingwith patients is key. Hospitals should have aclearly written, board-approved policy andshould share it with patients in the appropriateforums—including via brochures, the organiza-tion’s website, and Facebook—to give patientsmany opportunities to read about and respond to financial policies. Finally, seamless management of the financial policiesrequires coordination with vendors.

FEATURE STORY

c. See, for example, Bohnsack, J., and Hawig, S., “Choosing theRight Strategy for POS Collections,” hfm, September 2012.d. For details on the IRS Section 501(r) requirements, see, Hearle,K., “Preparing for Section 501(r),” hfm, June 2014.

Key concept No. 1. Clinical teams should be free ofunnecessary charge capture burdens so they canaddress patient and documentation issueswithout distraction.

Key concept No. 2. Hospitals should have trainedfinancial counseling staff equipped with theproper tools to help patients clearly understandtheir financial responsibilities at the time of registration.

Key concept No. 3. Hospitals can promote patientsatisfaction by providing patients with easy accessto online payments.

A Dynamic ProcessIt is incumbent on revenue cycle leaders toobserve the many seemingly discrete movingparts in the process of managing the business ofhealth care. The journey starts with the first step:opening the discussion with the managersinvolved in each process and framing the discus-sion in terms of measuring and improvingprocess. The revenue cycle management teamthen should not only define, but also consistently

refine the KPIs that are to be measured. Theissues won’t be the same every month, and infact, it is best not to focus on only a few KPIs overtime. As the team reviews the values to be moni-tored, its members should commit themselves tothe task and strive to reach consensus on how tomanage the issues.

As the revenue cycle management team grows,and as processes improve, it should continuouslyexamine the big picture to look for importantvariances and decide where to focus its effortseach month or quarter. Success also will depend, of course, on the extent to which leadersdemand accountability for performance andreward results.

FEATURE STORY

About the author

Devendra Sahariais CEO, AGS Health, Inc., New York, and a member of HFMA’s New JerseyChapter (devendra.saharia@agshealth.com).

Reprinted from the September 2014 issue of hfmmagazine. Copyright 2014 by Healthcare Financial Management Association, Three Westbrook Corporate Center, Suite 600, Westchester, IL 60154-5732. For more information, call 800-252-HFMA or visit www.hfma.org.