During a recent webinar titled, “Improve Profitability with Revenue Cycle Analytics,” industry expert and author Frank Cohen answered several questions aimed at helping practices understand some of the important metrics required to effectively analyze the revenue cycle. Here are just a few of the useful formulas and definitions he offered:
Question: How should you calculate reimbursement percentage? Should you use total payment divided by total charge, or only use closed claims?
Answer: Use total payment divided by total charge over a given period. I calculate using a rolling average. For example, I might take a rolling 12-month period. Then, for each month in the future, I can predict revenue within a given error range by using a confidence interval. For instance, I could say something like, “In 95 months out of 100, my revenue will average somewhere between x and y dollars.”
Question: What is the average mark-up (using the cost-based model) to establish fee schedule prices?
Answer: While it varies based on market dynamics, I normally see between 200% and 250%. For example, if your cost is $30 per RVU, then the fee would be based on $60 to $75 per RVU. That sounds really low to most people, but that’s because they get paid so little by the payers that they super-inflate their charges. If you actually got paid what you charge, these values would be quite reasonable.
Question: How do you define a clean claim, and how do you calculate the first-pass rate or clean claim rate?
Answer: In the report card, a clean claim is one that contains all pertinent information in order to be processed on the first pass. You can calculate first-pass rate by looking at the ratio of submission to re-submission. For example, if you submit a claim and it comes back lacking some type of information and you need to resubmit, that counts as “one.” Tally the count and divide by the total number of claims submitted. (Keep in mind that unfortunately, due to payer issues, even clean claims are sometimes subject to denial or revision.)
Question: What is a good benchmark for patient responsibility A/R (e.g., 25% > 120 days)?
Answer: Well, the best benchmark is 0 days (you collect at the time of service), and the worst is infinity (you never collect the patient responsibility). It’s my opinion that 90% of payments should be collected within 30 days of notification, but that can be tricky. Take this example: I had surgery done on my hand four months ago and I just got the final bill from the surgery center. I paid right away, but that put them back four months from the date of the procedure. So, you need to figure out how to calculate A/R. I asked the surgery center how they did it, and they told me that they measure from the date the bill goes out since it often takes them a long time to get the insurance portion resolved first.
Measuring the revenue cycle is much easier if you understand the metrics behind it. Apply these definitions to better analyze your practice’s revenue!