Unveiling the Top 5 Healthcare Revenue Cycle KPIs

 Key Performance Indicators (KPIs) within the healthcare revenue cycle play a vital role in monitoring financial well-being and optimizing revenue capture for providers. Understanding these metrics is crucial for healthcare organizations aiming to sustain access to high-quality, cost-effective care—an essential aspect of the evolving landscape of value-based care and healthcare consumerism. These KPIs offer critical insights and avenues for enhancing performance.

Across the spectrum of healthcare organizations, financial performance faces challenges from multiple fronts. Factors such as escalating labor costs, shortages in the workforce, and declining patient volumes have significantly narrowed profit margins. Concurrently, hospitals have reported heightened levels of bad debt and charity care compared to previous years.

Physician practices, hospitals, integrated health systems, and other entities are actively engaged in refining performance within the healthcare revenue cycle to improve both financial and clinical outcomes. The utilization of KPIs linked to pivotal tasks within the revenue cycle is instrumental in gauging financial health and pinpointing areas necessitating improvement.

A notable approach to discerning the top five healthcare revenue cycle KPIs involves the Healthcare Financial Management Association’s (HFMA’s) MAP Keys, which serve as benchmarks for excellence in the healthcare industry’s revenue cycle. Understanding the commonly tracked KPIs, the methodologies for establishing them, and the requisite data sources to monitor performance are central facets for providers seeking to optimize their revenue cycle.

1. Duration of Net Accounts Receivable

The KPI focusing on net days in accounts receivable (A/R) stands as a barometer of efficiency within the revenue cycle. According to HFMA, providers compute this KPI by dividing the net A/R by the average daily net patient service revenue. This metric holds substantial importance in financial management.

HFMA outlines that essential data for this KPI can be sourced from the balance sheet, encompassing elements such as the net of credit balances, allowances for uncollectible accounts, charity care discounts, and contractual allowances for third-party payers.

The requisite data for this calculation involves specific components:

• A/R outsourced to a third-party company not categorized as bad debt

• Medicare Disproportionate Share Hospital (DSH) payments

• Medicare Indirect Medical Education (IME) paid on an MS-DRG account basis

• A/R linked to patient-specific third-party settlements, wherein a “patient-specific settlement” denotes a payment attributed to an individual patient account

• Critical Access Hospital (CAH) payments and settlements

However, exclusions are necessary for non-patient A/R, 340B drug purchasing program revenue (unless recognized as a patient receivable in the accounting system), and capitation and premium revenue related to value- or risk-based contracts.

Furthermore, providers should omit non-patient-specific third-party settlements, like DSH, CRNA, and Direct Graduate Medical Education (DGME) payments, as well as certain cost report settlements that do not directly relate to individual patient accounts.

HFMA also specifies exclusions for hospital-reported data, such as state or county subsidies, ambulance services, certain assessments, retail pharmacy, post-acute services, and physician practices or clinics unless they hold Medicare-recognized, provider-based status.

Determining the average daily net patient service revenue involves examining the most recent three-month daily average from the organization’s income statement. This value encompasses gross patient service revenue minus contractual allowances, charity care, and doubtful accounts. It’s important to note that this average doesn’t typically appear on audited income statements.

This computation includes Medicare DSH payments and Medicare IME paid on an MS-DRG basis but excludes the same financial data as net A/R.

The higher the net days in A/R, the more turbulent the revenue cycle. The American Academy of Family Physicians (AAFP) suggests keeping days in A/R below 50 days at a minimum, with 30 to 40 days being a more favorable range.

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