Nine percent of healthcare charges are initially denied, putting 3.3 percent of a provider’s net patient revenue at risk, one recent study found.
Meanwhile, appeals cost providers roughly $118 per claim, or a total of $8.6 billion in administrative costs each year, according to the same study.
For physician practices, which often struggle to optimize revenue cycle management (RCM) processes and performance, the data point to why the strategic importance of knowing a practice’s cost to collect is becoming more and more critical.
Typically, physician practices have a limited understanding of their cost to collect. While their RCM platforms may produce the data needed to determine the root cause of denials, some practice administrators and physicians have difficulty making sense of the numbers and translating them into action. In other instances, the RCM platform itself may not offer the functionality needed to integrate data from multiple sources, which has a significant impact on their ability to collect. The more disparity in RCM solutions a practice uses, the greater the challenge.
There are five RCM key performance indicators (KPIs) that should be of primary focus for practices to reduce their cost to collect.
1. Denials rates: The average denials rate, based on best practices (regardless of taxonomy), is less than 5 percent of the first submission, according to the Medical Group Management Association (MGMA), but we’ve seen rates as high as 61 percent and as low as 2 percent. The biggest percentage of denials appears to be associated with front-end processes, such as patient registration/eligibility (23.9 percent) and authorization/precertification (12.4 percent). Missing or invalid claims data is the second-highest culprit (14.6 percent), while coding errors account for 5.8 percent of denials.
If your practice’s denials rate is higher than 5 percent, it’s time to dig deeper. Drilling down to determine the primary source of the practice’s denials, such as errors in data capture during patient registration or coding errors during charge entry, will help you diagnose where improvement is needed and prescribe the right solution to protect revenue. For example, hiring a certified professional coder is one effective way to make sure claims are clean before they go out the door.
2. Days in accounts receivable (A/R): This KPI measures how long it takes for a claim to be paid. Practices primarily doing office visits should expect average days in A/R to total less than 30 days, while specialties with a higher number of procedures than office visits typically average higher days in A/R. To lower days in A/R, consider the following tactics:
• Post charges daily
• Follow up with payers each time you submit a claim (i.e., electronic remittance advice)
• Work denials daily
• Automate payment posting
3. Percentage of A/R greater than 120 days: The longer it takes for a claim to be paid, the greater the practice’s collection costs—and the less likely patients will pay balances they owe. A practice with a percentage of days in A/R greater than 120 days should prompt a comprehensive assessment of revenue cycle workflows to determine where inefficiencies exist. With this information in hand, physicians and administrative leaders should work quickly toward a solution to protect the practice’s financial health.
For example, in 2014, one multidisciplinary physician group in Texas was in financial crisis because 52 percent of claims had not been paid in more than 120 days. By standardizing workflows according to industry best practices, the practice reduced days in A/R by half. By the end of December 2017, more than 60 percent of its claims were being paid in less than 90 days. Meanwhile, average days in A/R totaled 38 days—an outstanding achievement.
4. Lag time for completed notes to generate claims. This KPI represents one of the top frustrations for physicians who struggle to complete documentation in a timely fashion due to intense workloads and increased administrative requirements. The issue is occasionally due to a lack of administrative support, but mostly, high lag times occur because most Electronic Health Record systems are tedious and cumbersome to use, and most physicians are not properly versed in documentation requirements, therefore producing insufficient information. Hence, it is important to educate physicians on the impact that a delayed completion of notes can have on the practice’s ability to support claims management. Such conversations also can highlight the potential to aid physicians in this task, such as by providing the right template, transcription service, scribe or other infrastructure to generate a good note.
5. Point-of-service collection rates. A 2017 report showed two out of three patients with balances less than $500 do not fully pay their bills, which is one reason why collecting patient copays/co-insurance and deductibles at the point of service is critical. Review patient collections policies, procedures and technologies to support increased point-of-service collections and reduce unpaid accounts/write-offs.
If your practice’s patient collections policy hasn’t been reviewed in the past two years, it may be time for a refresh. According to the Healthcare Financial Management Association, such a policy should define:
• The financial information that should be provided to patients
• How the information should be communicated
• The types of payment plans available
• Details regarding the practice’s financial assistance policy, including eligibility requirements and how to apply for assistance
Practices also should ensure there are multiple touchpoints for patients to facilitate payment and promptly notify them of the estimated balance due after insurance—ideally, as soon as possible, or before care is delivered. Additionally, make sure charge tickets include patient balances so staff may collect on past and current balances at the point of service.
Determining the Right Approach
Developing a strategic approach to reducing cost to collect is critical to the financial health of any practice, but it’s important to be realistic in your goals. Focus first on the KPIs that have the greatest room for improvement for your practice, and involve your entire team in performance improvement efforts. Once you’ve achieved success in these areas, then work toward addressing next-level areas of concern. Document the steps your practice will follow to achieve its goals, and set timelines for expected performance.
It’s also important to celebrate achievements with staff. The collaborative gains your practice makes in reducing the cost to collect will sustain your organization’s ability to meet the healthcare needs of the communities you serve.
Bio:
Dar Griffeth, BA, BS, DC, is senior vice president of revenue cycle management services, Pulse Systems, Inc.