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Evaluating specific KPIs can improve business performance

Evaluating specific KPIs can improve business performance
09 November 2015

Most practice managers and providers are busy with daily operations of medical practice but monitoring the financial performance of a clinic is important for a medical practice to gauge its success as a business. Clinicians responsible for the business progress of the clinic must invest time to evaluate the performance from time to time. A common reason why a practice loses money is the failure to analyze the KPI’s (key performance indicators) regularly:

Other reasons include:

  • Lack of knowledge of the staff about how or which financial metrics have to be analyzed.
  • No options in the ‘Practice Management Software’ to provide a report that tracks the KPI’s so as to simplify the analysis.
  • Even if KPI’s are being analyzed, some medical practices are not trained to measure the KPIs efficiently or analyze how they impact the business if proper benchmarks are not set.
  • If a company outsources medical billing, some vendor companies do not provide essential metrics to measure the KPIs and ultimately ensure that the practice has a good/bad performance for a particular period.

The above reasons might leave you with the question of where to begin. Simply focus on the following most significant KPIs.

  1. Net Collection Ratio: The Net Collection Ratio clearly indicates whether all the money due is being collected. This is the first step towards analyzing the medical practice’s performance as it gives the true picture of collection against the amount owed to you and the contracts. The desirable net collection for a practice is 95% or more. If the ratio is lesser than this, it means that the business must improve its mode of operation, especially the collection. It is tricky to calculate this KPI because one must understand the charge value of the total billed charges. Charge value is calculated by deducting charges from contractual adjustments. This gives the amount of charge value collected by the medical practice.

Payments / (Charges less Contractual Adjustments) = Net Collection Ratio

  1. Reimbursement per Visit: It is easy to calculate this KPI and it makes it simpler to compare your practice with other practices in the same specialty. For example, if your practice is in internal medicine, set the benchmark against other internal medicine practice groups. This KPI must be evaluated continuously to check month to month consistency. If the practice is using an outsourced medical billing company, the billing company should be assigned to give this information to you along with monthly reports if this KPI cannot be tracked using the software in your office.

Payments / Total number of visit for Same Given Period = Reimbursement per Visit

  1. Accounts Receivable for more than 120 Days: Track the percentage of Accounts Receivable that are due for more than 120 days. This is a good KPI to make sure that insurers and patients are paying you on time. If percentage of AR is high, it indicates that there are no follow ups from your side to work out on claim denials or there is inefficiency to follow up no-response claims. The AR rate can vary by specialty. Best performers are likely to have an AR less than 10%. A rate above 25% is a point of concern that requires immediate action. In the current scenario, when there are adequate software alternatives to cross check payments, you should strive to get a rate less than 10%.

Total AR over 120 / Total AR = Accounts Receivable > 120 Days

Other methods to calculate the above:

Patient Responsibility: A patient AR over 120 days old that is less than 10% indicates good patient collections. If the billing falls into AR more than 120 days, there is a 79% possibility that the money cannot be collected. Since this KPI varies by specialty, it is important to benchmark this indicator only against your specialty. Patient deductibles are at a twenty year high and therefore it is critical to keep an eye on this KPI. Pay attention to front end processes to collect patient money at the time of service, to check deductibles and verify eligibility to keep this KPI stable.

Insurer responsibility: Insurer AR more than 120 days shows that the billing staff or the outsourced medical billing company is not following up payment denials and reimbursements efficiently. It is important to find out the list of payers which are slow to pay or are causing denial problems. This indicator can vary with specialty, so it is important to benchmark only against your specialty. Anything more than 25% indicates risk and proper measure should be taken to rectify it. The Insurer AR must be maintained at 5% to 7% to mark good business performance.

Modern Software: Training staff to calculate KPIs would become more efficient if it was coupled with the use of modern software solutions to track the financial performance in a timely manner. There are medical billing services and software that provide different levels of reporting on a continuous basis. The software should have insurance contract capabilities and advanced reporting features. The medical billing system will keep a check on the different payer rates and make sure you are receiving payments in full. For this, all the contracts must be in your computer / software system, so that none of the payment denial goes unnoticed.