Billing performance measurement is an integral part of medical practice billing process and a prerequisite to effective practice management. Systematic measurement becomes mission-critical with growth of billing complexity or outsourcing of the billing function. Traditional billing metrics are limited in scope and focus on claim submission process, ignoring process imperfections on the insurance (payer) side. Modern computer technologies allow both productive measurement and effective action by the disciplined billing office to improve claim submission and payment processes.
Using appropriate metrics helps improve policies and procedures, shorten revenue cycle, reduce patient complaints, improve financial performance and compliance, increase cash flow, reduce bad debt, identify areas of potential growth, improve employee morale, increase productivity, and reduce costs. Useful metrics must be comprehensive and simple. They must combine both complete end-to-end processes and their individual components. Metrics must be used consistently over time and compared to standards. Obviously, different standards apply to different medical specialties, patient demographics, payers, and samples of CPT codes.
Medical billing metrics typically include compliance, cash balances, charges, accounts receivable, and collection ratios to help monitor cash flow. This article focuses on performance metrics. For discussion of compliance program, see companion article on Medical Billing Compliance.
Traditional metrics include gross and net collection ratios. Both metrics are subjective to individual practice because they compare (often arbitrary) charges to (allowed) payments. (Net collection rate is defined as a ratio of Total Collections and Total Charges less Adjustments. Gross collection rate is defined as a ratio of Total Collections to Total Charges only.) According to Medical Group Management Association (MGMA) 1998 Cost Survey, adjusted fee -for-service collections (net collections) for family practices in 1997 averaged 98.65 percent. A declination net collection ratio may be symptomatic of increased contractual write-offs or insufficient number of denial appearances. This metric is especially useful in the absence of modern computer technology, when comparison of every payment to allowed amount is impossible, or when appeal process of denials is too expensive. Otherwise, the use of charges in defining gross and net collection metrics precludes them from productive discovery of process improvement opportunities.
Days in Accounts Receivable (DAR)
A growing number of days in accounts receivable are symptomatic of a faulty billing process. One way to determine DAR is to count days from the date of service to the date of payment for every claim and then average across all claims. A simpler way to compute average number of days in accounts receivable by taking a ratio of accounts receivable to average daily charges, or
Number of days in accounts receivable = (Accounts Receivable / Average Charge) x 365
This metric too depends on medical specialty, patient demographics, payer mix, and CPT sample. Another downside is that this metric is sensitive to provider as it counts the lag time of unsubmitted claims for services already delivered. This lag time roughly averages across all payers making DAR an effective comparison metric between payers for individual provider but invalidating it across multiple providers.
One obvious advantage of DAR metric is its independence of charges. The averaging feature of this metric eliminates sensitivity to specific day or CPT but also hides the behavior shape of the accounts receivable curve.
First-Pass Pay (FPP Rate) and Denial Rate
FPP is the percentage of claims paid in full the first time upon submission (subject to federal or state timely payment regulations: 15 days for electronic submission and 30 days – for paper).
Denial rate is the complementary metric to FPP rate. It counts the percentage of claims that require followup and therefore cost more to process. Followup may take the form of a phone call to payer to discover a lost claim or to receive interpretation of denial message, correction of earlier submitted data, resubmission of the original claim, consultation with the provider and medical notes, or denial appeal.
Both FPP and Denial rates are very important metrics often used for billing process improvement. The upside of FPP / Denial metric is that it is charge-invariant but its downside is that it hides the differences between process imperfections on the claim submission and claim payment sides. To identify patterns of problem CPT codes or payers, FPP / Denial metric needs to be computed and compared across all pairs of payer-CPT code, which is a standard feature for modern billing technologies.
Percent of Patient Liability is the ratio of patient responsibility to total billed charges and it largely reflects patient receivables. This measure is important in measuring front office function as it has little to do with clean claim submission or effective followup.
Percent of Accounts Receivable Beyond 60, 90, and 120 Days (PARB60, PARB90, and PARB120)
PARBX resolves the sensitivity issue of DAR metric and offers simple and charge-invariant metric of billing process. Its graphic representation has a skewed bell shape. Its steepness represents billing process quality: a steep curve and thin tail means healthy billing process, while a flat bell and a fat tail means billing problems.
According to the MGMA survey, 25.35 percent of the average family practice's accounts receivable were more than 120 days old in 1997. This number has improved down to 17.7% in 2004.
In summary, comprehensive and charge-invariant metrics, such as PARBX, are more informative and objective than collection ratios. However, these metrics alone fall short from identifying specific areas for billing process improvement. Modern technology helps identifying billing bottlenecks as it allows interactive review of multiple metrics along different aggregation dimensions. For instance, PARBX metric is especially helpful to identify patterns of problem claims containing particular payer or CPT code. Further, modern Vericle-like technologies enable comparison of every payment to allowed amount and subsequent appeal on every denial, effectively lowering the average percentage of accounts receivable to low single digits.