5 KPIs hospices can use to evaluate RCM

By: Ronda Howard, VP, Revenue Cycle and CAHPS, HEALTHCAREfirst

To gauge the effectiveness of revenue cycle management (RCM), hospices need to manage five key performance indicators (KPIs). These KPIs are linked to cash collection, including measurements of the speed and accuracy of payments, as well as any issues that could lead to claims denials. That’s why monitoring these KPIs helps hospices avoid the most common RCM pitfalls.

Why RCM matters in 2023

As inflation and wage pressures continue to compress hospice margins, effective RCM has become more critical. Some of the RCM challenges facing providers include:

• Finding qualified billers
• Manual claims confirmation
• Interdepartmental communication gaps
• Billing and coding errors
• Interrupted cash flow

Here are the five key KPIs hospices can use to evaluate RCM and combat these challenges:

KPI #1: Accounts receivable aging parameters (billed AR)

The process of sorting unpaid claims by their due dates, which helps agencies determine which bills are overdue for payment.

Among the best ways to manage accounts receivable is to run a monthly EHR aging report. Based on that information, the hospice can set priorities for claims management and collections. This includes the accounts receivable aging parameters that show where a hospice’s revenues are in the cycle. This data can help providers identify factors that could be slowing down payment, including how quickly it releases claims for billing.

Things to consider:

1. • The balance over 90 days should comprise less than 20% of your total aging balance
   • AR over 120 should be less than 15% of your total aging balance

KPI #2: Unbilled accounts receivable parameters

The amount of revenue that is recognized but not yet realized — money the organization has earned but not yet billed.

Unbilled accounts receivable may be missing documentation or other information required for billing. No matter the cause, late claims — or claims that are unbilled completely — represent delayed reimbursement or no reimbursement at all. Timely follow-up is key, which means that hospices need to keep the payor’s filing requirements top of mind and track the reasons that any services remain unbilled.

Things to consider:

1. • Total unbilled should be less than 10% of the agency’s monthly revenue
   • Pre-bill edits (a signed order, a completed plan of care, a clean claim submission for timely payment) must be timely and accurate

KPI #3: Collection percentage

The percentage of an agency’s claims that have been paid — ideally in the vicinity of 95%.

To calculate their collection percentage, hospices must divide the number of dollars collected by the amount billed. One of the most significant differences is the requirement for an authorization. The primary denial reasons for non-Medicare claims are eligibility and lack of or incorrect authorizations — which can be costly, as some payors will not allow retro authorizations. Incorrect eligibility can also lead to costly write-offs.

Things to consider:

1. • Medicare collection percentage (first pass billing): 95% – 98%
   • Non-Medicare collection percentage (first pass billing): 85% – 90%

KPI #4: AR days or “days sales outstanding”

An accounting metric that measures the average number of days needed to receive payments after the claim is filed.

This can be determined by using a six-month timeframe. Calculate the revenue for six months and divide it by the number of days in the time period, then divide the total accounts receivable by the average daily revenue.

Things to consider:

1. • Write-offs should account for less than 3% of total revenue
   • Medicare write-offs are typically less than 1% of total revenue

KPI #5: Write-off percentage

The percentage of claims on which the hospice is unable to collect.

Take a close look at write-offs. Writing off any uncollectible accounts monthly is a best practice to ensure that your accounts receivable data accurately reflects your anticipated cash flow. Creating specific write-off codes can help you find and address the root causes of write-offs and take corrective actions.

Things to consider:

• Write-offs should account for less than 3% of total revenue
• Medicare write-offs are typically less than 1% of total revenue

Hospice care is sacred work, and claims collection is the lifeblood of any hospice provider. To function, hospices need cash on hand and accurate, timely billing. Without the complex processes of RCM, hospice services are unlikely to reach the bedside.

Request a consultation to learn how HEALTHCAREfirst can help your agency avoid the common pitfalls of RCM.