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Key Performance Indicators: Let's Focus

Friday, May 10, 2013   (0 Comments)
Posted by: Joy Ingram
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by Ray Jorgensen, CEO, Priority Management Group (PMG)

Question: How to Survive 1. Patient increase from ACA, 2. ICD-10’s Pervasive and Ongoing Impact, 3. “Meaningful Use” Demands, and 4. Limited Funds from Sequestration.

Answer: Evaluate and maximize these Key Performance Indicators (KPI) to ensure optimal reimbursement from third party payers.

Truly there is only so much any of us can accomplish in a single day. With CHCs experiencing substandard staffing levels as a result of the too-slowly distancing financial crisis, day-to-day demands of delicately balancing mission with fiscal realities, and the obligation to adequately respond to new/expanded regulatory demands, it is hard to keep an optimistic disposition. But trudge purposely forward you must and will, if for no other reason than your CHC’s focus on patients who depend on your very existence to sustain their own.

Following are several Key Performance Indicators (KPI) tied directly to billing and reimbursement. These are not sexy topics, yet an intentional focus on improving these data will afford your organization the ability to thrive despite the consistently morphing landscape that has become the norm for the world of CHCs and healthcare in general.

Encounter Rate

In short, how much money are you paid per visit?  Stated otherwise, what is your average payment per visit? Most CHCs’ “C level” executives know their Medicaid - and some even know their Medicare - encounter rate numbers, but the blended encounter rate (all payments divided by all patient encounters) truly tells the tale.  Has this figure gone up or down? How about by clinic or by provider? How about self-pay vs. all other vs. dental-stand-alone?  Here is some quick math for an example: $2 million in payments divided 19,000 visits equals $105.26 per visit.

Tracking patterns and finding “best practices” is critical. By analyzing your state’s UDS data, you can benchmark your CHC vs. all others in the state.  How do you compare? Remember that some encounter rate numbers may include grant money while others include only 3rd party payments (e.g., Medicare, Medicaid, commercial payers, self pay, etc. but NOT grants). We recommend including grants received as a result of rendering clinical services (e.g., Title X, Ryan White, etc.).  For instance, if in the preceding example there was another $650,000 in grant income added to the $2 million, (so $2.65 million divided by the same 19,000 visits) the encounter rate soars to $139.47.

By the way, and equally as important, what is your “expense” per visit? Sharing this number with your team can help them collectively work toward a positive net (I know, I know: an outrageous assertion for CHCs). BUT if not a positive net, by how much can you minimize your loss?

And remember, evaluate these numbers over at least three but preferably six months or more to ensure integrity of data. It is perfectly legitimate to see how you perform during a given month, but if trying to set benchmarks, using data over a longer period of time obviously diminishes the impact of inconsistent financial trends.

Payment Percentage

Misunderstood and often miscalculated and maligned, this figure is important for one primary purpose… to estimate the value of your Accounts Receivable. Too many CHCs, and other so-called health care financial professionals, use this number to evaluate a CHC’s billing success or overall solvency.  Raise or lower your charges and watch the Payment Percentage morph along with it. Here is the math: payments divided by those same payments plus the adjustments taken at the time those payments were posted.  So, if I received $2 million in payments and posted $3 million in adjustments at the time of posting these payments, the payment percentage is 40%.  This was a result of $2 million (payments) divided by (payments plus adjustments) $5 million. Just like the encounter rate, it is telling to de-line this KPI by payer (e.g., self pay vs. Blue Cross or clinic vs. clinic).  If one location has a payment percentage (or encounter rate) that is dramatically higher (or lower) than all others… find out why and, if desirable, learn how to replicate this positive anomaly. 

So what are desirable targets? PMG recommends a payment percentage between 60 and 80%. Is something terribly wrong if you are above or below by more than 5-10%? Not necessarily. In fact, for some payers, specifically when paid full “encounter rate” directly from Medicare and Medicaid (vs. managed care first and Medicare/Medicaid wrap later), it is normal to see a payment percentage well above 90% and sometimes greater than 100%. This is a result of the “negative net adjustment” when the encounter rate amount (e.g., $140) well exceeds charges (e.g., 99213 and 81002 for $110). For this visit the payment of $140 (numerator) divided by the charge of $110 (denominator) would result in a payment percentage of 127%. This is not unusual but might beg the question regarding provider under-coding or charge schedule that is not as high as it needs to be.

Again, remember, take these numbers over at least three but preferably six months or more to ensure elevated data integrity.

Accounts Receivable (AR)

Accounts Receivable is simply the amount of money owed to your CHC by third parties. How much money is outstanding? How much money do payers and patients owe your CHC? Almost any practice management system can produce these data. However, CHCs calculate and manage these data very differently. Some take “adjustments” at the time of charge capture/entry vs. leaving the entire balance outstanding until a payment determination is received from a payer or patient. The latter option is the healthcare industry standard, which is important if you are trying to benchmark your CHC against “norms” within the industry.  When advocating for the former, the reason we hear for taking the adjustment at time of charge capture is so the finance team can import into their fiscal systems only anticipated payment amounts vs. the gross charge before adjustments. The rationale is sensible enough inasmuch as they only want AR on which they can realistically expect “full” payment. However, importing the “product” of AR times the Payment Percentage (determined from data from at least 3-6 months) should do the same thing. PMG’s recommendation is to take adjustments at the time of payment posting, not at time of charge entry/capture.


Days of Accounts Receivable (DAR) or Days of Sale Outstanding (DSO) are the same KPI known by different names. In short, how many days of charges are outstanding? Using a ridiculously simple example, at a daily charge volume of $1,000, over the course of one 365-day year, a CHC would have $365,000 in gross charges… again, an average daily charge of $1,000.  If a CHC had $67,000 in AR, this CHC would have 67 DAR/DSO.  Obviously the math is never this clean and, as just discussed, the calculation is complicated if adjustments are taken at the time of charge entry, as this skews the average daily charge. Regardless, monitoring this number is critical. Once more we recommend delineating this KPI by payer, thus the desire to isolate charges, payments, adjustments, and AR by payer. 

When calculating DAR/DSO, it is essential to remove payers for whom the billing team cannot be held accountable in terms of compelling payment. For instance, due to fiscal insolvency, certain state Medicaid programs make only estimated or time-lagged payments even though claims have been “adjudicated” and approved for payment. It would be senseless to “post a payment” for a “promise to pay,” but it is equally ludicrous to condemn the billing team for the resulting DAR/DSO which result due to circumstances beyond their control. The billing team sent a clean claim and, despite the state sending electronic or paper communication confirming the accuracy of the data and the obligation to make payment, the fact that the monies are still outstanding is the fault of the state’s fiscal challenges, not the billing team’s effort. The same is true for “self” or “private” pay patients. Any DAR/DSO attributable to self/private pay patients should be removed from a DAR/DSO calculation, as the billing team cannot compel patients to pay. 

Once more, calculating DAR/DSO over at least three but preferably six months or more is most desirable.

Net AR

This KPI is used to evaluate whether your billing team is collecting money faster or slower than your CHC can generate charges. It is probably one of the more meaningful indicators for evaluating the “success” of your billing team. It is the difference between the charges billed during a given period less the sum of the payments and adjustments posted during that same period of time. An example will better illustrate the point.

From January to March a CHC had $5 million in charges. During this same period, payments totaled $2.5 million while the corresponding adjustments on these payments were an aggregate of $1.5 million. So, from January to March, the AR expanded by $5 million due to the creation of the new charges while the same AR was reduced by the $4 million, i.e., this latter number is the sum of the $1.5 million in payments and the $2.5 million in adjustments. The net result (i.e., the Net AR) is $1 million (i.e., $5 million (added to AR) minus $4 million (removed from AR)). During this period of time the AR grew by $1 million more than the AR was reduced.

All CHCs will have some period where Net AR is positive (expanding) and negative (diminishing). However, more than 2-3 months of positive Net AR should create significant cause for pause.  Typically, a CHC will see dramatic negative Net AR when patient volume is slowest (e.g., summer when staff vacation is up and patient volume down).   Winter months are typically busiest due largely to cold and flu season.  As such, positive Net AR would be normal.

Weekly Averages Based on Rolling Three-Month Averages

Knowing your anticipated volumes of visits, charges, and payments  (in aggregate and by location) is another KPI worthy of monitoring. Not only will this allow you to budget up (ha!) or down (more common) due to diminished volume, it is also an exceptional way to keep the entire CHC (i.e., clinic, billing, and finance) on their toes in terms of trends and abnormalities.  Notice we have said to use a “three month rolling” average and we mean the most recently preceding three months. The intent is to account for growth or shrinkage in volume that would obviously adjust your weekly expectations/targets. 

At PMG Revenue Cycle Management (RCM), all RCM account managers report these KPI to their group leadership on a weekly basis. Part of our work with PMG RCM clients includes monitoring of these trends so we can consistently set client expectations regarding anticipated cash flow.  Numbers slightly off by close of week one is one thing, but more than 20% down nearing end of week two results in major alarms going off at PMG’s and our clients’ offices. There is no “right” or “desired” KPI for these benchmarks, but monitoring your own data for even a few months will give you a solid idea of what works and what won’t.

E&M Levels

We talk about E&M levels quite often, and recent white paper entitled “To Care About Coding or Not: That is the Question” addressed reasons why coding is important, in general. You can find this white paper right on this web site and this and other “white papers” at www.gopmg.com

In short outpatient E&M coding is perhaps the most omnipresent code range found at CHCs; i.e., 99201-99205, 99211-99215, 99381-99397.  Without reiterating the entirety of the article, let’s do a brief recap of why it is important:

  1. Breadth and Scope… You just want to have a true picture of what your individual providers and collective CHC staff are doing in terms of the much discussed “bell curve.”  Most CHCs claim their sites see patients much more complex and challenging than private practice, yet the E&M Bell Curve tells a different tale. CHCs consistently have fewer 99214s and 99215s (the highest established patient visits) than private practice. Hard to argue with data that so clearly shows CHCs are NOT coding for elevated levels of E&M correlating, without too much argument, that private practice patient coding (and therefore patient mix) is more complex. Not saying this is the sole factor, but between this and under-capture of the ICD coding, which should but does not clearly demonstrate the incredible medical and behavioral health challenges of CHC patients, CHCs are fighting an uphill battle.
  1. Compliance… You have to code what you did. Period. Many CHCs say “we get the encounter rate regardless of what we code, so who cares?” Well, I was of the same opinion until meeting numerous CFOs from around the country who said they had been subject to either Medicaid and/or Medicare audits and watched the entire encounter rate be recovered because their E&M coding was off by a level or two. Remember, a per line penalty of up to $10,000 and up to 18% compound interest (with auditors going back up to seven years) and you can see the reason for concern.
  1. Managed Medicare/Medicaid…. If “Cash is King” is your finance team’s mantra (and I don’t know of any railing against this theme), your CHC’s “cash position” is critical. Sure you can wait to get paid the balance of your encounter rate, so again, “who cares about coding?” But why wait for most of your money if you don’t have to? If your encounter rate was $140 and your docs consistently coded only a 99212, the managed care entity/organization (MCE/MCO) would pay around $25 for the 99212 and your CHC would wait for “straight” Medicaid/Medicare to pay additional money (e.g., Medicaid paying $115). But again, why wait for most of your money if you don’t have to?  If your providers more accurately captured, say a 99214, an electrocardiogram (ECG, 93000), urine dip (81002), pulsox (94760), and blood draw (36415), you could see payment from the MCE/MCO in the range of $125, making you wait from Medicaid for only $15. Better deal, yes?
  1. CMS PPS… Medicare Change Request 7038 in January 2011 demanded full HCPCS (e.g., CPT) detail on all CHC claims submitted to Part A for encounter rate. This was earth shattering inasmuch as not single practice management system could do this but also because of the perhaps less obvious intent. Medicare wants to see what FFS payment might look like vs. cost-based encounter rate. Do you seriously think the elevated encounter rate payment CHCs receive from Medicaid and Medicare will continue indefinitely? If you do, I have a bridge in New York City I’d like to sell you. Medicare and Medicaid, in the name of fiscal solvency and evolving compensatory systems, are looking at what rates make sense and which do not.

Lag Reports

How long does it take you from date of service (DOS)… To transmit claims? To get paid? To post a payment after EOB receipt?  Are any of these better with EMR? Worse? Most practice management systems allow you to extract data which you can analyze to evaluate lag, but there are none to my knowledge that run true “lag reports.”  If you have a practice management system that does produce lag reports, don’t keep it a secret. Let us all know so we can take a look.  As stated with a couple of the preceding KPI, for lag reports there is no “right” range/answer, but it is important to see where you are and whether you are improving or, ahem… lagging.

As stated numerous times… use data over a three-to-six-month period of time to ensure data integrity.


Despite all the competing priorities facing CHC leadership, making time… now… to focus on critical performance standards may be the difference between success and failure. At the very least, it will afford your CHC an improved fiscal position.  So these are most of the KPI we think are critical. Are these the only KPI? Absolutely and obviously not.  And, we certainly don’t recommend you try to do all of the aforementioned all at once. We think starting with three is a good beginning. You can add more as your ability to manage these KPI becomes a more normal part of “business as usual.” In the end, any new KPI evaluation will hopefully improve your CHC’s capacity and performance, and therefore afford new opportunities for support of mission and outreach.

NWRPCA welcomes and regularly publishes white papers and articles submitted by members, partners and associates with subject matter expertise. The appearance of any guest publication in our Health Center News database represents the views of the author and does not constitute endorsement by NWRPCA of the stated opinions or perspectives, nor does it suggest endorsement of the contributor's products or services.

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