Running a healthcare practice means wearing many hats, but one of your most important roles is managing the financial side effectively. You must consistently track and optimize the right Key Performance Indicators (KPIs) to stay financially resilient. These indicators can tell you whether you’re getting paid on time, handling claims effectively or missing out on earned revenue. In this article, we’ll break down the top five KPIs to help you take charge of your practice’s financial future confidently and clearly.
1. Days in Accounts Receivable: A Critical Indicator of Cash Flow
Days in Accounts Receivable (AR) is a KPI that shows the average number of days it takes for a practice to collect payments after services are provided. This KPI measures your practice’s cash flow health, indicating how effectively your billing and collection processes function.
A lower number of days in AR indicates that payments are being collected swiftly, contributing to a stable financial environment. Conversely, high days in AR can signal issues within the billing process or delays that could strain resources. While the optimal figure varies by practice type and specialty, maintaining an AR under 40 days signals strong financial management; however, with enhancements to the electronic submission and claims process, the new norm is 25 days for most practices. Monitoring this KPI regularly helps you catch issues early and remain proactive.
2. Clean Claim Rate: A Reflection of Billing Accuracy
The clean claim rate is a KPI that reflects the percentage of claims processed and accepted by payers without needing corrections or resubmitting. When your clean claim rate is high, it means fewer claim delays and faster revenue, reflecting well on the precision of your billing team’s work.
Most practices consider a clean claim rate of 90% or higher as a sign of efficient billing. A lower rate, however, can suggest potential issues such as demographic errors, coding mistakes or incomplete documentation. This KPI helps you understand how smoothly your claims process runs and highlights areas that might need refining to keep cash flow predictable and efficient.
3. Denial Rate: Measuring Revenue Protection
The denial rate is a KPI that tracks the percentage of claims denied or rejected by payers during a given period. This metric quantifies the effectiveness of revenue cycle management processes and is a helpful indicator of where potential revenue might slip through the cracks.
A higher-than-acceptable denial rate can signal underlying documentation, coding, demographic or eligibility verification issues, leading to revenue leakage and increased administrative effort. Practices generally aim for a denial rate below 5%, which signals a healthy revenue cycle management process that supports financial stability. Keeping this KPI in check helps avoid extra work for your billing team and ensures revenue isn’t lost to preventable issues.
4. Net Collection Rate: Assessing True Revenue Performance
The net collection rate reveals how effectively a practice collects the revenue it is entitled to. Unlike the gross collection rate, which measures everything billed, the net collection rate is more realistic—it focuses on how much of that billed amount you collect after factoring in any adjustments, refunds, write-offs, contractual and non-contractual adjustments.
If your net collection rate is high, it’s a sign that your billing, follow-up, and collection processes are solid and efficient. If this number is lower than expected, it could mean gaps in your collections or underpayments go unnoticed. Practices often target a net collection rate of 95% or above to ensure they get as close to their full revenue potential as possible.
5.Percent of Accounts Receivable > 120 Days: Verifying Revenue Cycle Efficiency
Percent of Accounts Receivable > 120 Days represents the percentage of all Accounts Receivable that have aged 120+ days. This KPI is a good indicator of revenue cycle efficiency with denial management, patient statements and effective collections processes.
Ideally, keeping A/R over 120 days below 10-15% is considered a sign of efficient revenue cycle management. When looking at this metric, it is also beneficial to distinguish insurance payor A/R from patient A/R to help pinpoint where delays are occurring and tailor resolution strategies accordingly. Payor A/R reflects outstanding claims with insurance, while patient A/R represents balances owed by patients. Tracking each separately enables better management of collections and helps reduce overall A/R aging.
Why These KPIs Matter
Tracking and understanding key KPIs such as Days in Accounts Receivable, Clean Claim Rate, Denial Rate, Net Collection Rate, and Percent of Accounts Receivable > 120 Days provides valuable insights into a practice’s financial health. These metrics give you a clear picture of where things stand and where improvements might be needed. This data-driven approach ensures your practice remains resilient and ready for anything.
If you’re looking for guidance on managing these KPIs or want expert advice on enhancing your healthcare revenue cycle KPIs, CHCBC is here to help. Contact CHCBC today to take the next step toward a more efficient and profitable practice.
