KPI to Improve your Edge

By Ray Jorgensen, CPC

In 1998, our billing firm was still in its infancy. As a small regional company, we took on any client without regard for specialty. While trying to find our footing, we often observed and emulated what other firms had done. As our client list grew, we continued this trial-and-error method and quickly learned some valuable lessons. Below I share a few of these with you.

Hedgehog Concept

Jim Collins’ “Good to Great” was a life-changing text for me. One of Collins’ hallmark themes is for a company to find a “hedgehog concept,” which is to determine what your firm can be best in the entire world. Jack Welch at the helm of GE demanded the various and disparate corporate verticals find a way to be the top two to three in their industry in the entire world. Otherwise, they were closed or consolidated into another portion of the company.

By 2006, our firm was a multimillion dollar company servicing more than 20 very different specialties. As the company partner responsible for billing/coding expertise in each specialty, and conveyance of such to our staff, it was a daunting task to truly master so much material. In retrospect, it is clear that we could never be truly great (certainly not best in the world) at 20-plus specialties.

We made the very difficult decision to release a couple million dollars of business to focus on a single type of client. We did this gradually; we released clients not in the desired vertical only as we sold similar volume/cash-flowed new business in the target market. We helped released clients find a safe landing spot with another partner. It was hard work but, ultimately, worthwhile.

In the end, it was painful to release clients we had worked hard to earn. However, as staff expertise increased, efficiency soared, improving performance. This elevated performance reduced expense per claim, creating happier clients that helped us gain increasingly positive market exposure.

KPI … Yours and Your Clients’

The Key Performance Indicators (KPI) you can choose to track are abundant, but which ones are essential to your firm versus your client? And how do you hold your team accountable to KPI which optimize client performance and satisfaction? Here are a few KPI we have found to be essential.

Cost and Revenue Per Claim. Through our national association, we gained access to benchmarking data as well as exceptional consultants. We hired a couple of these consultants to visit our firm during our “hedgehog concept” transition. Each, within their first hour in the office, asked us this simple question: What is your revenue (i.e., how much do you make) per claim and what does it cost you to produce each? In other words, for each unique visit, encounter, surgery, etc., what is your revenue and expense? We had never calculated this and felt foolish as it was obviously one of if not the most critical KPI for us as a billing firm.

To calculate, simply take the total of the firm’s payments or expenses and divide each by the total number of unique visits, encounters, or surgeries. The quotient is obviously the KPI you want to know. For instance, $3M in revenue from 500,000 unique claims means you divide $3M by 500,000. The quotient (i.e., $6) is your revenue/payment per claim. Hopefully, your costs are less than $3M, and for the sake of example, let’s say it is $2.5M. The quotient from $2.5M divided by 500,000 (i.e., $5 is your expense per claim). The profit of $1/claim may be good or bad depending on projections and efficiencies within your firm.

Knowing this figure for your firm helps you make decisions about pricing future contracts and knowing, per client, which is most versus least profitable.

Blended Encounter Rate (BER). Our firm’s clients report standardized data to the feds regarding their total “encounters,” which translates to a unique visit or service (e.g., a sick visit versus annual versus a surgery-only encounter). They also have a fixed compensation rate for the majority of payments. Most client CFOs know their predetermined rates, but few know the BER across all payers. To calculate, take total payments for a client and divide it by the client’s total encounters/visits (unique deliverables). The quotient is the BER. For example, $3M in payments from 30,000 encounters results in a BER of $100.

At our firm, we are able to determine opportunity to make clients (and our company) more money based on how each client’s BER compares to the state average. This is public data due to the federal and state funding that requires transparency in this regard.

Niching down into a single specialty allows for the development of expertise around compensation methodologies and expectations versus trying to understand those for more than 20 different specialties. If you work in an E&M-centric specialty, BER may work well. If not, find “the” service, case, or whatever item by which your BER can be benchmarked.

Trailing Average Charges, Payments, and Visits. In our early years, clients raised issues for us versus us letting them know of troubling trends we were seeing. Today, predictive analytics and business intelligence are all the rage. While knowing an increase or decrease in charges and/or visits/procedures will likely result in a corresponding bump or decline in payments, alerting your clients to this expectation (before they experience it) goes a long way in demonstrating expertise and moving from “vendor” to true “partner” status. Using a rolling three-month average (from the immediately preceding three months) is ideal versus just going month to month as a monthly anomaly in any category can derail or at least confound expectations.

Days of Accounts Receivable (DAR). This seems a pretty basic benchmark, but finding a number that demonstrates good versus great performance can be elusive. Working in our vertical, we know 60-70 percent of payments come from two payers with clearly defined payment timelines of less than 30 days. We expect to get DAR below 30 days for nearly all clients and even have some performing well below 20 DAR. Set realistic expectations for short and long-term goals so you and your clients benefit from low DAR, meaning more money is collected faster.

Reporting Across Disparate Platforms

In 1998 when we started, our firm was a value-added reseller (VAR) for Allscripts. Over time, we realized our growth was hindered by working on just this one platform. It was a big decision to work on multiple practice management (PM) platforms but quite worthwhile in terms of expanding potential client opportunity.

Today, we work on more than a dozen unique PM platforms. Whether EPIC, eClinicalWorks, NextGen, Athena, Allscripts, or any other, the reporting from each varies dramatically. What helped our firm move from “good” to better (when do you really get to “great” status?) was developing proprietary software that standardizes reporting across all platforms. The product ingests ERAs (i.e., 835 files) that are standard from all payers and from each PM it also absorbs a current receivables report so any claims not arriving at the payer would be represented. Reporting is robust as data may be evaluated by payer, state, PM, specialty, POS, etc. The product became valuable enough to our business that we formed a separate company to make our solutions available to everyone and RevenueHealth Systems was born.

The data analytics are enlightening and include but are not limited to:

  • Touch Rate: How many times does each biller touch a single claim? The fewer the touches the more efficient the employee.
  • Denial Rate: Too many billers and leadership “guess” at denial rate. By looking at all 835/ERA files, our product conveys with exacting detail the denial rate delineated by total, unpaid or partially paid. We calculate this by payer, location, provider, etc.
  • Charges, Payments, and Adjustments: Trending over the preceding year or year(s), these trends combined with Denial Rate and AR status vividly demonstrate desirable versus troubling trends. Payments are going down; determining and fixing top denial reasons will be the quickest way to stem the tide of diminishing payments.
  • Coding Patterns: ICD and HCPCS (e.g., CPT) analytics around visit/service volume, charges, and payments. Average payment by HCPCS by payer and/or provider is most desirable to determine whether a practice/provider is under or over-compensated.
  • Denial Diving: Any denial category not only shows total volume with associated dollars but the ability to delve into detail by provider, patient(s), and/or practice location. Where are largest demographic or eligibility denials occurring? Done. Which provider is our biggest credentialing issue? Done.

Billing Only vs. RCM

Several years back while attending a trade show, a woman approached our booth and said something like “I don’t know why your work gets so much attention and costs so much money. I used to do billing and it is just not that hard.” While I think we all dislike when another person diminishes the complexity of what we know or do, in truth, sending out a bunch of claims is not terribly difficult. However, optimizing PM tables to meet unique payer requirements, making certain charges are appropriately set, first pass/clean claim rates are elevated, unpaid/denials are diligently worked to resolution, monthly reports meet if not exceed client expectations, bank deposit and PM system deposit reconciliation occurs, compliance activity happens to assure billing operation are within parameters of law/statute … the list goes on. These things are what differentiates a “billing only” shop from an RCM firm. Without a doubt, these things are what move a commoditized vendor relationship to a valued RCM partner.

There is no shortcut to success in RCM. Intelligence, persistence, transparency, and old-fashioned hard work can move any firm from good to great. Carefully selecting and continually monitoring KPI that benefit you and your clients will allow you to measure your successes and shortcomings with amazing clarity. Lastly, maximizing available technology to improve performance and profitability will have a lasting positive impact. Make the commitment to begin the transition from good to great and watch your client relationships blossom while your profit soars.

Ray JorgensenRay Jorgensen, CPC, is a co-founder of RevenueHealth Systems the nation’s leader in revenue cycle analytics, workflow, and consulting services. Ray is a nationally recognized healthcare expert and sought-after speaker having personally trained thousands from all 50 states on coding, billing, and reimbursement in addition to authoring two books and dozens of articles. You can contact him by email or at 401-616-2099.