5 Ways to Measure Your Medical Practice Profitability

With the ever-growing responsibilities of patient care, it is difficult for a medical practice to keep track of its revenue and profits. Billing data and how insurance reimbursements are recorded is often regarded as ‘data for data sake’.

A medical practice’s profitability depends on how efficiently its business is managed. But how can medical practitioners assess their profits objectively? In the vast reserves of statistics, how can you find meaningful metrics to evaluate your performance?

We present five practice profitability KPIs (key performance indicators) that can accurately track your revenues, and suggest ways to increase your profit margins.

· First Pass Resolution Rate (FPRR)

It is important for the practice profitability to get more claims approved faster. The first pass resolution rate is a measure of how many of the claims filed by the practice were paid on first submission. It is calculated as the ratio of claims paid on first submission, to the total number of claims filed. This number should ideally be 90% or higher.

Improvement tip: Focus on revenue cycle management processes like insurance verification, billing and coding. An effective revenue cycle management will result in higher FPRR.

· Days in Accounts Receivable (A/R)

The number of days it takes for a claim to be settled plays a crucial role in revenue generation. Days in accounts receivable represents the average number of days required for a claim to be paid. According to industry standards, this should ideally fall in the range of 30-40 days. Exceeding 50 days for a claim settlement can be detrimental to profitability.

Improvement tip: Determine the source of the majority of delays. If there are frequent untimely filing and uncollectable debt, the practice might be losing money because of non-contractual adjustments. Identify the payers who consistently deny or delay payments and negotiate to find a common ground.

· Outstanding Receivables

Days in accounts receivable should ideally not exceed 50. However, in some cases, it takes up to 120 days for some claims to be paid. These outstanding receivables (A/R of more than 120 days) should be less than 25% of the total A/R. Delays in payment of claims can hurt the revenue and profits of your practice.

Improvement tip: Secure reimbursements in a timely fashion through prompt filing of claims and quick response to claim rejections. A rising number of outstanding receivables reflect a problem with your revenue cycle management that should be addressed immediately in collaboration with your vendor. Outsource your revenue management to a professional to reduce rejection rate and handle rejections negotiations effectively.

· Net Collection Rate

The ratio of amount collected from patients (directly or through insurers) to the total amount of charges (contractual agreement) is called the net collection rate or adjusted collection rate. It can give you a clear understanding of how efficient your revenue cycle management is and whether your revenues are sustainable.

Improvement tip: The net collection rate should be close to 100% ideally. Specialty, payer mix at your practice and the level of automation in your practice revenue management influence the net collection rate of your practice.

· Average Reimbursements

The average amount collected per encounter, measured over a period will indicate the average reimbursements of your practice. This data can be collected monthly to see the general direction your practice is headed towards. Average reimbursement is specific to specialty and thus does not have a general benchmark.

Improvement tip: Over time, you can gauge the pattern of profitability and identify the factors enabling your practice to earn more. You can compare it to historic practice data of your specialty to analyze whether your practice is lacking.

Based on these performance metrics, you can recognize the weaker areas and reinforce the strong ones. These performance indicators can help analyze how you can build a profitable practice in the long-term. Learn how we can help you streamline your revenue cycle management.