There’s no shortage of financial data concerning your practice these days. All data are not created equal, though, and some metrics provide more bang for the buck than others. Here are four of the most important metrics for monitoring your practice’s financial health.
1. DAYS IN RECEIVABLE OUTSTANDING (DRO)
DRO indicates the average amount of time required to collect a day’s worth of gross charges from the financially responsible parties. Why does it matter? Simple — the sooner you get paid, the more that payment is worth.
To calculate DRO, total current receivables (net of credits) is divided by the average daily charge amount. The average daily charge amount equals the total gross charges for the past year divided by 365 days.
Ideally, your DRO should be less than 35 days. Anything over 50 days is cause for serious concern.
2. PERCENTAGE OF RECEIVABLES OVER 120 DAYS This metric assesses your practice’s ability to collect on a timely basis and, perhaps, your ability to collect at all. That’s because the longer a charge goes unpaid, the more likely it is that you’ll never collect on it.
To calculate the percentage of receivables over 120 days, total receivables that are over 120 days due (net of credits) are divided by your total receivables (net of credits).
You should shoot for a figure of less than 10%. A percentage over 20% is a red flag.
3. NET COLLECTION RATE Net collection rate shows how effective you are at collecting all allowable reimbursement based on contractual obligations.
The rate is computed by dividing payments (net of credits) by charges (net of approved contractual adjustments) for a selected time period — say, six months — and then multiplying by 100.
A rate around 95% is average. A lower rate indicates a problem.
4. DENIAL RATE The denial rate is fairly straightforward — it tells you the percentage of claims that are rejected by payors. The figure reflects the efficiency and accuracy of your claim submission processes and directly affects cash flow.
Calculate this rate by dividing the dollar value of denied claims by the total amount of claims submitted for a specific period, such as three months.
A rate of less than 5% is superior, while a rate greater than 10% is poor.
MONITOR YOUR METRICS FOR A HEALTHIER BOTTOM LINE
Your financial advisor can help you monitor these and other critical metrics by preparing a monthly “dashboard.” Regular monitoring will allow you to promptly identify and address issues that could undermine your practice’s financial health.