Measuring a lab's reimbursement performance can target cash stranded in A/R.
Is your cash stranded in the vastness of your lab’s accounts receivable (A/R)? Targeted revenue search and rescue efforts can improve your lab’s financial performance. Know where to send the search party—monitor key performance indicators (KPIs), Days in A/R, and Aged A/R.
When performance is measured, performance improves.
KPIs relate and compare metrics to measure performance and track progress toward achieving a lab’s financial objectives. Calculated on a regulated, recurring basis, often from month-to-month, KPIs compare and contrast current to historic values to identify underperforming areas, anomalies, and trends. Management can then investigate and determine what action should be taken to achieve performance targets.
Defining performance - good, better, and BEST.
When charting your lab’s revenue cycle course and direction, consider goal setting that recognizes multiple levels of performance—good, better, and best. In addition to meeting baseline targets, aim to exceed expectations with “stretch” goals that move the needle. Mining historic data to establish past norms, create growth goals that model your financial expectations.
Translate reimbursement performance goals into KPI targets. Communicate targets as a range, a discrete number, or use a directional trend for those targets that are based on estimates. The more clearly defined the targets, the easier it will be to measure and rate performance.
KPI Best Practices
A KPI’s reliability is directly related to how it is calculated, what data is used in its calculation, and how its results are interpreted. Once you determine what KPIs you will monitor, it is best to use the same calculation from week-to-week and month-to-month so performance is consistently measured. Also consider using exclusive data groups that can provide insight into the performance of your lab’s payer strategies (in- and out-of-network) and test service technology platforms. If the data is too far reaching, it may contain outliers that can hide underperformance. When investigating KPI results that are out-of-target, you may want to reference historic trends as a basis for assigning significance and impact. For the most reliable performance tracking, it is best to monitor a balanced scorecard of several different KPIs, providing various views into your lab’s revenue cycle performance.
How to Monitor Your Lab’s Receivables
To measure your lab’s A/R performance, monitor Days in A/R and Aged A/R. Consider the following:
- How many days of sales are sitting in accounts receivable? Determining the average number of days it takes to collect payment on services rendered, Days in A/R measures the rate of A/R turnover. Also referred to as Days Sales Outstanding, Days in A/R can project payer turnaround time (TAT). Computed by payer and test, a laboratory can compare TATs and target areas of underperformance. Although there are multiple formulas, it is most commonly calculated as Net A/R divided by Average Daily Net Revenue. When calculating Days in A/R, consider any seasonality within your sales cycles and select a time period for computing Average Daily Net Revenue that minimizes impact—once selected, use it consistently over time.
- Analyzing my lab’s A/R, what payers and which products are not clearing A/R in a reasonable amount of time? A trending indicator of receivable aging and collectability, Aged A/R can measure your lab's ability to get services paid in a timely manner. Depending on your mix of test types and payers, the KPI may target % of A/R > 90 or % of A/R > 120. Showing the distribution of open A/R across 30-day aging buckets, Aged A/R is most commonly presented as a series of percentages where each percent is calculated as the Net A/R summary for each aging bucket divided by the total Net A/R. This allows for early detection as A/R ages and shifts to the older buckets, allowing the lab to target operations and claims follow-up efforts. When setting up these calculations, consider which start date will be used in determining a claim’s age – date of service or date billed. This consideration is particularly relevant as it applies to secondary and tertiary claims. Will your lab re-age the claim restarting with the secondary bill date or will it continue to track aging from the original date of service?
Next steps… Continuous Improvement
As performance tools, KPIs monitor revenue cycle patterns and trends to detect changes, quantify variance, and target investigation. Laboratory management assigns significance, first, by setting performance targets, and second, by investigating when targets aren’t met. KPIs may not be silver bullets, but they can aim your revenue search and rescue efforts. As you monitor performance, update targets, and refine financial expectations, learn how a lab-centric revenue cycle solution can provide you the quality data-driven analytics you need.
Quadax solves cash flow issues surrounding aged A/R. We advise clients and provide the resources to closely monitor revenue cycle performance which starts with analyzing the aged accounts receivable. Need help building your lab’s KPI Scorecard? Contact us for a list of recommended KPIs.
Let's take on the revenue cycle together!
