Four RCM metrics for the healthcare C-suite

Andrew Lockhart
June 8, 2022

Medical coding quality and accuracy have a massive impact on your organization’s bottom line and revenue cycle. Whether that means gaining quick, regular reimbursements or losing money from copious denied claims and inaccuracies is heavily dependent on your coding operations.

For example, inaccurate ICD-10 coding can result in a potential loss of $1.149 million across 612 inpatient cases or an average of $1,877 per inpatient case. You can avoid these massive losses by ensuring the quality and accuracy of your medical coding. 

With the copious amount of operations metrics floating around, it's hard to decide which to closely track to gain a more profound understanding of the health of your revenue cycle and identify how your coding operations affect it. 

Here are four metrics that heavily influence your revenue cycle, both positively or negatively: 

  1. Denial rates, 
  2. Net collection rate (NCR)
  3. First pass resolution rate (FPRR), and 
  4. Charge lag 

Paying attention to these metrics can give you an idea of how and where to improve your operations to ensure a healthy revenue cycle.

1. Denial Rate

Denial management costs hospitals roughly $262 billion per year and medical practices upwards of $20 billion per year, so it’s essential to keep your denied claims in check. 

A great metric to show how often payors deny your claims is denial rate. Calculate your denial rate by taking the total number of claims denied and dividing it by the total number of claims your organization submits within a specific period of time.

A low denial rate indicates that your denials management process is effective and that your organization has a healthy cash flow. 

On the other hand, a high denial rate highlights inefficiencies in your denials management process. A common cause for a high denial rate is inaccurate and low-quality coding. You may find it helpful to evaluate trends in your denials by denial code or denial reason. Gaining a deeper understanding of why denials are happening can help you resolve issues and optimize your processes. 

The industry average denial rate is 5% to 10%. However, it’s advantageous to aim for a denial rate below 5%.

2. Net Collection Rate (NCR)

Your net collection rate (NCR) measures how much your organization is supposed to receive from services after payors make their adjustments and how effectively your team collects these reimbursements. 

A high NCR reflects robust, timely revenue cycle management. A low NCR indicates inadequacies at some point in the revenue cycle. 

Calculate your NCR by dividing payments received by the charges net of adjustments within a period of time. It’s recommended to evaluate your NCR on a consistent basis and at least once a year.

The Medical Group Management Association (MGMA) recommends a net collection rate of 95% or higher. 

If you find that your organization’s NCR is below 95%, it may be a good idea to take a good look at your medical coding quality as missed codes, undercoding, and other coding inconsistencies often drive lost collections.

3. First Pass Resolution Rate (FPRR)

As mentioned previously, denied claims are incredibly costly to medical organizations. If you can avoid denied claims altogether, you can keep more revenue flowing quickly. 

Ideally, claims should get resolved the first time they are submitted, saving the organization time and money. To measure the rate of this occurrence, you can use the first pass resolution rate or FPRR. Calculate FPRR by taking the total number of claims resolved on the first pass and dividing it by the number of total claims resolved during the same period. 

A high FPRR showcases the efficiency of your revenue cycle operations. A low FPRR indicates an inefficient process and reveals underlying issues, such as coding inaccuracies, that hinder the success of your denials management operations. 

Medical organizations should aim for an FPRR of 90% or higher.

4. Total Charge Lag

Charge lag is the amount of time it takes your organization to bill a service after it occurs. 

Paying attention to your charge lag is crucial as too long of a lag between service and payment negatively impacts your revenue cycle. The obvious repercussion is that the longer it takes to bill, the more time your organization goes without payment. 

The sometimes overlooked repercussion is that many payers have firm deadlines surrounding when to submit claims and other information after services. If your organization misses these deadlines due to significant lag time, it could result in cumbersome appeals and lengthy follow-ups with payers, which is hugely inefficient for both costs and time. 

Calculating your organization’s total charge lag gives you insight into how efficient your charge capture workflow is and can reveal delays in cash flow. Various factors can cause a high level of charge lag; however, unclear and missing documentation and coding inefficiencies and inaccuracies are common sources. 

The typical standard for charge lag is 24 to 48 hours for office services and 72 to 120 hours for inpatient procedures. If your lag time is longer, you should identify roadblocks in your charge capture workflow to meet industry standards. 

If your coding is taking more than 2 hours to complete, then consider utilizing outsourced coding automation services to accelerate your cash flow. 

Good RCM metrics depend on coding quality 

Denial rate, net collection rate, first pass resolution rate, and charge lag are all affected by the quality and accuracy of your medical coding. 

These metrics are all directly tied to your organization's finances, so brushing them, and more specifically, your medical coding, under the rug is not in the interest of your bottom line.

Implementing a robust coding automation solution to give your coding team a boost can help protect your organization’s finances and improve RCM metrics. Interested in seeing what the right technology could accomplish?

See our technology in action!

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