Rising costs and increasing burdens on staff make revenue cycle management (RCM) outsourcing not just smart, but a growing necessity. But with razor-thin margins, there isn’t room in the budget for vendor partnerships that don’t generate ROI. That’s especially true for RCM service providers, whose job it is to improve financial performance.
Let’s look at how to measure the effectiveness of third-party revenue cycle management partners.
1. Start with shared goals and transparency: The foundation of any successful RCM vendor partnership.
Vague definitions of “success” serve no one when it comes to vendor partnerships—not you, not your patients and staff, and not your RCM vendor. It’s crucial to start your partnership on the same page, through shared expectations and clear, measurable goals.
The RCM service provider you choose should have experience measuring key performance indicators (KPIs) for your setting (hospital, practice) and specialty. (*KPIs are measurable values that show how effectively you are achieving key organizational objectives.) Work with your vendor to determine measurable KPIs, as well as the reasonable industry benchmarks they need to hit. You can expect to reevaluate these KPIs and benchmarks over time, as changes in technology, regulations, organizational strategy and processes will change the parameters.
There should be a process in place for how and when to report the KPIs, including third-party validation if you desire. Your RCM service vendor should be able to provide regular reporting at an interval you determine, and/or access to a monitoring dashboard. Transparency is vital to determining the success of your RCM outsourcing partnership.
Signs of a healthy RCM vendor partnership:
- Complete transparency and shared goals—a true partnership
- Clear, consistent and timely communication
- Positive response from patients and internal staff
- Strong performance on mutually determined KPIs
ROI isn’t enough. Use strategic KPIs.
At first glance, determining the success of your RCM vendor partnership seems simple—did they produce ROI? If you subtract your RCM expenses from your revenue, then divide it by the expenses…do you end up with a positive number? As your partnership goes on, does ROI increase or decrease over time?
However, while ROI is certainly important, it doesn’t tell the complete story. Unless your RCM vendor handles absolutely everything connected to the revenue cycle, it is difficult to determine their impact on ROI based on this simple calculation alone. Other RCM expenses (internal staff wages; technology implementation, training and software costs; printing and mailing costs for statements; wages paid to helpdesk staff; outsourced fees to a call center) will affect this ROI calculation.
To get a more accurate view of your RCM service provider’s impact, you need to look for efficiency gains and savings in specific, measurable areas—your strategic KPIs.
Strategic and effective KPIs are:
- Indicators of progress toward key goals
- Clearly defined
- Measurable and quantifiable
- Comparable against benchmarks
Two Crucial Revenue Cycle KPIs to Measure
Days in A/R
Days in A/R is one of the most important KPIs for healthcare organizations. The longer a balance languishes in A/R, the more expensive it is to collect. That is why reducing A/R days is one of the key benefits cited by RCM service providers.
To calculate your average days in A/R for a given time period:
- Divide the total charges by the total number of days. This will give you your average daily charges.
- Divide the total A/R by the average daily charges to calculate your days in A/R.
Cost to Collect
This isn’t an easy KPI to measure, but it’s an important one when it comes to determining the success of your outsourced RCM program. You must total up all the expenses specifically tied to collection (fees paid to vendors and billing call centers, employee wages, technology, cost to deliver statements and follow-ups) during a specified time period, then divide by the amount collected.
This measurement, however, is only useful when compared to a benchmark—for example, the cost to collect before the RCM vendor came in, or industry standards for comparable healthcare facilities or practices.
It is important also, when evaluating an RCM vendor specifically, to try to isolate their contribution from other changes. For example, if the cost to collect went up or down at the same time as you rolled out a new software program for internal staff or a new type of billing statement, it will be difficult to determine how much the RCM vendor contributed to the changing numbers.
The HFMA MAP Keys: Industry Standard KPIs
For a deeper dive into revenue cycle KPIs, the Healthcare Financial Management Association (HFMA) MAP Keys are an excellent resource. The MAP Keys are industry standard KPIs for measuring strategic revenue cycle performance, created by and for healthcare leaders. There are 29 MAP Keys (KPIs) for revenue cycle benchmarking, divided into five categories: Patient Access, Pre-Billing, Claims, Account Resolution and Financial Management. When measuring the success of your revenue cycle outsourcing specifically, you can choose KPIs from the areas your RCM vendor handles.
You can get detailed descriptions—including calculation methods—for all of the MAP Keys on the HFMA website. Here are some of the MAP Key KPIs that may apply to outsourced RCM:
- Aged A/R as a percentage of total billed A/R
- Remittance denial rate
- Denial write-offs as a percentage of net patient service revenue
- Bad debt
- Net days in credit balance
- Clean claim rate
- Net days in A/R
- Cash collection as a percentage of net patient service revenue
- Uncompensated care
- Cost to collect
- Pre-registration rate
- Insurance verification rate
- Conversion rate of uninsured patient to third-party funding source
- Point-of-service (POS) cash collections
- Total charge lag days
3. Consider the impact on internal staff.
One of the most important benefits of RCM outsourcing is reducing the burden on internal staff. Yes, that can mean that you save money on overtime, which ties into your cost to collect. But what about benefits that are less directly measurable? These need consideration as well.
For instance, perhaps your staff was freed up to develop a new initiative that has resulted in greater patient retention. Perhaps you’re seeing less turnover and sick days from employee burnout and stress. Perhaps your employees are just happier. That sounds simplistic, but it has a tremendous impact on everything your employees do, from their patient interactions to their productivity. If bringing in an RCM partner prevents the loss of even one or two of your top performers, that’s significant.
While these benefits are difficult to measure, you can get a good sense of the RCM vendor’s impact by talking with your staff or implementing job satisfaction surveys.
4. Consider the impact on patient experience.
Improvements to the revenue cycle affect more than just the color of the ink in the balance books. They also affect the patient experience.
Why? As healthcare becomes more consumer-driven, patient satisfaction is increasingly tied not just to the care they receive, but to the financial experience. According to recent studies, patients who are satisfied with the medical billing process are not only twice as likely to pay their bill in full, but five times more likely to recommend the provider to others. No matter how much the healthcare industry changes, a recommendation from a trusted individual is still the most powerful form of advertising.
Days to pay, utilization of payment plans or charity care, utilization of digital payment options, and call center volume are important metrics to consider in light of patient satisfaction.
For more on patient experience KPIs, we invite you to read our articles:
- What Patients Want: Improving and Measuring the Patient Financial Experience
- How to Measure the Benefits of Patient Friendly Billing Statements
At RevCycle, we believe that the revenue cycle can’t be optimized unless it’s treated as a tool for patient retention. Outsourced RCM partners must improve financial performance without sacrificing the patient experience.
If you are a healthcare provider seeking a revenue cycle service solution puts patients first, we invite you to read about our Dignity Survey program. We also offer patient financing options and patient friendly billing statements to increase cash flow, reduce collection costs and improve patient satisfaction.
Send us a message or call 888.576.5290 to schedule a phone consultation at your convenience. We’re happy to address any revenue cycle concern!