Data Mine: Measuring success — Finding the right metrics to optimize the revenue cycle

Emily Dickinson is among the greatest American poets, writing more than 1,800 poems addressing themes of death and immortality. Not as well known is that she also provided excellent management advice: “If you take care of the small things, the big things take care of themselves.”

Experienced practice administrators understand if they concentrate on getting good results in critical areas, the entire practice will succeed.

Focusing attention on just a few vital measures is an application of the management concepts developed by Peter Drucker in his 1954 seminal text, The Practice of Management, which can be summarized in his quote, “What gets measured gets managed.”

Identifying the critical metrics that predict current and future success describes the management concept of key performance indicators (KPIs) and provides the framework for an evidence-based management approach to decision-making. With a KPI approach, managers focus their time and resources to improve and optimize the essential business functions in their organization.

Since KPIs are an essential management tool, choosing the correct metrics to manage is essential.

KPIs need to be observable, achievable, reasonable and aligned with the organization’s goals. The practice revenue cycle consists of recording patient services, correctly billing the appropriate parties, and collecting all payments due the practice. To optimize the entire revenue cycle and maximize practice revenue, managers need to identify the high-level KPIs that measure and predict overall performance and the secondary KPIs that drill down to specific areas in the cycle.

The MGMA data management tools allow managers to benchmark their practices against national norms in all aspects of managing a medical group. The MGMA DataDive Cost and Revenue survey report has multiple metrics that evaluate the revenue cycle, including three metrics that were identified as the criteria for being recognized as an MGMA Better Performer in practice operations. The KPIs used to evaluate the revenue cycle performance are:

1. Less than the median for percentage of total A/R over 120 days
2. Less than the median for days adjusted FFS charges in A/R
3. Greater than the median for adjusted FFS collection percent.

 


How well do these Better Performers do compared to their peers? As shown in Table 1, they did extremely well in their revenue cycle performance and in the “bottom line” for practice operations expressed as total medical revenue after operating cost per full-time-equivalent (FTE) physician. Table 1 displays information from the 2021 MGMA DataDive Cost and Revenue, based on 2020 data for all multispecialty groups with primary and specialty care and for the subset of Better Performers.

To qualify as a Better Performer, a practice had to meet all three of the criteria, which meant these organizations collected their billed charges quicker, had lower total A/R for the amount of billings, and collected more of what was billed. This is the essence of a successful revenue cycle.

Table 1 shows that while MGMA Better Performers reported 121% greater median adjusted fee-for-service (FFS) chargers per FTE physician, their total accounts receivable per FTE physician was only 83% of the median reported for all multispecialty groups with primary and specialty care. Most importantly, these organizations focused attention on these key metrics, helping the Better Performers keep their bad debt 70% less than their peers.

Examining the three criteria for being recognized as a Better Performer, these practices excelled:

1. Median percentage of total A/R over 120 days — 53% less than the median
2. Median days adjusted FFS charges in A/R — 25% less
3. Median adjusted FFS collection percent — 3% more.

Figure 1 displays the distribution of A/R by the number of days since billing. The Better Performers excelled in collecting their billed charges quicker with more than 70% of their A/R in the less-than-30-days category and only 8.1% of A/R in the more-than-120-days category.

As further evidence that Emily Dickinson’s advice of taking care of the small things yields great rewards, the Better Performers in practice operations have a far superior overall financial margin for the practice. The bottom line for practice operations is expressed in the median total medical revenue after operating cost per FTE physician. For the multispecialty groups with primary and specialty care, the Better Performers reported a margin of $402,620 per FTE physician, compared to a median of only $260,750 for all similar practices.

The Better Performer information confirms the KPI concept that managing a select number of the right metrics well will yield excellent results. The problem for managers is choosing which metrics will comprise their KPIs. Fortunately, there are many examples of KPIs for different functions, and an astute executive can select multiple KPIs and observe how the KPIs assess practice performance. The Better Performer criteria is a starting point, and practices may want to expand beyond these criteria to identify measures that work best for the organization.

Dig deeper

MGMA DataDive is the premier data benchmarking tool in healthcare. Access the industry’s largest benchmarking datasets in topics such as compensation, operations, cost and revenue. For more information on how MGMA DataDive can help your organization, contact sales@mgma.com or call 877.275.6462, ext. 1801.