How does your medical billing department stack up to industry best practices? This is a question that is unfortunately not asked very often among administrators and physicians. Furthermore, it is extremely uncommon to find medical practices or organizations that operate under strict benchmarks and metrics, and have analytical tools in place to monitor daily or monthly activity.

Below are a five key metrics and calculations you can make to quickly determine where your medical billing department stands in terms of performance and collecting the money that it should be. The metrics below are not specialty, size or revenue specific. They will work for any type of medical practice or organization with a medical billing department or medical billing service, if outsourced.

metrics chart

It is important to understand the Net Collections Rate, if you are not familiar, and why it is a better metric for evaluation, as opposed to Gross Collections Rate.  The Gross Collections Rate simply tells you what percent you collected of what you charged.  What matters is what you collected of what you are owed.  That is where the Net Collections Rate comes in handy.  It tells you the full story of how good of a job your medical billing team is doing at bringing in the money you are owed.  The below table shows a simple example that demonstrates the two calculations.


Now, if the primary payment was reduced to $40 and no further collecting activity was performed on this claim, the Gross Collections Rate and the Net Collections Rate would be 50% and 83%, respectively.  Which is more meaningful, knowing that you collected 50% of the charge or 83% of what you were owed?

The Net Collections Rate is definitely a metric that needs to be calculated over time and carefully monitored. Typically it is run monthly, quarterly, semi-annually, or annually.  The longer the timeframe, the better idea of overall performance you will see. It is also possible to see Net Collections Rates greater than 100%, due to the fact that the charges and payments most likely are “non-matched” over a period of time.

A good indicator of how well your billing department is collecting on accounts is to calculate the number of days it takes to collect on your Accounts Receivable.  This is done by calculating the Days in A/R Ratio above in the calculations table.  As a best practice, where most of the revenue is generated from office visits, the metric should be less than 30 days. Surgical groups or other types of practices with a larger concentration of hospital-based services, the metric should be between 30-40 days. If your metric is above 40 days, or in severe cases, above 50 days, you have indication of a major collection issue.

Along with the Days in A/R Ratio, calculating the individual 30, 60, 90, 120, 121+ days outstanding buckets is another important piece to be watching.  As A/R ages past 90+ days it becomes harder to collect and more resource intensive. A/R aging past 120 days outstanding has a very high percentage of becoming uncollectable and being written-off to bad debt or sent to a 3rd party collections. Being that the accounts sitting in the 90 days due bucket are at risk of becoming uncollectable next, it makes sense to manage your A/R against a 90+ day metric, rather than 120 days due, as traditionally done. This means that all outstanding A/R greater than 90+ days due, should be no more than 15% of your total receivables.  The recommended best practice is less than 12%, where the higher performing billing offices or services operate at less than 10%.

In looking at denial rates, this is an area that can definitely affect A/R levels and cause delayed payments to the practice when managed improperly.  This can be evaluated by taking the total claims filed and dividing it by the number of line items denied.  Furthermore, on posting, if you use denial reason codes, you should be able to dive a little deeper and quickly find out where the denials are coming from and take corrective action.  Industry averages are closer to 10%, where best practices say 5% is acceptable, and higher performers see less than 2%.

Of the key metrics described above, patient insurance verification is the most challenging to measure. It is a reality that most medical practices do not even perform eligibility verification on patients prior to their visit, because it is extremely resource intensive.  Unfortunately, this can lead to claim denials and non-payment from patients and insurers.  Patients feel it’s the medical practice’s responsibility to know their insurance coverage, while insurances don’t provide the needed information to the practice in an easy to locate manner. All of the responsibility and cost lies with the practice, and some just don’t have the resources to handle the workload. There are companies that provide front office services for eligibility verification and pre-visit checks, along with A/R balance collection and payment plans pre-visit.  If you do not have the capability to capture how many patients you are verifying pre-visit, or simply are not performing the checks, you may want to investigate your claim denials and count the number of eligibility related denials.  Best practices indicate that all patients should be verified prior to visit, including a second check within 24 hours of the visit, depending on insurance.

Incorporating these best practices and metrics into the monthly evaluation of your practice or billing department/service, along with other methods, should give you a good feel for the performance and overall health of the business.