Specific Medical Billing KPIs You Should Use

Should you use the medical billing KPIs recommended by industry organizations like MGMA, HFMA, or HBMA? Should you follow consultants’ advice or benchmark against other billing companies? The answer is surprisingly simple: no, you shouldn’t.

Why Traditional Medical Billing KPIs Fall Short

Most commonly recommended medical billing KPIs have significant limitations. Let’s examine the typical metrics you’ll encounter:

Accounts Receivable Metrics

Industry organizations often emphasize AR metrics, with as many as five out of six recommended KPIs relating to accounts receivable aging in some way—AR days, percentage over 120 days, etc. However, these metrics have serious flaws:

1. They don’t align with client priorities: Clients care about total revenue more than speed. Given the choice between $2 tomorrow or $1 today, any financially savvy provider will choose the higher amount, even with a delay.
2. They represent one-time gains: Reducing AR from 60 to 30 days creates a single cash bump, but then provides no ongoing benefit to the client.
3. They’re easily manipulated: AR metrics can be artificially improved through various accounting techniques without actually improving performance.

Collection Rates

Other commonly recommended medical billing KPIs include:

• Gross collection rate: This metric is heavily influenced by fee schedule amounts rather than performance quality, making comparisons between practices or billing companies meaningless.
• Net collection rate: Often calculated inaccurately because most systems lack comprehensive payer fee schedules and rules (assists, multiple procedure discounts, sequestration, etc.) to determine expected reimbursement.
• First pass rate: Definitions vary widely, and it serves as a proxy rather than a direct measure of what clients truly value.

According to Kareo’s revenue cycle benchmarking guide, these traditional metrics can give “a false sense of performance monitoring while missing critical areas that impact financial outcomes.”

Developing Meaningful Medical Billing KPIs

Rather than adopting industry-standard metrics, develop medical billing KPIs that address real business problems and client concerns. This top-down approach produces more actionable metrics than a bottom-up approach of implementing pre-defined KPIs.

A Real-World Example

Consider a billing company facing an issue with unposted patient payments. These unposted payments lead to patients receiving incorrect balance information, unnecessary collection attempts, and ultimately, patient dissatisfaction.

Instead of tracking generic AR metrics, develop specific medical billing KPIs that address this problem:

• Percentage of postable payments actually posted
• Average time to identify payment posting issues
• Average time to request missing information from practices
• Average client response time for information requests
• Percentage of payments requiring additional information

These metrics provide transparency into the actual issues affecting both the billing company and the practice. They eliminate finger-pointing and create accountability on both sides, fundamentally changing the relationship dynamic.

The SMART Framework for Medical Billing KPIs

When developing your own medical billing KPIs, use the SMART framework to ensure they drive meaningful improvement:

Specific

Avoid vague metrics like “improved client satisfaction” or “better productivity.” Instead, define precisely what you’re measuring, such as “Net Promoter Score” or “payment posting line items per hour.”

Measurable

Ensure you can quantify the metric. Even seemingly subjective factors like client satisfaction can be measured through surveys or retention rates. For coding quality, measure changes in average charge amounts, collections, or denial rates.

The Healthcare Financial Management Association recommends that “effective KPIs must be tied to quantifiable data points that can be consistently tracked over time.”

Achievable

Set targets that challenge your team but remain within the realm of possibility. Demanding that payment posters double productivity in a month will likely backfire. Targets must be realistic enough that your team believes they can be achieved.

Relevant

Ensure the metric is within the control of those being measured. Don’t hold payment posting staff accountable for charge entry metrics. Similarly, distinguish between internal KPIs (factors your team controls) and client KPIs (factors the client controls).

Time-bound

Define the timeframe for improvement. Whether you’re looking for a 50% productivity increase in three months or six, the timeline should be clear and reasonable.

Implementing Your Custom Medical Billing KPIs

To create an effective KPI system for your medical billing performance:

1. Start with problems or goals: Identify actual issues affecting your business or clients
2. Drill down from top to bottom: Break high-level goals into specific actionable metrics
3. Apply the SMART framework: Ensure each KPI meets all five criteria
4. Ignore industry standards: Focus on what makes sense for your specific business
5. Get granular: The more specific your metrics, the more actionable they become

While there may be some overlap with traditional metrics, your approach should be driven by your specific business needs, not by industry conventions.

By developing custom medical billing KPIs that address actual business challenges rather than relying on flawed industry standards, you’ll create metrics that drive genuine improvement in your RCM analytics and overall business performance.