Profit margin is a persistent concern for healthcare practices, as it is a reliable indicator of the financial performance and sustainability of the organization. Though the pandemic has waned, its accompanying monetary pressures have not—and leaders still need more effective ways to increase revenue and cut costs. In this blog post, we’ll discuss seven KPIs that practices can use to measure their financial state and work toward improved margins. Within each KPI, we’ll share research-backed, recommended benchmarks—and strategies you can use to hit them.
#1: Days in Accounts Receivable
Days in accounts receivable (DAR) represents how long, on average, a practice takes to collect payments from insurance companies and patients. When this number is high, the organization can experience cash flow bottlenecks and struggle to pay its own bills. A high DAR also indicates that the practice has inefficiencies in its revenue cycle management.
DAR benchmarks
- Specialty: Family Practice
- Best: <27 DAR
- Median: 27-35 DAR
- Poor: > 35 DAR
Strategies to improve DAR
- Roll out more flexible, lifestyle-friendly payment options for patients
- Reduce denials with documentation improvement initiatives
- Establish clear, consistent claim follow-up procedures
- Monitor top payers individually to ensure prompt payments
#2: Percentage of AR greater than 120 days
Percentage of AR > 120 Days is a top-level assessment of the overall financial health of a practice that represents how well it achieves timely payments and monitors old debt payments. High percentages are typically found at practices with inefficient revenue cycle processes and outdated workflows. Productivity is often low and profitability is in danger.
Percentage of AR > 120 days benchmarks
- Specialty: Family Practice
- Best: <8%
- Median: 8% to 15%
- Poor: >15%
Strategies to improve percentage of AR > 120 days
- Explore the entire claim cycle for improvement areas, including front desk demographic errors, delays in finalizing notes, and payer communication issues
- Ensure aging calculations are accurate and consistent
- Implement a disciplined collections policy and write off bad debt promptly
- Outsource the collection process for older accounts
#3: Gross Collections Rate
By definition, gross collection rate (GCR) is a simple, top line measure of payments received as a percentage of gross charges. Mathematically, it is the percentage of total payments collected divided by total charges billed. Practically, it is a measure of effectiveness for the practice’s billing and collection procedures. It serves as a useful tool for forecasting revenue, as well.
This metric is slightly more complex than the first two, as it is dependent on fee schedule. If a practice charges less than or close to the payer allowable amount, their GCR will be around 100%. By charging more than the payer allowable amount, practices can get that number to 40-60%.
GCR benchmarks
- Specialty: Family Practice
- Best: > 58%
- Median: 58%-51%
- Poor: <51%
Strategies to improve GCR
- Reevaluate and update your fee schedule
- Review administrative procedures and address errors
#4 Net Collections Rate
Net collections rate (NCR) is typically considered a better indicator of a practice’s profitability, as it takes into account write-offs, refunds, and contractual/non-contractual amounts. NCR is the percentage of collectible revenue that the practice actually collects. While GCR shows a simpler view of revenue cycle management, NCR drills deeper to uncover what revenue is being lost to factors such as bad debt, untimely filing, and other factors.
NCR benchmarks
- Specialty: Family Practice
- Best: >98%
- Median: 98%-96%
- Poor: <96%
Strategies to improve NCR
- Ensure calculations only include the correct write-offs in the formula, as approved contractual adjustment write-offs must be tracked separately
- Set up software to specify write-off reasons, monitor trends, and flag ripe areas for improvement
#5 Denial Rate
Denials occur when a payer rejects a payment request, which can happen for a variety of reasons and is almost always very costly. A related metric is first pass rate, defined as the percentage of claims that are accepted by payers on the first submission. Though studies have shown that 86% of denials are potentially avoidable, progress to improve rates has been slow—mostly due to documentation inefficiencies and process gaps.
Denial rate benchmarks
- Specialty: Family Practice
- Best: <5%
- Average: 5%-105
- Poor: >10%
Strategies to improve denial rate
- Investigate where top denials are coming from and why they are occurring to pinpoint areas for improvement
- Implement education plans to support gaps in knowledge and process execution among teams and departments
- Consult with a technology partner to dig deeper into eligibility, CCI edits, LCDs, and other potential factors
#6 Lost Appointments Average
At a first glance, this metric seems fairly straightforward. On average, how many opportunities to provide care and generate revenue (i.e., appointments) are missed? In practice, however, lost appointments average gets a bit more complicated. Each practice will weigh it slightly differently depending on their specialty, location, and payer mix—factors which combine to determine the average cost of a lost appointment. Across the board, however, a high average often indicates issues in communication and coordination. It is also typically correlated with financial instability, low patient satisfaction, and unsteady cash flow.
Lost appointments average benchmark
No Show:
- Best: <3%
- Average: 3-4%
- Poor: >4%
Patient Cancels:
- Best: <7%
- Average: 7% – 9%
- Poor: >9%
Total Lost Appts:
- Best: <10%
- Average: 10% to 13%
- Poor: <13%
Strategies to improve lost appointments average
- Identify and address common barriers to scheduling and attending appointments, including social and environmental limitations
- Offer automated reminders to support prompt scheduling, reliable attendance, and seamless follow up
- Test out a visit cancellation policy to discourage no-shows and last-minute cancellations
#7: Co-Pay Collections
The theme of this KPI is, “why put off to tomorrow what you can do today?” Rather than rely on a drawn-out billing and collections process post-appointment, invite cost transparency and clear communication into the conversation from the start. Collecting at every opportunity is even more essential now as more patients are self-pay, or have a high deductible and out-of-pocket obligations. Providing clear and reliable information about patients’ financial responsibility increases the cash flow and financial stability of the practice while enhancing the patient satisfaction and trust.
Co-pay collections benchmarks
- Specialty: Family Practice
- Best: >90%
- Average: 70%-90%
- Poor: <70%
Strategies to improve co-pay collections
- Offer accessible information regarding costs and payment expectations in advance of the appointment
- Request co-pay and balance from patients at time of check in or check out, in nearly all scenarios
- Ensure staff is equipped with scripts and prompts to help navigate financially-oriented conversations with patients
Best practices for goal setting
Now that you have a firm handle on KPIs, it’s time to lay out your own objectives. We recommend using SMART (specific, measurable, achievable, realistic, and timely) goals to organize objectives, assign tasks, and monitor progress. A few other tips:
- Focus on the KPIs that have the greatest room for improvement and will have the most meaningful impact on your practice
- Set written processes and timelines in place to preserve accountability and encourage efficiency
- Involve your entire team in goal setting and engage in continual process improvement
For more tips and advice on improving practice profitability read our additional resources on this topic:
- How to Improve the Patient Registration Process to Increase Efficiency and Reduce Revenue Loss
- 3 Areas to Focus Your Revenue Cycle Management Improvement Efforts Now
About the Authors
Angie Coldiron, National Account Director
Angie Coldiron has more than 29 years of experience in healthcare IT and revenue cycle management services. Today, she serves as a national account director at Resolv connecting healthcare organizations with effective specialty specific Healthcare IT and customized RCM solutions.
Theresa Shurley, Senior RCM Consultant
Theresa Shurley has more than 16 years of experience in healthcare revenue cycle management. Today, she serves as a Senior RCM Consultant at Resolv connecting healthcare organizations with effective RCM solutions. Prior to her current role, Theresa has worked in various operational leadership roles supporting Resolv clients. Theresa brings a unique perspective to her work because she has stood in our customer’s shoes working on the front lines as a front office manager and in several roles supporting front office staff and healthcare finance leaders.