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Richter ShareSource Blog

Understanding the True Costs of Uncollected Revenue in the LTPAC Industry

Posted by Ken Voll, Director of Revenue Cycle Management on May 5, 2020 2:00:00 PM

Topics: long term care consulting services, skilled nursing facility consultants, SNF Consultants, long term revenue cycle management, healthcare revenue cycle management services, revenue cycle billing


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Long-term post-acute care (LTPAC) organizations of all sizes and shapes should be singularly focused on the mission of optimizing patient care and enhancing outcomes. Yet, to pursue this, it’s vital that your organization operate efficiently—and a big part of that entails collecting all revenue owed in a consistent manner.

At Richter, we’ve seen far too many LTPACs suffer the harmful effects of uncollected revenue. As a result, they put themselves at risk for financial instability—and that, in turn, puts their mission at risk.

Tracing the Sources of Uncollected LTPAC Revenue

Ask any respected revenue cycle management professional and they’ll agree: Carrying accounts receivable (AR) over 90 days can be costly to your organization’s bottom line. How so? Some answers are obvious, while others lurk beneath the surface.

First, the obvious ones. These include the true costs of the actual receivable (i.e., specific dollar amount outstanding), as well as the cost to resubmit, resend or update claims information. They can also include bad debt. After all, there’s a decreased likelihood of collectability for an outstanding AR balance the longer it sits, which, in turn, means potential lost revenue.

Then there are less obvious costs, particularly three of which you should be aware:

  1. If you’ve heard of the time value of money principle, then you know that the earning potential of a dollar today is greater than tomorrow. Increased operating costs make the timely collection of receivables vital to your earnings potential.
  2. Opportunity. Collecting outstanding AR takes time, effort and yes, expense (including resource usage, computer time and staff hours). What else could you and your staff be doing if that AR balance was paid on time and didn’t drag on? Improving processes? Investing in technology? The possibilities seem endless—but none will likely come to pass if your focus remains on past-due AR.
  3. Administrative. From CFOs forecasting and budgeting, all the way down to the receivables manager overseeing the process, these individuals should be focused on leading, big-picture thinking and strategic planning.

Whether obvious or hidden, the costs of uncollected LTPAC revenue can be very significant. According to a 2009 Harvard Business Review study (which has been cited repeatedly by industry watchers and stood the test of time since its publication date), the general cost to collect aged AR is 1.82% for 30 days, 10.29% for 60 days, 19.74% for 90 days and 30.71% for 120 days. Under this scenario, the potential revenue cost of a $5,000 90-day-old unpaid invoice is $987.00.

If your LTPAC seeks to minimize or eliminate uncollected revenue, you should utilize strategic key performance indicators (KPIs) that will assist with issue identification. I recommend two in particular:

  1. Cash as a percentage of net revenue. With this KPI, you simply divide cash collections by average monthly net revenue. Your target should be 100%. Anything lower means your AR isn’t being collected in a timely (and by extension, acceptable) fashion.
  2. AR greater than 90 days. Aged AR over 90 days / Total aged AR. Your target should be less than 20%. More than 20% indicates growing AR that must be addressed. You should also review all payer classes to identify if specific payer issues exist.

Utilizing these KPIs enables you to then drill down and take proactive steps, including:

(1) Investigating strategies for keeping aging AR down. Two areas to consider include:

  1. Denials management. Success begins with identifying trends. For example: 
    •  
    • Do specific payer issues exist?
    • Are some denial codes more prevalent than others?
    • Would a quick fix potentially resolve multiple issues at once?
  2. Review your RCM process. Consider:
    • Are you missing authorizations on a large scale?
    • Are you missing key information from clinical to billing (e.g., modifiers or mismatched diagnosis codes)?

(2)  Reviewing your technology with an eye toward gaining efficiencies and integrating automation strategically. For example:

  • Is your claims follow-up process truly effective? Providers increasingly are using clearinghouse electronic processes, automated follow-up and/or denials management modules to quickly identify cases where claims are not being paid in a timely manner and help resolve claims issues more quickly.
  • Could you potentially automate pre-claims processes like scrubbing, eligibility, and authorization verifications and more?

In the end, understanding the true costs of uncollected revenue, and working strategically to minimize or eliminate them, will help you run more efficiently and profitably. And that benefits everyone—administrators, staff, residents and their loved ones.

 

Contact Richter Revenue Cycle Management Consultants

Do you have questions about uncollected revenue, or other revenue cycle management challenges? Read our e-book, “Six Strategies to Optimize Your LTPAC Revenue Cycle Process” or call Richter’s revenue cycle management consultants at 866-806-0799 to schedule a free consultation.

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Ken Voll is Director of Revenue Cycle Management with Richter.

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