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Have you ever heard the expression “You can’t manage what you can’t measure” by Peter Drucker, a famous sort of market business guru? He’s world-renowned. If you’ve ever heard this expression, at one point, you probably thought like, “Hey! This is incredible.”
Don’t miss the point
I’m tired of hearing this. I’ll be honest. Part of this is because I can’t tell you how often I listen to consultants and journalists and other people say something like this or make this quote and suggest measuring things in healthcare finance, but they miss the point entirely. It becomes upsetting to hear this coming from somebody who doesn’t know what they’re talking about or is peddling insufficient information and something that isn’t going to help people.
We should be able to measure all kinds of stuff. Finance is a data business. We’re dealing in numbers and data, so we’re swimming in massive amounts of data. We’re capturing all of this information. In theory, this shouldn’t be a problem. Every time you go to a conference, or you read some article. There’s a ton of things, just peddling how much we got to sort of all get down and bow down to data. Again, we’re in the data business, so I’m not knocking the concept data. There’s almost this sick and fiendish infatuation with it when people aren’t using it very much.
Watch out for measure pressure
Here’s kind, I think, one of the challenges we’ve encountered. People are so desperate to measure something, just anything, that they start to go in the wrong direction because there’s pressure to do it to people within the organization, consultants, top management, “Oh, we’ve got to measure stuff. We’ve got a benchmark. We’ve got to improve.”
The number one garbage metric that, again, it’s not that there’s no value to it, but it’s the gold standard. It needs to come down off of its pedestal, and that’s accounts receivable measurement: AR days and similar kinds of metrics, I mean, things like the percentage of AR over 120 days, AR aging distribution, AR days on hand, or AR days. There are several different ways to do this.
One of the most common ones is to take your total outstanding AR and multiply each receivable by the number of days that it is exceptional and then divide that by your total AR, and that gives you a measurement in days like 37 or 28 or 146.
There are advantages to having this metric. For one, it’s pretty easy to measure. Everybody’s got this data, and it’s not very complicated. It’s a simple mathematical equation. A 12-year-old can do it. It does measure the speed of resolution of claims, so it does measure something. It tells you how fast the claims are resolved.
Pinpoint the issues
In theory, changes in the spec significant or rapid changes in AR could signal a problem. That’s assuming that you have divorced it from an immediate change in volume that would drive that change in receivables. Of course, accounts receivable days are universal. Everybody measures it. Everybody uses it. It’s everywhere.
The big problems with them are, “Can you compare Anthem to Medicare?” Obviously, not. Orthopedic surgery is a radically different beast than primary care or an E&M versus surgery. Those matter. Specialty matters. Even subspecialties get treated differently. Let’s take it within radiology. Professional radiology read is treated very differently than a technical component for an imaging center. Professional read – 30, 40, 50, 75 bucks. A technical for a CT or an MR – a couple of hundred bucks, 500 bucks, 700 bucks.
Again, it depends on where you are in the country and payers, all kinds of other things. We’re talking about sort of an order of magnitude difference in reimbursement. They are treated radically differently by payers regarding whether or not they’re paid, denials, speed of payments, and those kinds of things. I’m sure you’ve noticed that higher-priced procedures get paid more slowly than do cheaper procedures.
There are even other things like, “Are you contracted?” Out-of-network typically has more problems. It gets paid slower than in-network. There are even some payers who categorically do so. They even have stated policies to do that, where they will slow it down, or some of them would have crazy things like they won’t take an electronic payment or an electronic claim. You have to send it in on paper or something nuts. It’s just peculiar requirements. On the other hand, they slow down the adjudication process by definition being out of network. They wanted you to get it inside a certain number of weeks.
Narrow the data categories
In terms of “How worthwhile is accounts receivable days as a benchmark to compare to other providers?” First of all, most data that you get is broad. It’s like 37 days. Even if you could compare it to somebody else who has the same specialty as you, it probably isn’t beneficial.
Can you get data that drills down to sort of by specialty, by the payer? You’re saying, “Okay! BCBS Alabama for general surgery.” Can you find other providers with the same specialty and the same payer and get that data and compare? First of all, you’re not going to be able to get that kind of granulated data. Even if you do, you’re probably still not going to be able to drill down and get the information that’s worthwhile because BCBS might be a Medicaid plan, or it might be a PPO, or it might be a Medicare plan, or something in terms of Medicaid plan, I mean, just all kinds of different things.
For instance, you’re not accounting for other factors that we’ve mentioned if you can’t isolate down to all of those variants and compare by CPT, by payer, by specialty, by subspecialty. Suppose it’s not that fully apples to apples by the plan. It isn’t beneficial. It’s not worth comparing. It’s actually can be very misleading. There’s virtually no value in that data as a benchmarking tool.
Worse, when it comes to accounts receivable days, remember I said it measures speed to resolution. It doesn’t measure speed to payment or any other sort of thing we care about. There is a perverse incentive that is built into accounts receivable days.
Choose your billing company wisely
We’ve seen this with billing companies, where a good billing company an excellent billing company might have perfect AR days, but an awful billing company will also have excellent AR days because they write off things quickly. There is a perverse incentive to write off a 9-month-old claim because it makes you look bad rather than hang on for another 3, 6, 8 months, or something like that and fight to try to get it paid for those problematic payers or procedures, whatever it might be. That’s a big problem that you can run into.
The other thing that I mentioned in passing earlier was if your AR is growing, is that a problem, or is it just that you’ve had some variance in your volume? Or even if you haven’t had a conflict in volume, maybe you had some variance in your speed of claim submission? They weren’t going to submit it for a while, and then you got caught up, and suddenly, there was a big batch of them that went through. That’s a surge in claims going out the door, which means your AR suddenly goes up. It makes you look bad.
The net is AR days, or other sorts of measurements of AR are not worthwhile. They certainly shouldn’t be the gold standard. It doesn’t mean you should never look at AR. It could signal some things if there are radical changes in it, but it’s not the gold standard. It’s not a measurement. It’s not something you can benchmark yourself against all that comes from other providers. It really should just be one of the relatively small tools you have in your toolkit to be able to say, “Hey! Can we look at this occasion and see if there’s some problem” or put in place ideally an early warning system that sort of looks for radical changes in AR and sends out a notification to somebody to say, “Hey! Go check and make sure there isn’t a problem here.”
Use the right numbers
The last thing I’ll sort of leave you with, and this is a metaphor that I like to use. I think part of why people have looked for and utilized accounts receivable days is because they are so desperate to use something. Are you familiar with phrenology? Phrenology and phrenologists were considered at one time to be an actual legitimate science.
There were clinical textbooks on this stuff in universities. For those of you who aren’t tuned into what a phenologist is, it was the study of the measurement of the cranial size used to determine intelligence. There was a time when, since we didn’t have an excellent way to measure intellectual capacity, we measured the length of people’s heads to figure out how intelligent they are. That’s sort of how I would describe accounts receivable days, which is when we feel so desperate to measure something.
We don’t feel like we’ve got something outstanding to measure, identify, and quantify. Benchmark financial performance in healthcare, we’re so desperate to measure anything that we’ll throw numbers out there and go, “Hmm. Good. Not good.” We’re ingesting horse urine for those who even remember that one, too.
Final thought
Don’t get hung up on AR days. It doesn’t mean that there’s no value. I would say that there is some correlation sometimes. I shouldn’t say “some correlation sometimes.” There is a correlation, although it’s not a strong correlation. There is a correlation between AR days and better performance in revenue cycle management. Again, that’s kind of like saying, “Hey! Would you go out and pick the tallest person walking down the street to play basketball? Or would you pick the person who’s the best at basketball?”. Basketball players tend to be tall, but that doesn’t mean you randomly pick tall people. I know a lot of tall people who are not good basketball players.
That’s my rail on AR days. If you want enhanced metrics, talk to us, check out our blog. There are better metrics than AR days.
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