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Okay, I have a feeling this one’s going to be a long one—top 10 KPIs. Cash receipts are often put in a list of the top 10 KPIs for revenue cycle management or medical billing. Many organizations, consultants, and articles advocate tracking “cash receipts,” but I have the first question: why?

First of all, they never really give you a good reason other than simplistic truisms like cash is king. Okay, great. I’m delighted you reminded me that because I would have forgotten that that matters. I’ll dig the ditch and fill it in again. Thanks!

Let’s discuss cash receipts

What do cash receipts mean? One source defines it as cash taken from patients, meaning cash you got at the front desk in a copay, so it’s at the point of care, but money taken from patients or even cash-cash, meaning paper currency and pennies, I guess, too.

Another source defines it as revenue. But what’s revenue? Imagine, a reasonably well-known software company in the revenue cycle management industry has a list of the eight critical medical billing KPIs you should be tracking. One of those is cash receipts. And they say, “Revenue is the driving force of your business. So the money that’s collected and deposited should be monitored daily.” It sounds good, sounds important. But in accounting terms, revenue does not equal cash. They’re entirely decoupled. That’s one of the fundamental principles of accounting.

Benchmarking

The other thing is, what do you do with this information if you’re monitoring it daily? What are you going to scan cash receipts for every day? Not always is that time-consuming, but what action are you going to take from that? Their KPI article suggests that you can’t benchmark cash receipts. That makes it useless because any good KPI you should be able to benchmark and improve upon. It says you can compare to a previous period to ensure it’s steady or improving. Well, if you’re comparing to an earlier period, that is benchmarking. You’re benchmarking against yourself, but you’re benchmarking. So they contradict themselves.

Also, now what? If it isn’t steady or improving, what do you do? I don’t know, and they certainly don’t say. They give a giant out clause like, “Oh, be aware that there are all kinds of variables that might play into this.” Okay! Well, then it’s not very useful.

Accrual accounting

Another source compares cash as in cash accounting versus accrual accounting. This is a real possibility. Another seems to define it as what gets deposited into your bank, which is similar to cash accounting, although they don’t distinguish that. One revenue cycle management education program (which is actually by a university in Florida) has this. Listen to these two different things they say all in one course. Cash receipts journal – daily entries in this journal are supported by remittance advice. These must be collections of some time, not just paper currency cash, cash-cash from paying since it includes remittances. Then, further down in the same course, they say processing and recording cash receipts, the essential concern is theft. 

GAAP

All cash must be deposited in the bank, blah, blah, blah. This must be cash-cash, not accounting cash, because it talks about theft and taking it into the bank. So they have more than one definition in the same course, in the same lesson that doesn’t match each other. I still don’t even know where they’re going with it.

What is it? What are cash receipts? I’ll be straight up. I don’t know, and neither does anybody else. The university course that I referenced talks about GAAP. But they only do it once in passing, and they say, “You should have followed GAAP principles.” Well, I’ve studied GAAP (I’ve got an MBA in Finance from Columbia), and there’s nothing about patients in GAAP. There’s nothing about remittance advice in GAAP. There’s nothing like any of these things. For instance, none of those things they are talking about like, “How am I going to a bank in GAAP?”

EFTs

Remittance advice: do not reflect cash from an accounting standpoint. If you think about it, this may be closer to cash from an accounting standpoint than something like booking accrued revenue at the time of delivery of care, but it’s not cash. For example, you might get a remittance on June 30. Then, you might even get a notification of an EFT or something like that. 

Still, the EFT doesn’t happen until July 2 or something like that where it crosses over a period. GAAP does not distinguish between currency like cash and electronic payment. Further, that’s all payment. That’s all cash from an accounting standpoint. So when it gets deposited, it’s deposited. It doesn’t matter whether somebody went and put pennies in the bank or sent a wire transfer on ACH.

Data collection

When I said, “I don’t know,” I was a little facetious. I meant from a revenue cycle management standpoint. Nobody knows because there are no standards. So people can do a little bit of anything when there are no standards. They say, “Well, you should monitor cash receipts,” but they don’t define what it is, and nobody’s going to call them on it.

Cash does have a meaning from a formal accounting standpoint, including GAAP. Now, there may be some nuance between when you deposit it at the bank versus when it clears at the bank and things like that, but effectively, it’s money on hand. It’s when the funds were received.

If you want cash receipts, it’s not payments posted because payment posting can be very different from when the EFT or the check came or even when it got deposited in your bank. So it would help if you had good data collection and management. This means that you may want to have the check or EFT date that your system collected, although one of the big problems with this is that often that field is missing or blank. So it’s kind of hard to use that information. If 75% of them include a check or EFT date, that could give you cash receipts. It’s just, how do you account for the 20-25% or something like that that is missing?

RCM systems

The alternative is to use a bank deposit date. The problem with that is that it’s in your bank system. That’s not in your revenue cycle management system. It’s pretty hard to do cash receipts in an RCM process and monitor that “daily” in your RCM system. You’d have to go out into the bank account and look at that. That requires bank reconciliation. Now, again, there are ways to do that. We can talk about that in another podcast. We are big fans of the bank reconciliation for CFOs as accountants and all that kind of stuff.

Let’s come back to the question of why. Why are we looking at cash receipts other than some BS platitude like cash is king? What question are you trying to answer? There could be a number of them. You could be trying to answer questions, “What’s the cycle time for payment posting? How long does it take money to get into the account from when we receive it or post the payments? What kind of discrepancies are there?” You could be looking at how long it takes your bank to clear funds because some banks are pretty slow, and you might want to make some changes. 

Reconciliation

We certainly see that with some ACH processes that sometimes are measured in double-digit days. It could be that you’re actually trying to do reconciliation to ensure that all the payments that you received got deposited into the bank account. They don’t get lost or misplaced or something like that, or that the insurance companies don’t lie to you effectively and say, “Oh, yeah, we sent you the money,” when in fact you never got it. That can again be handled by bank reconciliation.

Another one is preventing fraud. You want to make sure that funds received get deposited. Again, this could be kind of complex because if you took money at the point of care from a patient. Also, it never got into the system, either into the bank or even into some record. In addition, you may never find that. That’s a whole separate discussion. So there’s no data and no payment. Indeed, they’re doing their job well as a thief.

Finally

Start with the question you’re looking to answer instead of some stupid, simplistic platitude that will flood you with useless numbers and not solve anything. If you start with the questions that you want to have answered, there are ways to answer all of those things that we talked about today, and they all have a lot of value in answering those questions. So go figure out what you will want to answer. Come with those lists, figure out which ones are the most important, put together a process to do that, or ping us and let us know. We’re happy to help you figure that out. That’s more story. Don’t just go off of some BS KPI like cash receipts!