Healthcare Finance KPIs You Should Be Tracking

The healthcare industry has gotten more regulated, competitive, and data-centric than ever. This means that your healthcare organization needs to do whatever it can to ensure that it is accurately tracking the necessary data.

This process can be complicated, as you need to have the right data sources and create appropriate financial dashboards that allow easy tracking of the information. Furthermore, you need to make sure that you identify healthcare finance KPIs that are specific to your organization. Fortunately, with the proper planning and ERP software, this is absolutely something your practice can handle.

Defining Healthcare Finance KPIs

Healthcare finance key performance indicators (KPIs) are quantifiable measurements. They can help hospital finance and department leaders effectively gauge financial and operational performance against set goals. When used correctly, KPIs in healthcare create successful internal measurements that allow for a comparison into what is and isn’t working within a practice. KPIs also lend visibility to trending regulatory compliance.  A few of those KPI are governed for regulatory reporting so seeing them on a consistent basis can help raise flags earlier.

The above definition differentiates healthcare finance KPIs from healthcare metrics. KPIs are metrics geared towards comparing internal performance and ensuring progress towards certain goals. There are many metrics — such as customer ratings or readmission rates — that are oriented differently. As the name implies, healthcare finance KPIs are exclusively financial metrics. There is certainly extensive overlap between the definitions of healthcare finance KPIs and healthcare metrics, but they are not the same. 

The Importance of Tracking Healthcare Finance KPIs

Healthcare finance KPIs — such as days in accounts receivable, operating profit margin, or total expense — have become vital to the health of the healthcare industry. The importance of properly tracking healthcare finance data has been exacerbated by the ongoing pandemic. 

The pandemic has presented incredible financial challenges to hospital CEOs and CFOs on both the revenue and expense side. On one hand, in many ways, revenue has suffered. Individuals have been more hesitant to seek medical care. Not only is this bad for health, but it is bad for business, as it starves hospitals of critical revenue.

At the same time, expenses have increased significantly. This exists on multiple levels, including the need to:

• Purchase extremely expensive equipment, PPE, and refit wings and offices to handle COVID-related surges.
• Increase pay to compensate healthcare staff for their critical work and deal with ongoing staffing shortages.
• Address rising rates of individuals who are dealing with long-COVID.
• Manage increases in accounts receivable, along with shrinking operating profit margins. 

The healthcare industry has never been short of financial challenges, but never before have those challenges been so robust. This means that healthcare professionals need better data — and more updated data sources — than ever before. Healthcare finance KPIs can provide professionals with data that is highly visible, easily distributed, trustworthy, and timely. This ensures that people can make the right financial and business decisions.

20 Healthcare Finance KPIs

What are KPIs in healthcare that every organization should track? Well, each organization within the industry will have different healthcare finance KPIs. These will come from various data sources and shift, depending on the specific operating model of each organization. However, the below KPIs are all considered critical KPIs in healthcare:

1. Days cash on hand: This KPI is a rough proxy for how much cash flow a healthcare operation is able to maintain. Tracking this can explain the overall financial trend of an organization and give insight into its ability to save for a financial emergency.
2. Operating profit margin: Operating profit margin shows if a facility is operating at a profit or loss. This, of course, is vitally necessary to determine the overall financial health of a unit or overall facility.
3. Projections: Projections are estimates of future revenue and expenses. These are vital for planning purposes and can be used to determine where revenue enhancements or expenditure cuts may need to be necessary.
4. Days in accounts receivable: Days in accounts receivable show how long a particular invoice or bill has been outstanding. If the number of days in accounts receivable gets too high, it may be indicative of broader billing problems and show the need to improve operations here in order to improve overall cash flow. 
5. Gross collections ratio: This KPI is the total payments your office has received, divided by charges, excluding write-offs. Again, this can help you determine how serious of a payment-collection issue your office may have, and this can affect resource allotment.
6. Claim denial rate: This shows how often your insurance claims are denied. This KPI should be in-line with others in your industry. If it isn't, you may need to make adjustments to your billing procedures:
7. Bad debts: How much debt you ultimately have to write off. This can help you determine your total uncompensated care and help you determine if you need to make adjustments to your overall practice going forward.
8. Revenue per bed: How much money you make per bed in each facility. This KPI may help show if you need to add capacity or find other ways to increase revenue without adding beds.
9. Revenue per treatment: How much money you make for each one of a certain treatment. This can show if a treatment is performing well for you on the financial side, thus demonstrating what treatments are good for revenue, and what isn't.
10. Revenue per clinician: How much money a clinician is bringing into your organization. This can help make determinations about what staff is doing well financially, and this can help guide compensation and other expansion decisions.
11. Expense per bed: How much money each bed costs you. If the numbers of expenses per bed are too high in certain areas, you may need to make adjustments to some departments.
12. Number of patients served: How many patients an office or location serves. This can show if a location is performing well in your overall system, thus demonstrating if an office is worth keeping open, or if there aren't opportunities to open new offices. 
13. Numbers of encounters: An encounter is the number of patients seen or worked with. When used at a location, this can be a useful metric of overall productivity. 
14. Number of clinicians: How many clinicians are working in a certain location. This is often useful when compared against another statistic, like total patients, as it can give an indication about staffing levels.
15. Profit and loss by location: This shows which locations are doing well, and which are not. This can enable decisions to be made about where to provide more resources, including marketing or staff support. In more extreme cases, it may indicate areas that need to be closed.
16. Profit and loss by budget: Same as above, only with specific budget areas, such as outpatient, same-day surgery, etc.
17. Total expense: This shows the expense of an entire unit or location. Tracking this demonstrates where expense improvements need to be made and can guide decisions by upper-level management about where expense improvements need to be made.
18. Labor expense: This is the entire staff-related expense, including compensation and benefits. Watching this KPI can give your organization a good idea of your overall labor costs and where you may need to make changes. 
19. Compensation: It is critical to monitor the pay of your staff across offices and positions. Doing so can give you a solid grasp of your overall payment trend lines and ensure that compensation does not vary wildly within your system.
20. Productivity: This KPI is tied to certain performance metrics, like average patients seen or average admissions per day. It can also be broken down by staffer or office, enabling you to see what staff or office is performing well and what isn't. This can allow for decisions to be made about employment and resource levels. 

Staying Organized and Managing Powerful Data

All the healthcare KPIs in the world won't serve you if you don't accurately track the information and organize it in a manner that is useful. Using the right ERP software can help ensure your KPIs are accurate, meaningful, and organized. 

An ERP must be easy to utilize and be able to easily demonstrate important and necessary insights. The data must be easy to share with others and useful in upper management presentations, enabling individuals to show the importance of making certain financial decisions. It must break down technical terms and create easy-to-understand visual aids. It should also break down silos and allow for all parties involved to understand what is happening across an entire healthcare industry segment. Finally, it must be capable of drilling down data in certain key metrics. This includes items like days in accounts receivable and operating profit margin.