With nearly one-hundred metrics related to healthcare revenue cycle management (RCM), losing sight of metrics that matter can happen. Prochant is the leading technology-driven reimbursement firm, dedicated to helping HME and pharmacy providers meet their financial goals. One of the key performance indicators (KPIs) we believe is crucial to your revenue cycle success is your Adjust Allowable Rate.
What is an Allowable Adjustment?
An allowable adjustment is when you modify an invoice balance based on the “real allowable.” This is done upon receipt of an explanation of benefits (EOB) or electronic remittance notice (ERN) at the time of payment posting or invoice follow-up, versus at the time of invoice creation. This is not to be confused with Contractual Adjustments, also known as the “Write-Off Allowable” (WA) in certain billing systems.
What is Adjust Allowable Rate?
Adjust Allowable (AA) Rate represents the percentage of revenue that was adjusted manually at time of posting or at the time of A/R follow-up due to incorrect price tables / fee schedules.
How is Adjust Allowable Rate calculated?
Step 1: Identify the total amount of Adjust Allowable (AA) based upon cash posting date
Step 2: Calculate the Allowable billing for the same time period (i.e. one month)
Allowable billing = Purchase Charges + Rental Charges – Contractual Adjustment
Step 3: Calculate the Adjust Allowable Rate
AA Rate % = Adjust Allowable / Allowable billing
Why is Adjust Allowable Rate important?
The AA Rate is critical because it is a gauge of price table or fee schedule accuracy. Incorrect price tables can lead to unnecessary follow-ups due to lingering balances on invoices.
Prochant recommends focusing on the payers that represent 80% of your revenue and ensuring that specific price tables are created and routinely maintained for those payers.
What is considered Good, Okay, At Risk?
- Good: Less than 5%
- Okay: Between 5-8%
- At Risk: Greater than 8%
Role based questions to ask
Executives should be concerned about the AA Rate when it is not in the “Good” category, or less than five percent. These are questions to ask your team:
- Is the adjustment rate trending up or trending down?
- Which price tables need to be created or corrected?
- What is our Adjust Allowable Rate by payer?
- Have we applied the 80/20 rule to price table management?
- What does my commercial price table look like?
If your commercial price table is set up to 100% of charge, consider changing this to 80% of Medicare to be conservative, as opposed to 100% of charge.
Middle-level managers who are digging into the Adjust Allowable Rate should look at Adjustments by Insurance to identify the top problem. To reduce the Adjust Allowable Rate, try cleaning up price tables, as well as know your contracts and schedule price table updates accordingly.
What might we look for in terms of correlation/causation?
- Billing Dashboard: More billing for payers without specific price tables = A higher Adjust Allowable Rate
- Cash posting backlogs being caught up (spike/increase in Adjust Allowables)
- Backlog in cash posting (decrease in Adjust Allowables).
Tools to Help Track
Knowing how to calculate your AA Rate and ask the right questions is a great place to be in, but managing spreadsheets and tracking metrics on your own can lead to errors. Prochant suggests using a platform like Prochant Analytics to keep track of your key performance indicators (KPIs) and quickly manage your processes.
With a HITRUST CSF Certified RCM partner like Prochant, Prochant Analytics protects your patient data and files. Prochant Analytics also comes with a Prochant expert client support team to help you. Want to learn more? Read the white paper or schedule a free demo.
Prochant is the leading technology-driven reimbursement firm with a focus on HME and pharmacy. Our scalable solutions, years of experience, and advanced technology provide best-in-class results to the healthcare community. Headquartered in Charlotte, North Carolina, our client base includes national HME and pharmacy providers and health systems.