Key Details: Running a successful medical practice in today’s environment is more complex than ever. Increasing reimbursement pressure, staffing shortages, and rising supply costs can chip away at profit margins if there is insignificant financial and operational oversight. Maintaining visibility into the right key performance indicators (KPIs) can provide leadership with the tools to make informed decisions. When reviewed consistently, KPIs can provide a clear picture of how a practice is performing, where risks are emerging, and where opportunities exist to improve profitability.
Below are some of the essential KPIs every medical practice should track and understand. For further information and expertise, contact Ryan & Wetmore today.
1. Revenue Cycle KPIs
Medical practices should actively manage their revenue cycle KPIs to reveal how efficiently each clinical activity or location generates cash flow.
Collections Ratio and Cash Collection Summary
The collections ratio measures the percentage of collectible revenue actually collected after contractual adjustments. Oftentimes, charges may appear strong on paper, but contractual adjustments, other adjustments, or write-offs significantly decrease collections. The collections ratio provides insight into real revenue. A declining collections ratio may indicate:
- Underpayment from payers.
- Coding or documentation errors.
- Ineffective patient balance collection processes.
- Misalignment between fee schedules and payer contracts.
Medical practices are also encouraged to review collections by practice, facility, payer, and provider to identify any trends that require deeper analysis. Furthermore, analyzing adjustment amounts relative to collection amounts can provide additional information on profitability.
Additionally, a strong cash collections summary should show total cash collected, prior-period cash vs. current-period cash, and cash by payer, provider, and location.
From a leadership perspective, a collections report may explain why cash changed by answering the following questions:
- Did the visit volume change?
- Did payer payment speed change?
- Did patient balances grow?
- Did denials or posting delays increase?
Additionally, practices can analyze their net collection rate to determine how much allowed revenue was actually collected.
Account Receivable (A/R) Aging
A/R aging breaks outstanding balances into time-based buckets. Medical practices should note that some level of A/R is inevitable, but balances over 60 or 90 days may signal more serious issues. Reviewing A/R aging provides insight into:
- If claims are being submitted promptly.
- If specific payers are consistently slow to provide payments.
- If there are outstanding balances that require increased collection efforts.
- If certain locations or facilities have consistently high aged balances.
As such, medical practices are encouraged to review A/R aging reports regularly to gain further insight into liquidity and predictability of future cash flows.
Medical practices are also encouraged to review their Days in AR report to determine how quickly they convert earned revenue into cash. Higher numbers indicate longer conversion times and may be due to delayed claim submissions, slower payer processing, or increasing denials. This should be tracked by the payer to identify which payers are driving delays.
Denial Rates
Denials may represent revenue that requires additional effort to recover or are sometimes never recovered. Tracking denial rates by payer, provider, facility, and denial reason can provide insight into process improvement opportunities. Common root causes for high denial rates include:
- Eligibility and authorization failures.
- Incomplete documentation.
- Coding inaccuracies.
- Payer-specific rule changes.
A strong denials report should show denials by category, payer, provider, and the final dollar impact of the denial. This report should drive process improvements. For example, if a payer’s denials cluster around authorization, improving upstream workflows may lower denial rates.
2. Patient Visit Volume and Provider Utilization
Revenue starts with patient access, but medical practices should track more than just volume. Effective practices often measure how volume is generated and who is delivering the care.
Patient Visit Volume
Tracking volume visits over time by provider, location, and service line can reveal growth or decline trends. It highlights demand patterns and seasonality, referral source performance, and the financial impact of provider absences or turnover. Sudden changes in visit volume can often signal operational issues before financial impacts are reflected on an income statement.
Provider Utilization
Provider utilization measures how efficiently provider capacity is used relative to available clinic hours. Underutilization increases the cost per encounter, while chronic overutilization can lead to burnout. This KPI helps leadership assess:
- Scheduling efficiency.
- Staffing alignment (clinical and administrative).
- Whether additional providers are needed or if existing capacity is underused.
3. Cost per Encounter
The cost per encounter KPI captures the total cost of delivering care, including clinical and administrative labor, medical supplies, rent and facilities, IT systems and software, and billing and administrative overhead by patient encounter. This KPI reveals the practice's true cost structure. Tracking the cost per encounter over time allows medical practices to:
- Evaluate staffing models objectively.
- Identify cost creep before margins erode.
- Compare efficiency across providers or locations.
4. Profit Margin and EBITDA
While revenue and volume are important KPIs, profitability metrics ultimately determine if a practice is sustainable.
Profit Margin
The profit margin shows how much of each revenue dollar remains after expenses. Declining margins often result from rising labor and benefit costs, unfavorable payer mix changes, or inefficient workflows, among other factors. Margin analysis helps owners distinguish between temporary pressure and structural problems.
Medical practices are also encouraged to review their profit margins by location, provider, or service, as applicable, to identify areas that may require operational adjustments.
EBITDA
EBITDA provides a clearer picture of operating performance by removing the effects of certain financing or accounting decisions. For medical practices, EBITDA is especially important when:
- Evaluating expansion or new service lines.
- Refinancing debt.
- Bringing on partners.
- Preparing for a future sale or affiliation.
Generally, medical practices with consistent, strong EBITDA are better positioned to negotiate, from lender terms to strategic transactions.
5. Other Supporting KPIs to Consider
In addition to the KPIs mentioned above, medical practices can also consider the following:
- Cash Collections Summary (total cash, period-over-period, payer/provider breakdown)
- Net Collection Rate (include formula once, clearly formatted)
- Days in A/R
- Credit Balance Report
- Charge Lag Report
- Charge Capture Reconciliation
- Bad Debt and Write-Off Report
- Payer mix and margin analysis
- Visit/procedure trends by month
Connecting KPIs to Strategic Decision Making
KPIs only create value for medical practices when they are used intentionally and reviewed regularly. Effective KPI management includes:
- Regular review cadence (monthly or quarterly).
- Clear accountability for each metric.
- Contextual analysis, rather than just looking at raw numbers.
- Integration with budgeting and forecasting.
When KPIs are aligned across finance, operations, and clinical leadership, they create a shared language for decision-making.
Conclusion and Action Plan
Medical practice owners are encouraged to review the key KPIs identified above and develop their own to provide accurate, timely insight into how their practice is performing. Medical practices are also encouraged to review the following action items:
- Define a personalized core KPI dashboard focused on revenue cycle, volume, cost, and profitability.
- Review KPIs consistently and track trends over time.
- Use KPIs to inform decisions.
- Partner with an accounting advisor who understands medical practices and can translate numbers into strategy.
For additional information and expertise, contact Ryan & Wetmore today.
Today’s Thought Leaders
About Rosie Cheng
Senior Finance Consultant
Rosie Cheng is a Senior Finance Consultant at Ryan & Wetmore. She focuses on government contracting services and produces many of the firm’s government contracting newsletters. Rosie earned her Master of Science in Management from Georgetown University and a BBA from William and Mary.
About Danielle Gallo
Senior Manager
Danielle is a Senior Manager based in our Bethesda, MD office. With over 25 years of experience, she provides a variety of tax services to corporations, trusts, partnerships and high net worth individual including: income tax planning and projections, tax return preparation and review, assistance with foreign tax issues, IRS correspondence and representation, and retirement planning. She is a member of the American Institute of Certified Public Accountants (AICPA), AICPA Women in the Profession, the Maryland Association of Certified Public Accountants (MACPA), and holds a CGMA, Chartered Global Management Accountant, designation.
