Outsourcing: Analyze net revenue, actual cash

Q. What measure should I use to track revenues?
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Monday, April 1, 2019

A. HME providers are split on how best to measure and recognize revenue in their businesses. In general, measures are organized into four camps:

Charge billing
Charge billing is full “retail” pricing, not including payer contracts and fee schedules. For most providers, this measure inflates expected cash by 100%–200%. For example, if charge billing is $100, then the expected actual payment is $50 or less.
Allowable billing
Allowable billing is charge billing less the expected contractual adjustments based on fee schedules and contracts with payers. This is typically a provider’s “best guess” upfront of what they will get paid. However, not all payer contracts are typically loaded, and many are dated and inaccurate, so this can inflate the actual payments.
Net revenue
Net revenue is allowable billing less the additional contractual adjustments taken during cash posting, credit adjustments, and balance transfers. It is calculated after a payment has been made and indicates exactly what a provider should expect to see in payments in a world without write-offs.
Cash
Cash is the actual payment received, net of any other adjustments. Providers on cash basis can use this measure.

So, what is the right solution?

Charge billing is generally seen as a throwaway measure due to its extreme inaccuracy. Instead, providers turn to allowable billing as their revenue measure prior to getting paid and posting payments. The majority of payer contracts—the 80/20 rule—need to be loaded and accurate in the provider’s billing system. Once payments are posted, providers should analyze net revenue collections and actual cash to measure revenue cycle performance.

Joey Graham is the executive vice president and general manager at Prochant, Inc. He can be reached by email at joeyg@prochant.com and by phone at (980) 201-3082.