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Revenue Red Flags: 3 Warning Signs That Practice Revenue Is At Risk

For outpatient therapy practices to improve financial health, it all starts with learning the warning signs that your revenue is at risk.
Warning Signs Your Therapy Practice Revenue Is At Risk

Like a patient showing symptoms that shouldn’t be ignored, your practice will often present warning signs when revenue is at risk.

The good news is that recognizing these signs early can help you address problems quickly and ensure a healthier bottom line for your practice.

Today, we’ll uncover three major warning signs that signify your revenue cycle isn’t as strong as it could be—and offer strategies to not just stabilize but improve your practice’s financial performance.

1. Your Staff Is Working Too Much

It might sound counterintuitive, but when your staff is working way too hard, for way too long every day, it’s usually an indicator of lower productivity. If your clinical team spends time documenting late into the night, for example, it could indicate that your team’s workflows aren’t as operationally efficient as they should be today.

How does overwork impact your revenue? For one thing, too much time spent on tasks like manual data entry, juggling claim submissions, and following up on denials can quickly lead to burnout—and a burnt-out staff is more prone to costly mistakes.

🔎 Did You Know?
In 2023, CMS reported that a whopping $31.23B in Medicare payments did not meet requirements. Insufficient documentation was the largest error category by far (61.2%).

2. Cash Comes In Too Slowly

A healthy practice depends on a steady flow of income. But slow payment cycles can be a silent killer. That’s why it’s so important to monitor your accounts receivable (AR) closely, watching trends in the average number of days it takes to collect payments.

Benchmark your average days in AR against industry standards—and if you’re falling behind, it’s time to evaluate your billing operations.

3. Your Denials Are Too High

Claim denials are more than just annoyances; they’re red flags pointing to potential revenue leaks. High denial rates can indicate coding errors, lack of documentation, or eligibility issues. Each denial requires additional staff time to address, appeal, and resubmittying up resources that could be focused on upfront patient services and increasing the risk of never collecting on that revenue.

Analyze your denial patterns and identify the common reasons that your revenue is at risk. Training and providing your staff with tools they need to to avoid mistakes can help make sure your claims are paid ASAP, and reduce the burden of following up later down the line.

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Key Financial Metrics in Outpatient Therapy

Understanding and monitoring key financial metrics is essential for maintaining the health of your outpatient therapy practice. We always recommend keeping an eye on the following:

Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) measures the average number of days it takes to collect payment after a service has been provided. This metric directly reflects on your practice’s cash flow. A high DSO indicates that your practice is taking longer to collect payments; a low DSO indicates a highly efficient revenue collection process.

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So, what does that look like? At a maximum, practices should aim to collect payments within 50 days. That said, 30 to 40 days is preferable. And a high-performing practice’s DSO will be within 30 days or less.

Claim Denial Rate

Your claim denial rate represents the percentage of claims submitted to payers that are denied. A high denial rate signals inefficiencies in your billing system and can point to issues such as improper coding, inadequate documentation, or patient eligibility problems.

A low denial rate indicates a healthy cash flow. The industry average claim denial rate is 12.3%, while a healthy benchmark is between 5-10%.

Net Collection Rate

Net Collection Rate (NCR), also known as net adjusted collection or cash collection, represents the ratio of payments collected versus the total payments owed. Basically, this metric shows how effectively your practice is capturing the revenue that you’ve rightfully earned. A high NCR indicates that your practice is collecting your expected payments, but a low NCR suggests that you’re leaving money on the table!

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The industry benchmark net collection rate of 95% or higher indicates a financially healthy practice. That means you get 95 cents for every dollar billed. If you see your net collection ratio dip below 95%, there’s definitely room for improvement.

Next Steps When Your Revenue Is At Risk

Acknowledging the warning signs is only half the battle. Implementing real change is the key to turning your practice’s financial health around.

Here are some steps that can help you stabilize and improve your revenue cycle:

  • Get a bird’s eye view of your financial status. Regularly reviewing financial reports can help you keep track of your chosen key performance indicators (KPIs), like those above.
  • Automate manual, repetitive workflows. Relying on your billing software for coding edits, claim scrubbing, and other tedious processes can really make everyone’s day easier.
  • Support professional development within staff. Training keeps staff abreast of changes and best practices—plus, opportunities for growth can lead to greater fulfillment, reduced risk of burnout, and stronger employee retention.
  • Emphasize the importance of financial diligence as much as clinical care. After all, a strong revenue cycle starts before patients reach the front desk, and ends long after their appointment.

💯 Practical Advice
In a webinar on Do’s and Don’ts: Billing and Patient Payments, Raintree Systems’ VP of RCM explains how automated claim scrubbing can be a game-changer. “It really does speed up efficiency [and] increase accuracy.” Learn more about claim scrubbing >

Billing Software and Revenue Cycle Management Services for Outpatient Therapy

Knowing whether or not your practice’s revenue is at risk can make the difference between getting by and achieving your biggest goals in the rehab therapy space.

If your practice is experiencing any of the warning signs we’ve discussed so far, it may be time to consider whether you’re using the best billing software for your practice. And for high-growth practices facing increasingly complex requirements and workflows, a revenue cycle partnership may be what you need.

Raintree Revenue Cycle Management offers end-to-end revenue cycle services designed specifically to help you meet your goals, faster.

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Blogs are created for educational and informational purposes only.  The information provided does not constitute or, is not intended to constitute, legal or medical advice. When you read this information, visit our website, or access our materials, you are not forming an attorney-client, provider-patient, or other relationship with us.

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