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Medical Accounts Receivable: Monitoring and Measuring Performance

Jim Hook, MPH
Medical Billing Consultant
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One of the common issues we confront when called to perform a physician billing department assessment, or a more broad based medical practice analysis,  is the lament:  “Why aren’t we collecting more of our accounts receivable”.  And the corollary:  “Why can’t I get a straight answer to that question from the office manager/administrator/billing supervisor?”

When we ask questions about medical accounts receivable, we usually get answers like, “Oh, our AR is very low!” or, “Our AR is $XX”, with no way to tell if that’s good, bad or ugly.

One of the reasons straight answers are hard to come by is that many staff members responsible to manage accounts receivable don’t know the relevant benchmarks to use for measuring performance.  So they fall back on generalities or dollar amounts with no context.  No wonder physicians are skeptical and frustrated.

In fact, it’s fairly easy to monitor the overall performance of your accounts receivable efforts, and looking at these measures each month can provide an early warning of potential collection problems – and the effect on cash flow.  It’s also part of the best practices in medical billing you need to implement, even if your cash flow seems adequate right now.


Measuring Medical Accounts Receivable:  “Days in AR”

The first measure is the “days in accounts receivable” – the average number of days it takes to collect the payments due to the practice.  To calculate days in AR,

  • Compute the average daily charges for the past several months – add up the charges posted for the last six months and divide by the total number of days in those months.
  • Divide the total accounts receivable by the average daily charges.  The result is the Days in Accounts Receivable.

how to calculate medical accounts receivable days in ar


For instance, if you have charged $280,000 in the past six months, and if there were 182 days in those months, your average daily revenue is $1,538.  Then, if your total accounts receivable is $70,000, the Days in Accounts Receivable is 45.5.  It is taking an average of 45.5 days to collect your payments.

how to calculate medical accounts receivable days in ar


So is that good?  Well, Medicare usually pays about 14 days after receiving a claim.  Some HMOs pay claims at 45 days after receipt, the time allowed by law in some states.  We look at the following figures as benchmarks for medical billing and collections:

  • 30 days or less for a High performing Medical Billing Department.
  • 40-50 days for an Average performing Medical Billing Department.
  • 60 days or more for a Below Average Medical Billing Department.


Measuring Medical Accounts Receivable:  “Aging Buckets”

The other measure is the percent of accounts receivable in each “aging bucket”, for instance 0-30 days, 31-60 days, 61-90 days, etc. To calculate it, you will need a report showing the dollar amount of the AR in each aging bucket.  Simply convert each bucket to a percent of the total AR.   The graph below shows the contrast between Better-performing billing departments vs. Average- performing billing departments.

how to calculate medical accounts receivable aging buckets

Asking for reports each month that show the outcome of each of these measures will go a long way to helping you monitor the performance of your billing department.  Of course, these are only outcome indicators – the report card, if you will.  If they are not where you want them to be, you still have to ask questions about what can be done to move them in the right direction, but at least you know which way is up!

Take a look at my presentation on “A Better Physician Billing Department“.  There you’ll find more information on benchmarks, and questions to ask a billing department.  And if you’re hesitant to seek outside help, take a look at our Case Studies and ROI to get an idea on how investing in the services of a qualified medical billing consultant can pay off handsomely.

12 Comments to “Medical Accounts Receivable: Monitoring and Measuring Performance”

  1. Hi,

    I would like to know how to handle a collection based model project. For example, if I have a physician and he pays me based on the collection. The issues that I am going to pay is from EDI, Credentialing and so on. How credentialing is being done and how to have a healthy collection.

    • Sorry Michael, but we do not give the type of advice you are seeking in comments connected to blogs. We are able to give a general reaction to questions that people have, but we cannot advise you on how to handle the issues you have identified in this manner.

  2. Hi,
    I would like to know how to analyze the practice profit/loss statement, accounts receivable ratios and staffing patterns and how to access specialty comparison norms. Also on how to improve billing and collection performance and increase case flow. Do you have any benchmarks for each of the medical billing positions? (A/R biller, Charge biller, and Payment Poster Biller). Like how much time they have to spend on an account?
    Thank you.

    • Our blog contains two important monitoring tools for accounts receivable, measuring the days in accounts receivable and the percent of AR in various “aging buckets”. You can also review our presentation on giving your practice a billing checkup to get ideas on best practices also has information on this topic. To get specific information, please call us about an engagement to help you identify the appropriate staffing in your setting.

      Staffing ratios are harder to define these days since so much depends on the level and type of automation available and in use in the office.

  3. Our organization gives Sliding Fee discounts for uninsured patients. Would we then subtract the Sliding Fee discount from the Total Charges to calculate the average daily charges?

    Thank you

    • Most organizations still record all services at their usual and customary charges (billed charges), and make adjustments when posting the payments. So when calculating days in AR, you want to have the numerator (the total AR) recorded consistently, e.g., all accounts are carried at the rate of billed charges until payment comes. Then the balance in the account is reduced by the payment, the adjustment due to contractual allowances, sliding scale discounts or other factors. This numerator is divided by the average amounts billed daily over a period of time, to get the days in AR.

      If you only record the charge as the Sliding Scale amount, you can still do the calculation; just make sure the average amount billed daily over time also includes the charges at the Sliding Scale amounts, for consistency.

  4. 30 days or less for a High performing Medical Billing Department.
    40-50 days for an Average performing Medical Billing Department.
    60 days or more for a Below Average Medical Billing Department.
    You make the statement above, is this for non par practices as well? How about surgeons whose bills exceed $100K, which most always are put in the insurance companies “high dollar” unit taking more time to review and pay/deny.

    • Of course, any individual practice may have specific circumstances that will speed up or slow down claims payments. For instance, a family practice or IM office with a preponderance of patients covered by Medicare may be considered only average if their days in accounts receivable are at 30 days since Medicare usually pays within 14 days. When your specialty involves consistent medical record reviews as part of the claims processing activity at the payor, you may have to adjust what is considered average. You should also adopt strategies to speed up claims, like calling soon after submission to see if medical records are required to review the claim, vs. waiting until you get a pending notice 30 or 45 days after the initial submission.

  5. Jim! Is there a formula to calculate how many billing staff you need to work say…$20 million in AR?

    • There is no particular formula or benchmarks based strictly on the dollar amount of accounts receivable. Instead, staffing ratios are based on the volume of accounts that require charge entry, billing and collections and payment posting. And these ratios can be dramatically affected by the amount of automation in use, e.g., an electronic health record system that feeds charges and diagnoses directly into a billing system, and a system that incorporates electronic line item posting of charges.

      Benchmarks for less automated systems would include:
      1) One full-time equivalent for every 10,000 claims processed (billing and collections) annually
      2) One full-time equivalent for every 200 superbills entered manually, each day
      3) One full-time equivalent for every 400 claims posted manually, each day

      Highly automated systems may allow these benchmarks to be reduced by 50-75%.

  6. We have closed one of our offices and so we are not posting any new charges. We still have several million dollars in AR that needs to be collected. How does this open AR affect our days?

    • This may have the effect of increasing your days in AR, at least over the short-term, depending on what, if anything is replacing the services you billed from the closed office. For instance, if you closed an office, but the services being provided there (and billed out) have been relocated to another office, the average daily billed charges you are accruing may not change. In that case, all other things being equal (like continuing to use effective collection practices), your days in AR would not change due to closing an office.

      If, on the other hand, the average daily billed charges are declining because you are providing and billing for fewer services due to closing an office, your days in AR will increase, at least in the short term. This is because the numerator of the calculation, the total AR at the end of the month, still includes the uncollected amounts for the closed office, while the denominator, the average daily billed charges for the last few months, is decreasing due to the closed office.

      You can keep track of this by calculating your average daily billed charges each month, and tracking the change from month to month. If there is a precipitous decline due to the closed office/fewer services being billed, then you can adjust the baseline you use, shortening it to say three months instead of six, for instance. As you collect the amounts from the old office and adjust patient accounts, etc., the calculation should come back into balance and better reflect where you are at the current time.

      Of course, the accuracy of trends in your days in AR is continuously influenced by many factors, including timely posting of charges and payments, overall level of billed activity and effectiveness of collections from payors and patients. The days in AR is the report card, the daily billing and collection activities is the homework.

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