Medical Accounts Receivable: Monitoring and Measuring Performance

how to calculate medical accounts receivable days in ar

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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 phyMedical Billing Consultantsicians 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 arFor 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 bucketsAsking 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.

When you need proven expertise and performance

Jim Hook, MPH

Mr. James D. Hook has over 30 years of healthcare executive management and consulting experience in medical groups, hospitals, IPA’s, MSO’s, and other healthcare organizations.

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44 Comments on "Medical Accounts Receivable: Monitoring and Measuring Performance"

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Michael
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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.

maria
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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.

Claudia Ballesteros
Guest

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

C Meo
Guest

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.

Alan
Guest

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

Morphis
Guest

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?

Susan Waltz
Guest

When beginning a brand new receivable, what’s an acceptable level for percentage of accounts hitting over 90 days?

Lee
Guest

Is there a check off list that an analyst can use when reviewing the current AR? A list of trends to watch out for?

Thank you for your time

Lee

Tom Ryan
Guest
Jim. I am a 28 year hosp CEO now involved with healthcare startups, one of which offers a non-recourse, 24 hour payment of between 55 and 90 % of submitted Medicare/commercial claims. It uses an algorithm that has patent pending status. Wall st investors have discovered the perfected valuation of these claims ( compared with mortgages, educ loans, etc) and are the source of investment in this model I would like to discuss thiscwith you but first have a question: if a fictional hospital receives payment of 80% of all medicare/commercial claims within 24 hours what is the math calculation… Read more »
Tom Ryan
Guest

Jim. Thank you so much for that information! I would like to converse with you by email should you be so inclined. Tom

Tom Ryan
Guest

Jim. Thank you so much for that information! I would like to converse with you by email should you be so inclined. Tom

And Jim. I hope I’m not overstaying my welcome, but following your answer’s logic, if a hospital continued to receive 80% of Medicare/commercial dropped bills within 24 hours, would the days cash on hand increase exponentially. (remember Jim I was a CEO—- not CFO). Thanks again. Tom

Penny
Guest

I am looking for best practice/national standards on how the billing department should work accounts receivable. I say the best way to work it is by splitting the alphabet between billing analyst, others say working by payer is better and to concentrate on the higher a/r at the time. Doesn’t that just cause other payer a/r to go up and then a continuous cycle?

Julie B
Guest

Where can I find Home Healthcare benchmarks regarding AR days? We run between 30-40 days. Or would Home Healthcare have the same benchmarks you mentioned above?

Myranda Stafford
Guest

Hi

Our office currently has an out of control amount of patient balance A/R. I was wondering if you had suggestions for the best way to handle it? There are only two people working it now and it seems as though little to no progress is being made.

KC
Guest
I currently bill at 200% of the medicare fee schedule for insurance and I have a separate fee schedule for self pay patients. I did this for expediency and never got around to updating it. Now I’m trying to evaluate my billing company based on days in A/R and I’m not sure if or how to account for the fact that I’m clearly over-billing and accepting a high write- off amount on each claim submission. My rough estimate for what percent of the billed amount I could actually be paid is 60% of the current billed amount. Will this adjusted… Read more »
Shay
Guest
I thought this was a very good article. I am a coder and have been for 15 years so I am not familiar with Days in A/R and aging buckets. Although lately I have taken a very big interest in this area. Recently our entire CBO had a meeting the topic was Days in A/R which we have 5 companies. ASC, Path, ANA, and the Physicians. All companies days in A/R are great they are under 25% and the 120+ buckets were under 17%. Now what I don’t understand was the 0-30 is that not current charges that are due… Read more »
Isaq patel
Guest

Is it appropriate to measure days in ar by taking average charge for 90 days or 30 days

Bryan
Guest
Hey Jim, Great information. I’ve been in Healthcare Revenue Cycle for over 20 years. It still amazes me how many Healthcare administrators fail to understand revenue cycle and benchmarking. Benchmarking a billing office based on AR Days, Ageing buckets etc is absolutely essential. Do you have a recommendation on how to quantify the ROI for an AR Days reduction? In other words, if AR days were to be reduced from 35 to 30, how would you calculate the value of that reduction? And for the sake of this question, we need to assume that charges, payments and adjustments remain stable,… Read more »
John Kugler
Guest
I am a little confused on your aging bucket graph. It appears that for the 0-30, 31-60 and the 61-90 buckets the “Average” column is better than your “Better” column since the percentage is lower for the average than the better in these buckets. The 91+ bucket makes sense that the better would be the lower percentage but would you explain to me why it is “Better” to have higher percentages in the other buckets. As an Urgent Care are current buckets are: 0-30 66% 31-60 8% 61-90 6% 91+ 19% (have not taken charge offs in 3 years) I… Read more »
stephanie
Guest

Jim, Our total due AR balance is approx. $466,000. Of that, $7100 is over 90 days and $14,000 is 90 days old. Combined, we have a .046 percentage past due. Collecting these amounts is priority one in our department. Can you tell me if this past due % is a healthy amount or not?

Thank you
Stephanie

Kathy
Guest

Our office collection % is down from last year. Last year we ran about 72-75%, & this year it has dropped to about 65-69%. Our A/R is in good shape. What kind of a report do I run to see what is going on?
Thank you

Kat Phillis
Guest
Jim – Thank you for this great information. I am a Medical Billing Office Manager and one of my clients has me stumped. Their days in A/R are right at 20 so looking good there and their aging buckets all look good as well. However, comparing last year to this year they have seen 570 more patients in the first half of the year yet their Net Medical Revenue is down $154,364 compared to the prior year. They did lose three providers but they have accounted for that loss by removing the revenue generated by those providers last year from… Read more »
Jo
Guest

For a office based procedure practice that has minimal rejected first pass claims what would be the expected return on a monthly billing of $376k -$410K? Currently we are ony collecting 22% across the buckets.

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