Accounts receivable (AR) in medical billing refers to the total amount of money owed to a healthcare provider for services rendered but are yet to be collected. It denotes the outstanding payments due from patients, insurance companies, and other third-party payers for medical services provided. In an increasingly complex healthcare environment with several regulatory changes and monetary hurdles, efficient healthcare receivables management is critical to maintain a healthy cash flow and financial stability.
Managing accounts receivable efficiently is an important element of medical billing success. The AR cycle entails tracking and collecting payments owed in a timely manner. It involves many steps, from submitting medical bills, following up on unpaid claims, and patient billing to payment posting and collections management. To assess their overall financial health and to identify areas for improvement, a medical practice needs to measure days in accounts receivable, a key performance indicator (KPI) that shows the average number of days it takes to collect payments for services rendered.
As staffing shortages and financial challenges persist, healthcare providers are increasingly considering outsourcing revenue cycle management processes, according to a recent CWH Advisors study sponsored by Synchrony (www.revenuecycleintelligence.com). Partnering with an experienced medical billing company can help healthcare providers ensure comprehensive policies, procedures and internal oversight controls to collect outstanding payments and avoid AR backlogs.
Key Reasons Medical Practices Lose Money
Lack of comprehensive policies, procedures and internal oversight controls can lead practices to lose money due to:
- Failure to collect patient co-pay and co-insurance
- Not having the right team to manage the RCM process
- Failure to manage denials effectively
- Unnecessary write-offs
- Insufficient focus on patient collections
- Not having a proper insurance eligibility verification process
- Not using a claims edits system
- Inaccurate coding
- Failure to keep pace with patient consumerism demands
- Failure to measure KPIs consistently
In 2020, hospitals and healthcare systems in the United States experienced a staggering loss of $202.6 billion in revenue, equivalent to an average of $50.7 billion per month, according to the American Hospital Association. Additionally, up to 72% of practices reported a decline in revenue due to the impact of the pandemic.
One of the most effective ways for practices to address this challenge is by ensuring timely payment for services rendered. By closely examining their days in A/R and implementing appropriate measures to optimize it, practices can not only boost their bottom line and also establish a solid foundation for long-term financial success.
Key Measuring Medical Accounts Receivable: Days in AR
Days in AR is calculated by dividing the total accounts receivable balance by the average daily charges generated by the provider:
Days in AR = Accounts Receivable / Average Daily Charges
Days in AR is a key performance indicator (KPI). If days in AR is high, this means that it takes longer for the practice to collect payments, which may indicate an inefficient medical billing and collections process or problems with payer reimbursements. On the other hand, lower days in AR indicate that the practice is collecting payments more quickly, which may signify effective AR management and a healthier cash flow.
To improve cash flow and ensure timely payment, practices need to track days in AR over time, compare it to industry benchmarks, and take steps to optimize their medical billing processes. For a practice’s financial health, experts recommend keeping days in A/R under 30 to 40 days.
Steps in AR Management
Managing the AR process in a medical practice typically involves the following steps:
- Billing and claim submission: Healthcare providers generate and submit claims to insurance companies for the medical services provided to patients. To receive appropriate reimbursement and prevent denials, they need to submit accurate and complete claims with appropriate medical codes along with supporting documentation.
- Follow-up on unpaid claims: Follow up with the payer can help identify and resolve any issues or discrepancies if a claim is denied, partially paid, or not paid within the expected timeframe. This step may involve claim resubmission, appealing denials, and/or addressing coding or documentation errors.
It is crucial to consistently monitor accounts and have a proactive strategy in place to address patients who do not make timely payments. Best practice is to review patient aging reports every week to identify any outstanding collections that may have been overlooked. Reaching out to patients on a regular basis can greatly enhance collection efforts and maximize revenue.
- Patient billing and collections: If the insurance verification service provider reports that the patient has a co-pay, deductible, or other out-of-pocket expenses, the practice will bill the patient directly. Patient billing may also include sending statements and providing payment options. The statement should include how to pay, including who the checks should be made payable. Patient accounts also need to continually be monitored, with a proper plan in place to follow up with patients who do not make timely payments. Clear communication with patients about their financial responsibilities is crucial to ensure timely payments.
- Payment posting and reconciliation: After payments are received from insurance companies or patients, the medical biller will post them to the appropriate accounts in the billing system. Payments need to be reconciled with the corresponding claims and adjustments made for any contractual or negotiated discounts. It is essential to reconcile payments received with the corresponding claims, and make necessary adjustments for contractual or negotiated discounts. This will ensure that payments are correctly recorded and any discrepancies are addressed in a timely manner. By thoroughly reviewing and reconciling payments, practices can maintain accurate financial records and ensure that they receive appropriate reimbursement for services rendered.
- Aging and collections management: The billing team will regularly reviews and analyzes the aging of accounts receivable and identify overdue or delinquent accounts. They may use various strategies such as phone calls, letters, or collection agencies to collect overdue payments. Steps for effective aging and collections management in A/R include:
- regularly reviewing aging reports to identify and address aberrant accounts in a timely manner
- clearly communicating payment terms to patients including payment due dates, accepted payment methods, and any applicable late fees or interest charges
- following up on overdue accounts by sending reminders, making phone calls, or using collection agencies if necessary
- Offering payment arrangements or discounts to patients who are unable to pay their full balance upfront to facilitate timely payment and maintain patient satisfaction.
- Reviewing and appealing denied claims in a timely manner to ensure that legitimate claims are reimbursed.
By implementing effective aging and collections management practices, healthcare organizations can optimize revenue, maintain healthy cash flow, and ensure financial stability. Proper training staff on A/R management and leveraging technology such as revenue cycle management (RCM) software can streamline processes, improve accuracy, and enhance collections performance. Outsourced medical billing and coding services is the best approach to save money, leverage technology, optimize their accounts receivable management processes and boost revenue collection.
Looking to streamline your cash flow and improve collections? Contact our medical billing company today for a cost-effective solution!