In a healthcare setting, patient care is directly proportional to operational sustainability, which includes timely payment of bills either through insurance companies or the patients themselves. A healthcare provider ought to deliver the best results when they are rightly compensated for their services. It also ensures the successful run of a facility that largely hinges on financial investment. As far as medicine is concerned, revenue extends beyond the delivery of care; it is earned when the payment is collected.
Thus, accounts receivable (A/R) in medical billing refers to a process to clear outstanding dues by the patients once they have been rendered appropriate care by a healthcare facility. It helps in maintaining cash flow within and beyond organizations, ensuring financial stability.
What is Accounts Receivable in Medical Billing?
Accounts receivable are the money owed to a healthcare provider by a patient after utilizing their services. It also encompasses the number of days it takes to clear outstanding dues after receiving the care. The onus of payment may lie on insurance companies, patients, or both. Rest assured, it is a crucial aspect of medical billing to maintain proper cash flow and ensure the best care.
The key components of A/R in medical billing include pending claims by insurance companies, incomplete payments by patients awaiting balance reimbursement, and denied claims pending correction or appeal.
What is A/R Days in Medical Billing?
A/R days refers to the average number of days it takes to collect payment from the patients for services utilized. This unit of measurement helps medical practices to understand and demonstrate the efficiency of their billing system, important for generating revenue and attracting investors in new equipment and technology at their facility.
The Medical Billing A/R Process
The significance of the billing process in accounts receivable can be gauged by the number of components it involves and the impact it has on the financial health of a medical facility. The process of A/R medical billing kicks off right after a claim is submitted for outstanding dues and culminates in full payment.
Effective AR management ensures cash flow is maintained across the service provider and the client via continuous monitoring.
It typically includes the following steps:
- Claim submission: A healthcare provider submits a payable claim to either the insurance company or the patient after the latter has been rendered appropriate care.
- Payer review: The claim is reviewed by the payer, and subsequently approved, denied, or partially paid.
- Payment posting: Refers to keeping track of payments being received, being adjusted as write-offs, and being denied.
- Follow-up: Remain in constant contact with payers via phone or portals to check the status of unpaid or partially paid claims.
- Denial Management: A/R denials in medical billing are managed by reviewing, correcting, and resubmitting such claims.
What’s Included in Accounts Receivable?
Accounts receivable (A/R) in medical billing includes every form of money waiting to be paid by a consumer after utilizing services at a healthcare facility. These charges may be due from insurers. Either government or private firms, or patient balances.
Pending, denied, and underpaid claims are also included in A/R billing, underscoring the significance of a consistent follow-up.
Why A/R Days Matter in Medical Billing?
Timely payments of medical bills after a healthcare service has been rendered are just as important as paying the full amount, if not more. A/R in billing also depends on the number of days it takes for a healthcare provider to receive payment for their services. It is measured by a term called A/R days.
It is a critical indicator of the operational efficiency and financial health of a healthcare facility.
Delay in payments results in higher A/R days, which reflects quite poorly on a healthcare organization due to strained cash flow.
According to the industry standards, a rate of <40 AR days is acceptable. Anything more may indicate slow payments by insurance companies or internal issues like inefficient billing processes.
Conversely, a low, stable A/R rate promotes better investments, technology, or services, facilitating a practice’s growth.
Why AR Days is a Critical Metric?
Simply put, the revenue cycle performance of a healthcare facility is measured by A/R days. The overall profitability of an organization depends on the number of days it takes for it to collect its dues from consumers of their services.
It is also a strong marker of a practice’s sustainability in the market, as high A/R days may point to administrative issues at their end.
Calculate A/R Days in Medical Billing
Days in A/R calculation for healthcare providers can be done by applying a straightforward formula, including average daily charges and accounts receivable.
→ A/R Days = Total Accounts Receivable ÷ Average Daily Charges
Here, total accounts receivable simply refers to the outstanding payments by the patient; meanwhile, average daily charges are generated by dividing total monthly charges by the number of days in that month.
The results show the average number of days payments remain outstanding. Lower A/R days indicate efficient cash flow (i.e., <40 days) within a medical facility as opposed to a higher amount that reflects poor management at the service provider’s end.
What is a Good A/R Days Benchmark?
If you are able to collect the outstanding dues from your patient or their insurance companies within a little over a month, you are on the safe side. Anything more than that may put your practice at risk due to a lack of revenue generation.
The accounts receivable (AR) days benchmark is called the Average Collection Period, measuring the average time taken to collect payments.
The general industry standards for the average AR days collection are:
→ Under 30 days: Optimal range; considered the best and indicates high performance
→ 30-40 days: Borders on acceptable; indicates the collection process of a healthcare facility is efficient enough
→ 60+ days: Considered a warning sign for healthcare providers as it indicates poor collections or issues with insurance payers.
Average collection time by a healthcare facility may be affected by several factors, including the nature of insurers (government or private) or A/R billing and follow-up efficiency on claim denials.
Most Common Causes of A/R Aging and Delayed Reimbursements
A/R aging is one of the key components of accounts receivable in medical billing. It refers to the length of time medical bills have been outstanding, either by patients or insurance companies.
It is commonly categorized into monthly interval buckets, such as 0-30 days, 31-60 days, 61-90 days, and 90+ days. The concept essentially helps billing teams at a healthcare facility track delays and ensure follow-ups with the sole purpose of preventing revenue loss.
A/R aging encompasses a range of reasons due to which payments remain unaccounted for long periods of time. It includes front-end errors, such as incomplete or incorrect patient information or outdated documentation to support claims.
The issues could also arise from the payer’s end, resulting in delays due to slow processing of claims, policy changes, and denials, or contractual discrepancies. In these cases, follow-ups must be prioritized to ensure timely reimbursement of dues.
Tips to Reduce A/R Days in Medical Billing
A/R Days reduction requires both proactive and reactive strategies.
One of the most effective approaches entails hiring an accounts receivable and billing specialist to avoid falling into the aging-sized pit in the first place.
Other approaches include:
→ Verification: As self-preserving as it sounds, a practice must verify insurance eligibility and benefits before delivering care to patients to avoid future hassles.
→ Claim Submission: The claims sent to insurers or patient balances should include accurate coding and documentation by the billing team.
→ A/R Monitoring and Follow-up: Healthcare staff must be vigilant in monitoring A/R aging buckets and prioritize follow-up on unpaid or underpaid claims within two weeks of submission.
→ Study Patterns: One of the wisest ways to reduce A/R days is to closely analyze former trends to prevent repetition of errors resulting in denial or delayed reimbursements.
→ Outsourcing A/R management: Reach out to specialized A/R medical billing professionals across Florida for efficient management of payment collection timelines.
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FAQs
What is A/R in medical billing?
A/R (accounts receivable) in medical billing refers to the money that a patient owes to a healthcare provider after utilizing their services.
What is a good AR days ratio?
30-40 days is understood to be an optimal A/R days ratio as per the industry standards in a healthcare setting. Anything above 40 days points to administrative issues in the facility.
What is the importance of tracking AR days?
Keeping track of A/R days is an effective way to ensure timely payments and avoid billing inefficiencies.
Why is my A/R increasing even though we are seeing more patients?
A/R does not necessarily depend on increasing volume of patients; front-end or documentation errors are the biggest drivers of increasing A/R.
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