Keeping A Healthy AR

What should my A/R balance look like?

Why are we not collecting all our A/R?

Typically, when speaking with a client, these are the most common questions I’m asked. You should be getting an A/R balance sheet that shows your monthly A/R and what it looks like at least once a month. Whenever you look at your accounts receivable, you are typically going to be looking at it from an aging perspective. So, 0-30, 31-60, 61-90 days, and so on. Generally, you want 85% of your A/R to be under 90 days. This ensures you have a consistent cash flow and you’re not waiting for the payers to pay you on a timely basis. A lot of times, if a payer’s not paying you within that time, there’s a problem. If your A/R starts aging beyond 90 days, you really want to take a close look at it.

If you have a primary insurance and a secondary insurance company, the first insurance company may take about 60 days to pay, and then you bill the remaining balance to the secondary company, and they may take 60 days to pay. That’s 120 days before you start your billing process with your patient, and they may not pay it all at once. That’s why the older the A/R gets the higher the dollar amounts out there that may go into a bad debt situation. A lot of times we see organizations don’t typically turn things over to a collection agency. They don’t know what bad debt is, or maybe they have a software system that doesn’t allow them to write something off to bad debt. They’ll keep that debt on their books and think they’ll be able to collect it eventually. Oftentimes providers think that debt is collectible money. But really, it’s not.

Here at MPS, we like to calculate A/R days based off either a 6-month or 12-month period, but some people like to do it on a 90-day rolling period. Accounts Receivable Days is basically a formula for how much money you have sitting out there in your average daily charges. For example, if you’ve got 5 million dollars sitting out there and your average daily charges are 1 million, you’ve got 5 A/R days. An A/R day reflects the health of getting your cash in. Keep in mind you want to look at your A/R days, but you also want to look at your cash flow associated with those A/R days. If your A/R days are low but your cash flow has dropped, then you need to determine if you’re getting paid correctly by your payers. Is something going to be a contractual adjustment that shouldn’t be? Are you being underpaid and they’re sending you a remittance telling you to write something off? Those are both key items to pay attention to.

In the case of one of our clients, if we see the A/R days fall the first place we look is how far out we are on coding days. Usually, you’ll find something there and, if not, you can start looking at other things that might cause the fall. Over time, we’ve learned it’s not so important to compare one clinic’s A/R days to another’s. What’s important is comparing each clinic’s A/R days to what they’ve historically been to see what’s trending over time. This helps us know where they should be based on the history of their practice.

There are some payers that pay quicker than others. If most of your players happen to be the quick ones, you’re off to a great start. Though, if a large part of your practice comes from Medicare it may take longer to receive payment and that will lengthen your A/R days. Make sure you understand your payers and their A/R days. Ask yourself why they’re higher or lower. Do you have a flat fee contract? Do you have a clause in your contract stating you’re going to be paid within 35 days or 60 days? What are the contracts you have related to patient payments?

If you see your cash flow decreasing but your A/R days still look good, look at your front desk. If you’re not collecting your copays, or you’re not doing the deductibles correctly, etc., then your A/R days may look good, but your cash will be suffering. The front desk is an important part of the collections process. You want to make sure you’ve trained the front desk staff members how to read benefits for a patient. A patient’s insurance card might say there is a $35 copay, but in the benefits section of their insurance verification, it says laboratories are only covered at 50%, or imaging is only covered at 60%. If you know a patient’s having a lab test or an x-ray on that day, be sure your front desk knows to collect that difference. The difference is the coinsurance amount. Though their names a similar, copay and coinsurance are two separate things. Make sure your team is aware of the differences and how they should be calculated. Not understanding the difference between a copay, coinsurance, and a deductible can really put you in a cash bind. For a healthy A/R you typically want at least 90 to 95% in the insurance category. This signifies your front desk team members are collecting as much as possible upfront. They know how to calculate co-insurance and how to ensure they’ve acquired the copay and deductible.

Looking at your A/R, if the collections from last year are different from this year, what would you do to review it? Did your charge amount reduce? Did you reduce the number of patients you saw? Did you reduce the dollar amount of your claims? Maybe it’s due to one new provider you have, or maybe something changed in the software system that caused you to not create as much in charges as you had in the prior period. Did you change from MD to mid-level providers? Be sure to look at that. It’s amazing how many times that’s where we find the problem.

If you’re having trouble with your Accounts Receivable and A/R days, feel free to contact us!