Calculating AR Days in Medical Billing

Calculating Accounts Receivable (A/R) Days is a significant component of medical billing. It is a measure of length of time it takes for a healthcare provider to receive payment for services rendered. A high A/R value can indicate issues with billing or collection processes, which can ultimately lead to financial instability for the practice.

It is essential for medical billers to calculate A/R days to determine the efficiency of the billing process. A/R days indicate the average time it takes for a medical practice to receive payment for services rendered. In this article, I will explain how to calculate and analyze A/R days reports.

Understanding A/R Days

Definition of A/R Days

As a medical biller, it is important to understand the concept of A/R days. A/R days, or accounts receivable days, is a metric that is used to measure the average number of days it takes for a medical practice to collect payments from insurances and patients.

In simpler terms, A/R days is a measure of how long it takes for a medical practice to get paid for the services it provides. It is calculated by dividing the total accounts receivable by the average daily charges.

Significance of A/R Days in Medical Billing

A/R days is an important metric in medical billing because it helps medical practices to identify potential issues with their revenue cycle management. A high A/R days value could indicate that action is required to improve the billing process, such as high frequency of claim denials and/or inefficient patient collection.

By monitoring A/R days, medical practices can identify areas for improvement and take steps to address any issues which are contributing to delayed payments. Taking the necessary steps can help improve cash flow and ensure that practices are able to meet their financial obligations.

In addition, A/R days can be used to benchmark medical practice’s performance against industry standards. Depending on the type of services, practice set-up, and patient base, medical practices may have different benchmarks for A/R days, but generally, a lower A/R days value indicates efficient billing cycle.

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Calculating A/R Days

Calculating-AR-Days
Calculating A/R Days

Modern medical software can help the biller to run A/R reports in several ways. Let’s look at some available options. The biller can run reports of insurance A/R by insurance names, which will divide the outstanding receivable by insurance and days in A/R. Biller can also run A/R report by patient names, which will generate report with patient names, service dates, insurances, and days in A/R. It is helpful to run A/R reports with insurance names which indicate whether receivable is due from primary or secondary insurance. This report tends to give a more accurate picture. Biller can also run quick summary reports to see the account receivable at a glance.

For patient A/R, biller can run reports by patient name, service date, or billed date. Service date will indicate when patient was seen and billed date will indicate when the claim was actually billed out and therefore indicate true aging. If the software allows you to run the patient A/R days report that indicates when the balance actually was transferred to patient, that will be helpful as well. Many patients have secondary insurances and balances are  transferred after both insurances have finished processing claims.

Identifying Outstanding Receivables

The first step in calculating A/R days is identifying the outstanding receivables. This includes all unpaid claims and patient balances that are still pending. To determine the outstanding receivables, generate an A/R aging report which lists all outstanding claims and patient balances. These reports should categorize the outstanding balances based on their age, such as 30 days, 60 days, 90, 120 and above.

Average Daily Charge Calculation

After identifying the outstanding receivables, the next step is to calculate the average daily charge. This is the average amount of charges generated by the practice per day. To calculate the average daily charge, divide the total charges generated by the practice over a given period by the number of working days in that period. For instance, if the total charges generated over a 90-day period are $90,000, the average daily charge would be $1,000.

A/R Days Formula Application

Once you have identified the outstanding receivables and calculated the average daily charge, you can now calculate the A/R days. To calculate the A/R days, divide the outstanding receivables by the average daily charge. For example, if the outstanding receivable is $30,000, and the average daily charge is $1,000, the A/R days would be 30 days.

Analyzing A/R Days Results

After calculating A/R Days, it’s important to analyze the results to determine the health of your practice. This analysis can help identify areas for improvement and ensure that your practice is meeting or exceeding industry standards.

Analyzing-AR-Days-Results
Analyzing A/R Days Results

Benchmarking A/R Performance

A/R Days reports help biller to benchmark practice performance against industry standards. Benchmark for A/R Days may vary depending on the type of healthcare provider and services. Generally, benchmark for account receivables for a practice which has adopted electronic billing software tends to be 20-35 days. Ideally, A/R past 60 days should be less than 25%.

Comparing A/R Days report to industry benchmarks can help your practice identify areas of concern which need to be addressed to improve earnings. If your A/R Days are higher than the industry benchmark, it needs immediate attention, as large A/R leads to loss of profit and patient dissatisfaction.

Strategies for Improvement

You’re A/R Days report will indicate the health of your practice account. If there are any areas of concern, you can implement several strategies to improve your A/R.

If your A/R days report is not meeting industry benchmarks, there are several strategies you can implement to improve your account. Some strategies may include:

  • Improve your billing processes to ensure that claims are submitted accurately and in a timely manner.
  • Ensure that you are submitting error free claims to avoid rejection and payment delays.
  • Streamline your collections processes to ensure that outstanding balances are collected promptly.
  • Implement patient payment plans to reduce the number of outstanding balances.
  • Offer discounts for prompt payment to encourage patients to pay their bills on time.

By implementing these strategies, you can improve your A/R Days and ensure your practice is profitable.

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Conclusion

Calculating A/R days and analyzing A/R reports are an essential part of medical billing. A/R days indicate efficiency of the billing process and can help identify any issues that need to be addressed. By following the steps outlined in this section, you can easily calculate the A/R days for your medical practice and take necessary actions to improve your collection and increase your profit.

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