Understanding how to accurately determine the time it takes to collect payments in healthcare practices is essential for maintaining financial health and optimizing revenue cycles. Accounts receivable (AR) days serve as a crucial metric, reflecting the average duration needed to receive reimbursement after billing. Lower AR days indicate quicker collection processes, which contribute to greater financial stability and facilitate expansion opportunities. AR days are typically segmented into categories such as 0-30, 30-60, 60-90, 90-120 days, and over 120 days. This classification, often called AR buckets, highlights that as the number of days increases, the likelihood of successfully collecting reimbursements diminishes. After submitting a claim, providers generally expect to receive payments within a few weeks. It is especially important to monitor AR buckets starting from 30-60 days onward, as these periods require careful analysis and targeted follow-up actions.
Accurately calculating AR days provides insight into the financial health of a practice, enabling timely interventions to improve cash flow. In this article, we will explore the correct methods for computing AR days and clarify related key terminologies, helping healthcare providers enhance their revenue cycle management (RCM).
Calculating AR Days
The calculation of AR days involves a straightforward formula that measures how long it typically takes to settle outstanding accounts. Essentially, it indicates the number of days an invoice remains unpaid before reimbursement is received. To determine this, begin by calculating the average daily charges over recent months. Summing up the gross charges posted over a six-month period and dividing by the total days in those months yields the average daily charge. Then, divide the total accounts receivable by this average daily charge to obtain the AR days figure.
For example, suppose a practice has receivables totaling $50,000, with a credit balance of $7,000, and gross charges amounting to $600,000 annually. The calculation would be:
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(Total Receivables – Credit Balance) / (Gross Charges / 365 days)
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Plugging in the numbers:
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($50,000 – $7,000) / ($600,000 / 365) = $43,000 / 1,644 ≈ 26.15 days
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This indicates that, on average, payments are received in approximately 26 days. According to hospital benchmarks, AR days for healthcare facilities typically range between 30 and 70 days. Most experts agree that an AR days measurement exceeding 50 suggests inefficiencies in billing or collections processes.
While performing these calculations, it is vital to pay close attention to certain details:
- Ensure the accuracy of your data. Many practices struggle with tracking submitted claims properly, which can lead to misclassifying paid claims as unpaid. Additionally, claims denied as duplicates might be incorrectly included in AR, skewing your metrics. Reliable, precise data is the foundation of effective AR management.
- Analyze AR days separately for each payer. Knowing your average days in AR across all payers, along with detailed figures for individual payers, helps identify specific inefficiencies. For example, if your billing for a particular insurer takes significantly longer than others, targeted improvements can be implemented to expedite collections.
- Be aware of accounts sent to collections. These accounts are often written off from receivable records, but this can create a misleadingly favorable picture of your AR days. To get an accurate assessment, compare your AR days with and without accounts that have been transferred to collections, as this provides a clearer view of your true collection timelines.
Calculating AR days is the foundational step toward reducing outstanding receivables. Precise calculations enable practices to evaluate the performance of their revenue cycle management activities effectively. This process can also facilitate the formation of dedicated denial management teams tasked with follow-up actions to minimize AR. If your practice needs assistance in reducing aged receivables, Medisys Data Solutions offers specialized support. Our team of AR experts works diligently to identify root causes of claim denials and implement resolutions. Additionally, our billing professionals can resubmit claims with corrected or supplementary information to recover pending payments. To learn more about our comprehensive AR services, contact us at info@medisysdata.com or call 302-261-9187.
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For further insights into healthcare operations, exploring topics like understanding healthcare compliance, its importance, and core principles can be highly beneficial. Also, the evolving role of technology in healthcare, such as the influence of artificial intelligence as a supportive tool, continues to shape the industry’s future. Staying informed on these areas ensures your practice remains compliant and competitive in today’s complex healthcare landscape.