Efficient management of a healthcare practice involves more than just providing quality patient care. It also requires a keen understanding of financial metrics that influence the sustainability and growth of your practice. One such critical metric is your practice’s Accounts Receivable (AR) days, which reveals how quickly your practice collects payments owed by insurance companies […]
Efficient management of a healthcare practice involves more than just providing quality patient care. It also requires a keen understanding of financial metrics that influence the sustainability and growth of your practice. One such critical metric is your practice’s Accounts Receivable (AR) days, which reveals how quickly your practice collects payments owed by insurance companies […]
Efficient management of a healthcare practice involves more than just providing quality patient care. It also requires a keen understanding of financial metrics that influence the sustainability and growth of your practice. One such critical metric is your practice’s Accounts Receivable (AR) days, which reveals how quickly your practice collects payments owed by insurance companies and patients. Monitoring and optimizing AR days can be a game-changer, helping to improve cash flow and overall financial stability.
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What Are AR Days?
AR Days, or Accounts Receivable Days, measure the average number of days it takes for your practice to collect payments on claims submitted to insurance companies and patients. This metric encompasses both patient balances and insurance reimbursements, typically calculated over three, six, or nine-month periods to gauge collection efficiency.
Generally, a range of 30 to 70 days is considered typical for AR days, but exceeding 50 days may signal underlying financial issues. A high AR days figure suggests delays in payment collection, which can strain your practice’s cash flow and operational capacity. If AR days consistently stay above this threshold, it could indicate problems within your billing process or collections system that need addressing promptly.
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Why Are AR Days Critical to Your Practice’s Success?
For healthcare providers, offering top-tier patient care is essential, but it cannot be sustained without solid financial health. Timely reimbursement from insurance providers and patients ensures that your practice maintains liquidity to cover operational costs, invest in new technology, and attract talented staff. When AR days extend beyond 50, your practice may experience cash flow shortages, impairing your ability to upgrade equipment or hire skilled personnel.
A prolonged AR cycle can also lead to increased collection costs, higher staff workload, and potential revenue loss. Keeping AR days in check helps maintain a healthy financial cycle, enabling you to focus on delivering excellent patient care while ensuring your practice’s economic viability. To better assess your practice’s performance, consider regularly calculating your AR days and comparing them against industry standards.
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How to Calculate AR Days?
Given the importance of AR days, it’s vital to routinely evaluate this metric. The calculation involves a simple formula:
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AR Days = (Accounts receivable ÷ Annual revenue) x Number of days in the year
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Before applying this formula, you need to determine your practice’s average daily charges. This is done by summing all charges for a specific period, then subtracting any credits or adjustments. The resulting figure is divided by the number of days in that period, providing your daily charge average.
For example, suppose your practice has receivables totaling $80,000, gross charges of $700,000, and credits of $10,000. The calculation proceeds as follows:
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( $80,000 – $10,000 ) ÷ ( $700,000 ÷ 365 ) = $70,000 ÷ 1917 ≈ 36.91 AR days
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This indicates your practice’s collection period averages around 37 days. You can interpret this score using the following benchmarks:
- 35 days or fewer: Excellent collection efficiency
- Between 35 and 50 days: Average performance
- Over 50 days: Indicates a need for process improvements
Regularly calculating AR days allows you to identify trends and areas for enhancement within your billing operations.
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How to Reduce AR Days?
Decreasing AR days requires proactive efforts and strategic adjustments. Implementing the following practices can significantly improve your collection cycle:
Electronic Claims Billing
Switching to electronic claims submission can dramatically reduce AR days. Electronic billing streamlines the process, minimizes errors, and accelerates payments. For instance, Medicare mandates a payment floor of 13 days for electronic claims, meaning funds are typically received by day 14, compared to 29 days for paper claims. This difference can substantially improve cash flow. Additionally, electronic billing can cut mailing and processing times by several days, further speeding up collections. Learn more about the benefits of digital billing solutions at convenient virtual healthcare services for your needs.
Implement EFT Payments
Automated Electronic Funds Transfers (EFT) allow for immediate deposit of approved claims directly into your bank account. This method eliminates delays associated with mailing paper checks and manual deposits, ensuring quicker access to funds. EFTs are environmentally friendly and help optimize your practice’s cash flow by providing near-instant access to payments once claims are approved.
Minimize Claims Denials
Claim denials are a common cause of delayed payments and increased AR days. By closely monitoring denials, identifying recurring errors, and implementing corrective measures, your practice can reduce rework and expedite collections. Improving claim accuracy and compliance decreases the likelihood of denials, leading to faster reimbursements. For insights on optimizing your claims process, explore how practices are advancing telehealth initiatives to expand healthcare access in community settings.
Practolytics offers comprehensive AR analysis, tailored resolutions, and one-on-one support to help practices strengthen their financial health. Consulting with experts can provide valuable strategies to manage AR effectively and minimize claim rejections.
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Final Thoughts
Maintaining optimal AR days is crucial for the financial well-being of your practice. Regular evaluation, adoption of electronic billing, prompt payments through EFT, and proactive denial management are essential steps toward improving collection efficiency. Staying ahead of these metrics ensures your practice remains financially healthy and capable of delivering exceptional patient care. For more insights on how technology is transforming healthcare reimbursement processes, visit UnitedHealthcare’s telehealth benefits extension.
By understanding and managing AR days effectively, your practice can thrive in a competitive healthcare environment while ensuring sustainable growth.
