Calculating Accounts Receivable (A/R) Days in Medical Billing
Introduction
Effective revenue cycle management is crucial for the financial health of any medical practice. One key metric in this process is Accounts Receivable (A/R) days, which represents the average amount of time it takes to collect payments from all payers, including insurance companies and patients. Calculating and understanding A/R days helps you identify and address inefficiencies in your billing system, ultimately improving cash flow and financial stability.
What are Accounts Receivable (A/R) Days?
Accounts Receivable (A/R) days tell you how long, on average, it takes to convert outstanding balance (due receivables) into collected revenue. This number is usually calculated for specific periods like 30, 60, 90, or 120 days, allowing you to monitor trends and optimize collection efforts. High A/R days indicate cash flow delays, impacting your practice’s ability to operate and invest in needed resources. Conversely, low A/R days signify efficient billing and faster revenue collection, leading to financial stability and growth.
Calculating Accounts Receivable (A/R) Days
There are two main methods for calculating A/R days:
Method 1:
Total Accounts Receivable (AR): Outstanding balance owed by all payers at the end of the chosen period (e.g., $70,000 for 30 days). Number of days in the period: 30, 60, 90, or 120 days.
A/R Days = (Total AR) / (Number of days in the period)
For example, with $70,000 AR and 30 days, A/R days = $70,000 / 30 = 23.33 days.
Method 2:
Gross Charges: Total charges posted for the chosen period (e.g., $600,000 for 3 months). Number of days in the period: 365 for a year, or adjust for shorter periods.
A/R Days = (Total AR) / (Average Daily Gross Charges)
For example, with $70,000 AR and $600,000/365 = $1,643.84 average daily charges, A/R days = $70,000 / $1,643.84 = 42.62 days.
Interpreting A/R Days
Industry benchmarks are helpful but consider your practice’s specific context. Generally:
- 35 days or less: Excellent performance, efficient billing system.
- 36-45 days: Average performance, room for improvement.
- 46 days or more: Below average, potential revenue leaks, consider optimizing billing processes.
Additional Tips
- Calculate A/R days for all payers:* Identify payers with longer collection times for targeted focus.
- Monitor aged receivables: Track the percentage of AR older than 90 and 120 days to assess potential write-offs or collection needs.
- Account for collections: Consider both A/R with and without collections for a more accurate picture.
- Seek professional help: Outsourcing A/R management to a medical billing company can streamline processes and improve collection efficiency.
Remember, consistent monitoring and proactive management of Accounts Receivable (A/R) days are essential for financial health and long-term success. Implement effective billing practices, optimize workflows, and consider professional assistance to optimize your revenue cycle and improve cash flow.
Do you have concerns about your A/R days? Contact PrimeCare today to discuss how our medical billing and collection services can help you improve cash flow and achieve financial stability.
References:
