Account receivable in medical billing can be understood as the full amount of money pending to be received by healthcare providers for services delivered. The amount is yet to be collected and it describes the outstanding payment pending from patients, insurance providers and other third-party payers. The Healthcare industry is constantly becoming complex with continuous updates, changes and other hurdles, therefore, it is important to have effective account receivables management. Effective account receivable management will lead to healthy cash flow and financial stability for any healthcare provider.
Medical billing also comprises efficient account receivable management with healthy flow of cash. Account receivable cycle facilitates tracking and gathering pending payments in a timely manner. The steps include submission of documents like medical bills, regular follow up on unpaid claims and patient billing, payment posting and collection management. To evaluate financial health and stability and to identify key areas for improvements, medical facilities should keep a track of days in account receivables. Key performance indicators represent the average number of days taken to collect payments for services rendered.
Key reasons why medical facilities lose payment
One of the most significant ways for healthcare practices to address the challenges is by ensuring timely payment for services rendered. By attentively keeping an eye on their days in A/R and implementing useful measures to optimize it, medical practices can not only improve their bottom line and also create a solid foundation for long-term financial success.
Days in AR
Total accounts receivable balance is divided by the average daily charges generated by the provider will give you the days in AR.
Days in AR = Accounts Receivable divided by Average Daily Charges
Days in AR is a key performance indicator here. When the days in AR are high, this indicates that it will take longer for the provider to collect payments. This will reflect a poor medical billing and collections process or difficulties with payer reimbursements. On the contrary, fewer days in AR indicate that the healthcare provider is gathering payments more fastly, which may highlight right AR management and a stability in cash flow.
Healthcare facilities need to keep a track of days in AR over time,to improve cash flow and ensure timely payment. It should further be compared to industry benchmarks, and take steps to optimize the medical billing processes. For a practice’s financial health and competitive ability, experts recommend keeping days in A/R under 30 to 40 days.