helathcare it - ar days reduction

Healthcare A/R Days Reduction

Healthcare IT Consulting

DEFINITIONThe average number of days a company takes to collect payments on goods or services sold.

Formula: Average accounts payable x 365 ÷ sales revenue.

Numbers higher than 40 to 50 days indicate collection problems and significant pressure on cash

flows. Numbers lower than 40 to 50 days indicate strict credit policies that might prevent higher sales

revenue. Also called days sales in receivables or debtor days.


How to Reduce Accounts Receivable In

10 Steps


Step 1 – Financial PolicyOne reason patients do not pay their medical bills is that they do not understand what they owe and why. Before a patient receives treatment, the office should explain both the cost of the visit and any co pays, co-insurance, or deductibles that are required at the time of service. The center’s financial policy should detail which insurance plans are accepted, how out-of-network insurance will be billed, the cost of a self-pay visit, and whether the patient will be billed his deductible or required to put down a “deposit.” The financial policy should be clearly communicated on the center’s website, verbally by the front office staff, and in written materials provided at registration or admitting. To assure patient understanding, many centers ask for a signed acknowledgement that patients have received, read, and will comply with the financial policy.


Step 2 – Insurance VerificationFailure to verify insurance could result in a denied claim and a patient outstanding balance that never gets paid. A patient presenting an insurance card does not always mean they are insured. In a recessed economy, people transitioning between jobs often forego COBRA coverage, and some businesses reduce or drop employee benefits. Plans are increasing patient out-of-pocket expense by way of co pays, deductibles, and co-insurance. Even when an office is “in network” with a carrier’s primary PPO, the carrier’s HMO and affiliated plans may not offer the needed services as a benefit or may require referral and pre-authorization. Prior to treatment, the front desk should contact the insurance carrier to confirm enrollment, coverage levels, and amounts to be collected from the patient.


Step 3 – Patient Registration• Data entry errors and omissions can lead to thousands of dollars in

lost revenue for an hospital/clinic or other care center. Not only are many insurance claims rejected due to inaccurate information, but incorrect addresses also lead to postal return of patient invoices.

• When a patient arrives at for services, the front office should verify that all demographic information is complete, that information reported on forms matches patient identification and insurance cards, and that data are accurately entered into the billing system.

• If the patient has been seen at the center before, it’s inadequate to ask, “Has your information in the system changed?” Instead, the front desk should have the patient review and initial a printout of address, employment, and insurance information to signify that it is all correct.


Step 4 – Collect Copayment, Deductible, and Patient Balances

Failure to collect patient financial responsibility before treatment too often results in patients “walking out” without paying or “forgetting” their checkbook. Co-pays should always be collected by the front desk at registration. It’s also a good idea to review the patient’s account and collect any previous balances due before the patient incurs additional charges. If insurance verification shows a deductible, the policy at many centers is for the patient to pay a “deposit” up front and then settle any balances when charges are calculated after services. If after submitting an insurance claim that the patient had already met his or her deductible elsewhere, it’s generally cheaper to mail refund checks than to pursue and write off uncollectable balances.


Step 5 – Provide Care, Post Charges, and Document Services

Thorough documentation is needed for accurate coding and charge entry; and to support insurance claims.

While the patient is still available, the provider should document the patient’s history, physical findings, all diagnoses, services performed, supplies used, prescriptions or tests ordered, and patient instructions.

Charges should then be entered into the billing system immediately; this assures timely claims submission, and the provider will be available to answer any questions about procedures and coding. Regular chart audits will help identify coding issues that can result in rejected claims.


Step 6 – Generate and Submit Claims Correctly

• When a third‐party payer rejects a claim, correcting and resubmitting can add two to three weeks to the accounts receivable cycle. Health insurance claims are often rejected due to missing or inaccurate information, including patient name, subscriber information, and diagnosis and procedure codes.

• Many systems include “claim scrubber” functionality that assures all fields have been populated with properly; following Medicare and/or Correct Coding Initiative (CCI) rules. Since systems are only as good as the data they contain, following steps 1 through 5 is essential in assuring accurate information is on insurance claims.


Step 7 – Monitor, Receive, and Document Insurance Reimbursement• After an insurance company processes a claim, it sends an

Explanation of Benefits (EOB) detailing what services were billed and how much the insurance company and patient are responsible for paying. To assure receivables are not carried on paid accounts, and to invoice patient balances in a timely manner, the service provider should post EOBs to the patient record immediately upon receipt. To expedite posting, many medical billing applications and insurance carriers support electronic remittance services in which EOB data is sent digitally to the billing system.

• When combined with direct deposit, electronic remittance can reduce manual effort in posting while accelerating cash availability.


Step 8 – Pinpoint Reimbursement Problems and Appeal Denials

• Most medical billing platforms offer reports for claims, balances, accounts receivable aging, and frequency of denial codes by provider and payer. These reports should identify which accounts and insurance plans require the most attention.

• A pronounced trend involving a particular provider or payer may indicate process issues with documentation, coding, charge entry, or claims submission. If this happens, immediate corrective action should be taken to avoid future denials. It’s necessary to review each denied claim and determine if more information is needed, errors need to be corrected, or if the denial needs to be appealed.

• When working balances, start with older claims first for timely filing compliance, then work the largest dollar values.

• It’s more efficient to concentrate on one payer at a time, engaging the insurance company’s provider services representative or regional executives to address systemic concerns.

• Billing representatives should utilize a tickler system to remind them when it is time to follow up on previous contact regarding a claim.

• When managing billing staff, consider offering incentive pay based on total collections or call activity to motivate staff to actively pursue—and stay on top of—each individual claim.


Step 9 – Invoice the Patient• Patient invoices should be sent when the EOB is posted because the sooner an

invoice is received by the patient, the more likely and faster it is to be paid. Because patients are less likely to pay medical bills they don’t remember or don’t understand, patient invoices should clearly detail the date of service, services performed, insurance reimbursement received, payments collected at time of service, and the reasons behind any patient balances due.

• To achieve a patient-friendly look and feel—and scale economies in production and mailing—many urgent care operators utilize third parties to print and mail invoices.

• Accepting credit card payment over the telephone or Internet can also reduce costs and accelerate payment versus requiring patients to write and mail a check.


Step 10 – Write-Offs and 3rd-Party Collections

• The financial policy should address handling of past-due accounts. Centers automatically write off small patient balances (less than $5 or $10) for which processing costs exceed potential collections. The process for larger balances should designate time intervals (such as 15, 30, 60, 90, or 120 days) for sending a first invoice, second invoice, warning letter, and then disposing the account to a third-party collections agency. Time may begin accruing either from the date of service or receipt of the EOB indicating the patient responsibility, the faster this process occurs, the greater success in collections.

• If, after several attempts, the in-house cannot collect from the patient, it may be time to turn the account over to a third-party collection agency. Balances <90 days old not only have a higher likelihood of collection success, but also typically incur lower fees from the collections agency.

• Once final payment has been received or the account has been written off to collections, account should be closed. Aged receivables with little expectation of payment can distort the financial picture provided by the balance sheet.


Aging Chart: Accounts Receivable Cycle Indicators


Ratios for Medical Accounts Receivable Management


Bibliography“Web Exclusive - Getting Paid: Ten Steps to Reducing Accounts Receivable”. jcum.com. Ayers, Alan. January 2011. February 11, 2013. <http://jucm.com/read/casereport.php?casereport=22>

“Accounts Receivable”. Wikipedia. February 11, 2013.<http://en.wikipedia.org/wiki/Accounts_receivable>

“8 Areas of AR Management”. medicaloffice.about.com. Hicks, Joy. February 11, 2013. <http://medicaloffice.about.com/od/reimbursements/a/Accountsreceivablemgmt.htm>


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