I was thinking today we’d talk about accounts receivable. I have found that it is for some providers to understand accounts receivable management even though accounts receivable is really easy. So, I thought I would write some interesting tips about accounts receivable (hereafter referred to as AR) and how to know when it is good or bad.
First, let’s start with some basics. So, to begin… AR or accounts receivable is the money owed to a medical provider by insurance companies and patients. After a service is rendered to a patient, a bill is sent to the insurance requesting payment. Immediately, that outstanding bill is accounts receivable. To simply manage AR, most medical billing software produce reports that group the outstanding balances in aging buckets such as 0-30.… 31-60…. 61-90…. 90-120… and 121+ days outstanding.
Appropriately reading these groupings at a glance is very important to managing a practice financially. Here’s what you need to know for “at a glance AR reading”…
The AR that is in the 0-30 days outstanding bucket should not really be much of a concern. In general, most insurances will pay a clean claim within 30 days. Once a claim hits the 31 days outstanding mark, it is time to take notice. This doesn’t mean you need to stop everything and call the insurance on a 31 day old claim… just be aware of it and don’t let it get to 45 days without a call to the insurance. The exact timing for a call on a claim less than 45 days outstanding depends on the insurance. Different insurances process and pay at different times and claims related to liability insurance, workers compensation, and auto always seem to take forever. So, if an insurance usually pays in 14 days – definitely call at the 31 day outstanding mark but if the insurance usually takes 45 days to pay, give it a little more time before you invest resources to find out the check was mailed yesterday.
Now, as a rule, the dollar amount in each aging bucket should get smaller as the aging gets older. A happy AR may look like this:
0-30 days = $130,000
31-60 days = $40,000
61-90 days = $20,000
91-120 = $10,000
Total AR $200,000
The next thing you should know are some general guidelines to measure your AR’s health situation at a glance.
• The majority of your AR should be in the 0-30 days aging bucket
• The dollar amount in the 31-60 days bucket should not exceed 20-25% of the total AR
• The dollar amount in the 61-90 days bucket should not exceed 10-12% of the total AR
• The dollar amount in the 90-120 and 121+ days buckets should not exceed 5-10% of the total AR
• Chances are – the 60-90 and 90-120 and 121+ days buckets will NEVER be zero (not even in your happiest dreams). THIS IS IMPORTANT.
If your buckets from 60-121+ days AR is zero, it indicates a problem. Why, you ask… Good question!
Primary insurance claims generally take about 30-45 days to pay. Some secondary insurances still require manual claim submission following the receipt of the EOB from the primary insurance. The secondary insurance may then take another 30-45 days to pay the remaining portion of the bill. Already, waiting for that secondary payment, we are at nearly 90 days on a small portion of your claims’ balances. Then there may be a patient balance remaining that is nearly 90 days old before the first patient bill has been mailed. Generally, it is best practice to send patients 3 bills (one per month) over the course of 3 months or approximately 90 days before considering a collections company and removing the balance from active AR. That means that your 60-121+ buckets cannot be zero. If they are, you may have a problem.
Now, as with any rule of thumb, the above hints are not the end all of AR and common sense must be applied to using these percentages. For example, liability insurances take a long time to pay. So, if your medical practice deals with a ton of auto insurance claims, your percentages in the 60 days, 91 days, and 121 days buckets will be higher. Also, if you work with IME, clinical trials, or in an academic setting, your older aged AR will be higher.
Ok, that’s enough for this post. I will follow up in the next post with some more AR tips (I have more to say).