When was the last time you looked at your practice’s billing cycle? 

A/R health directly correlates with practice health. Consider the fact that for every unpaid dollar aged 120 days or longer your practice will collect a meager 10 cents, according to Physicians Practice. If you fall behind on collecting payments for services rendered then you and your staff are essentially working for free. 

It’s great for your patients, but not sustainable for your practice. 

Let’s take a quick look at what A/R means in the context of medical billing.

What is accounts receivable in medical billing?

In medical billing, accounts receivable refers to money owed to your practice for services rendered and billed. Payments due from patients, payers and other guarantors are all considered A/R. An increase in A/R indicates payments aren’t being collected in a timely manner.

For example, A/R for eye care professionals such as optometrists can refer to an unpaid copay for an eye exam. Or, if you're in physical therapy, maybe a patient fell behind on his or her payments for regular shoulder treatments. Care providers of all sorts have A/R to manage. And across the board the basics of A/R in medical billing are the same.

The goal is to maintain a consistent cycle of services rendered and billed, followed by payments collected. The timeline for each transaction should be roughly similar in order to ensure practice revenue consistency.

                                                               How A/R feels when you don't know your A/R KPI.

Anagram is offering a free financial audit, as well as A/R investigation services, to assist practices during this time. Click here to learn more.

Definitions for common accounts receivable KPI

These key metrics will help you understand your A/R cycle:

  • Days Sales Outstanding: How long it takes to collect payments over a given period. 
  • Average Days Delinquent: The average number of days payments are overdue.
  • Turnover Ratio: How frequently accounts are converted to cash. 
  • Collection Effectiveness Index: The number of accounts that are converted to cash.

Understanding A/R metrics

Now that we know what the four essential A/R metrics are let's dig into each one. 

Days sales outstanding (DSO)

How long did it take you to collect payments on services billed last February? How about services billed last quarter?

If you don’t know the answer then DSO will help you get there. This metric should be used for shorter windows of time, such as months or quarters. 

To find A/R days outstanding divide the average amount of accounts receivable during a given period by the total amount billed during the same period. Then multiply the result by the number of days in your chosen period. 

(average accounts receivable/amount billed)*number of days = DSO

DSO helps you identify your average collection period. Once you determine this span you can begin making an effort to shorten it. 

The practices with the best billing health can keep their DSO below 30 days. 

Average days delinquent (ADD)

Average days delinquent consists of a couple different metrics. In order to determine ADD you first have to calculate DSO. After you have a DSO you’ll need to ascertain your best possible DSO. 

To find the latter divide your current A/R by your total amount billed and multiply the result by number of days. 

(current accounts receivable/amount billed)*number of days = best possible DSO

When you have your DSO and your best possible DSO you can assess your ADD. Simply subtract your best possible DSO from your regular DSO: 

DSO - best possible DSO = ADD

Similar to DSO, you want to keep your ADD as low as possible. If your ADD is high or rising it could point to a problem in your billing cycle or A/R.

                                                              We understand if you need to take a quick break.

Turnover Ratio

Changes in your turnover ratio over time will help you identify whether your practice is becoming more or less effective at collecting payments. 

Usually measured over a year, this KPI is a barometer of whether your payment collections are effective. The formula for this metric is easy: Simply divide the net amount billed by average accounts receivable. 

Net amount billed/average accounts receivable = turnover ratio

If your turnover ratio is high or increasing that means your patients are paying on time more frequently or that you’ve fixed an issue in your billing cycle. The goal is to increase the ratio over time. If you notice that the ratio is getting lower then it’s time to evaluate your billing cycle.

Collection Effectiveness Index (CEI)

CEI works in tandem with turnover ratio. Rather than using it to identify how often accounts turn over it’s employed to determine how many accounts turned over. Similar to turnover ratio, this KPI is a great way to follow performance over time. Of the four basic A/R KPI, it’s also the most complex formula.

To start, pick the period of time for which you want to measure CEI. One reason CEI is popular is because it helps you assess longer durations than DSO is capable of accurately gauging. Once you have the span and relevant data plug it into the following formula:

((beginning accounts receivable + amount billed - ending total accounts receivable) divided by (Beginning receivables + beginning accounts receivable + amount billed  - ending current accounts receivable))*100

You’ll end up with a percentage. The closer you get to 100% the better your billing health. To help clear up this complex formula we can break it down a little further:

  • Beginning A/R: Your practice’s open receivables at the start of the time period. 
  • Amount billed: The total billed for services performed over the chosen duration.
  • Ending total A/R: Your practice’s receivables—both current and overdue— at the end of the time span. 
  • Ending current A/R: Your practice’s current receivables at the end of the time period. 

With a thorough understanding of the metrics described above ECPs can start effectively managing their A/R.

                                             The tips below will make A/R easier than building Swedish furniture.

Building a better accounts receivable process

To ensure the four metrics above indicate a healthy billing cycle it’s important to have an A/R process. With a recorded, consistent and effective system that your staff is able to execute, collecting payments will become significantly easier. 

Let’s take a look at how your practice can improve A/R turnover with a strong process.

Before services are rendered

Strong A/R management that begets a healthy billing cycle starts before the patient even comes in for his or her appointment. In fact, there’s a role to play in each step from the moment your front-desk staff receives a call until the time payment is collected—and all over again the next time the patient needs testing or treatment.

Start with insurance coverage and benefit eligibility

The first step to a healthy billing cycle is checking every patient’s insurance coverage. This is true regardless of whether the individual is a new or existing patient. People retire, change jobs and encounter other life events that may alter their insurance coverage. 

In addition to checking patients’ insurance coverage, verify their benefits one week before their appointments. This gives your practice time to react if the individual is not eligible for certain services or materials. 

It’s your practice’s responsibility to remain constantly in the loop regarding patients’ insurance coverage and benefits eligibility. By doing so you’re taking the first step toward better billing.

Help patients understand out-of-pocket responsibilities

One more thing you can do ahead of the appointment is estimate patients’ out-of-pocket responsibilities using a cost calculator. By providing this number before appointments you can help your patients budget for their care ahead of time. This will help them pay on time for services rendered later in the billing cycle.

front desk staff play a role in the billing cycle
Various staff members play a role in the billing cycle.

The day of the appointment

Managing your billing cycle and A/R continues the day of the patient’s appointment. Have the individual bring coverage proof to the practice on that day. Inform them this can speed up wait times and have your staff scan medical cards into your EHR.

Promptly start the billing process

Once the appointment is finished it is crucial to remain on the billing ball. That means quickly coding and communicating billing with the patient. 

Have the appropriate staff member code the service as soon as possible and leave the claim pending in your EHR. Throughout the day have your employees review pending claims to ensure information was input correctly. Frequent oversight of these pending claims will help your practice reduce claim denials. 

In addition to that backend aspect of billing, you should also ensure staff is fast to address the patient-facing side. Communicate about balances the day of the appointments. Your staff should try to collect 100% of copays day-of-service if possible. Regarding other balances such as deductibles, ask the patient how much he or she is able to pay that day. From there you can prepare a payment schedule that works for patient and practice alike. 

Be very clear in explaining what the patient will owe and what his or her insurance will cover for the specific service rendered. Often, people assume insurance will cover everything and are surprised with the medical bills they receive. Pricing transparency can help your practice mitigate this shock and prepare patients for paying their balances in a timely manner.

Submit claims through a clearinghouse

Speaking of claim denials: a clearinghouse can be a boon for your practice's billing health by ensuring claim accuracy. 

Clearinghouses engage in claims scrubbing for providers before the claims are sent off to insurance payers for approval. These entities will review claims to ensure they’re without error, confirm procedural and diagnosis codes are appropriate and certify the payer’s software is compatible with claims.

The claims process between provider and payer offers plenty of snags to get stuck on. By submitting claims daily and using a clearinghouse to reduce claim denials you’ll ensure that claims flow smoothly between your practice and the insurance payer. 

Accurate claims are key to consistent revenue streams for practices. By getting all of the above right, your practice’s potential A/R problems will be confined to late payments from patients.

                                     A healthy billing cycle brings together disparate pieces for a better process.

Better accounts receivable collections habits

Claim filing aside, the other aspect of ensuring healthy billing is collecting payments from patients on time. The patient-facing side of managing A/R should be handled delicately. That being said, your practice needs to collect payments—preferably on schedule. 

Collect on outstanding patient balances

In 2016, the average deductible for employer-sponsored health plans increased 12%, according to Kaiser Family Foundation. That year just over half of workers were covered by a health plan with a deductible of $1,000 or more. And the trend has continued to this day. 

Employees continue to shoulder more healthcare costs as part of their employer-sponsored health plans. That means eye care providers, physical therapists, chiropractors and other healthcare providers are increasingly on the hook to collect deductibles from their patients. 

Consistently follow up with patients

Strong relationships and consistent communication are core to the patient-facing aspect of payment collection. That starts with who you hire: Look for staff that can form relationships with patients and treat collections conversations delicately. 

When you hire those employees take the time to train them on effectively corralling outstanding balances from patients. It might help to develop scripts to ensure these conversations flow smoothly. 

Afterward, develop a consistent schedule for sending invoices and payment reminders to patients with outstanding balances. You can use direct mail, email or text messages to send these communications. Have your patients decide which they prefer and reach out through the appropriate channels. 

A consistent communication schedule and strong relationships with patients will help your practice improve collections.

Targeting aging accounts receivable 

The optimal way to collect A/R balances is to bucket them into categories based on an A/R aging report. From there have employees start reaching out to the most aged accounts first. These are the patients who need the most pressure on them to cover their balances. 

The easiest way to build these buckets is based on 30-day intervals:

  • 31-60 days.
  • 61-90 days.
  • 91-120 days.
  • 121+ days.

Accounts in every bucket need to be contacted about their balances. However, by organizing them this way you’ll know which individuals need more of a nudge.

When to look at A/R write offs

At a certain point in the A/R collection period balances become a lost cause. You never want to get to that point, but for myriad reasons it happens. 

After you’ve exhausted every conceivable effort to collect and the balance has been outstanding for an extended period—four months, for example—it’s time to write the account off.

                                                                    How A/R feels when you finally understand it.

How to analyze accounts receivable

With an understanding of how A/R works and how to collect on outstanding accounts you and your employees can begin analyzing A/R reports to evaluate your practice’s billing health. 

Typically an A/R aging report will bucket your A/R into the same groups mentioned above and evaluate billing based on which bucket is most full. Ideally, the category with claims submitted fewer than 30 days ago should be your largest. From there the buckets should look be filled as follows:

  • 31-60 days: This is in the time frame in which most payments are typically made in a healthy billing cycle. It should be the next largest bucket after the less than 30 days category.  
  • 61-90 days: This section should be characterized by a significant drop from the previous one. Ideally, the majority of balances should be paid by now. 
  • 91-120 days: At this point you’re in a category of patients who require aggressive collections campaigns. These are usually outstanding balances that need to be collected sooner than later.
  • 121+ days: You want this number to be as low as possible: A single-digit percentage of your total A/R is ideal. That’s because it represents the hard-to-collect claims that aren’t often realized. 

These categories will give you a snapshot of your A/R at a given point in time. From it you can glean surface details about your practice’s billing heath. In addition to these buckets, use the A/R KPIs listed above to dig out deeper insights and recognize trends.

Diagnosing issues and treating billing health

One way to address A/R and overall practice billing health is to simply run through your A/R on a regular basis to collect on payments. Prioritize those accounts that need attention ASAP and hope that you don’t have to send balances to collections or write them off. 

However, you can also use the A/R metrics described above to begin digging deeper into A/R trends. These symptoms can help you diagnose deeper issues in your billing cycle. By identifying these problems you can solve your A/R complications at the source and attain better billing health in the long run.