Days in Accounts Receivable (A/R) is a key metric used in healthcare revenue cycle management to measure the average number of days it takes for a healthcare provider to collect payment for services rendered. It is calculated by dividing the total accounts receivable by the average daily charges for the period being measured. Days in A/R is an important metric because it provides insight into the efficiency of a healthcare provider's billing and collections processes. A high number of days in A/R indicates that the provider is taking longer to collect payment, which can lead to cash flow issues and negatively impact the financial health of the organization. By monitoring and analyzing days in A/R, healthcare providers can identify areas for improvement in their revenue cycle management processes, such as improving coding accuracy, streamlining billing processes, and implementing effective collections strategies. Ultimately, reducing days in A/R can help healthcare providers improve their financial performance and ensure they are able to continue providing high-quality care to their patients.
Days in Accounts Receivable (A/R) is calculated by dividing the total accounts receivable balance by the average daily charges for a specific period.
The formula for calculating Days in A/R is:Days in A/R = (Total Accounts Receivable / Average Daily Charges)
To calculate the average daily charges, you need to divide the total charges for a specific period by the number of days in that period. For example, if you want to calculate the Days in A/R for a month, you would divide the total charges for that month by 30 (assuming a 30-day month). Once you have the average daily charges, you can divide the total accounts receivable balance by the average daily charges to get the Days in A/R.
This metric is used to measure the average number of days it takes for a healthcare organization to collect payment for services rendered. A lower number of Days in A/R indicates that the organization is collecting payments more quickly, which is a positive sign for the financial health of the organization.
Best practices to improve Days in Accounts Receivable (A/R) are:
1. Accurate and Timely Billing: One of the most important factors in reducing A/R days is to ensure that billing is accurate and timely. This means that claims should be submitted as soon as possible after services are rendered, and that all necessary information is included in the claim.
2. Clear and Concise Claims: Clear and concise claims are less likely to be rejected or denied, which can help to reduce A/R days. This means that claims should be free of errors, and that all necessary information is included in the claim.
3. Effective Denial Management: Denials can significantly increase A/R days, so it is important to have an effective denial management process in place. This includes identifying the root cause of denials, appealing denied claims, and tracking and analyzing denial trends.
4. Efficient Follow-Up: Follow-up is critical to reducing A/R days. This means that staff should be trained to follow up on unpaid claims in a timely manner, and that they should be persistent in their efforts to collect payment.
5. Accurate and Timely Posting: Accurate and timely posting of payments is essential to reducing A/R days. This means that payments should be posted as soon as they are received, and that all necessary information is included in the payment posting.
6. Effective Patient Communication: Effective patient communication can help to reduce A/R days by ensuring that patients understand their financial responsibility and are more likely to pay their bills in a timely manner. This includes providing clear and concise statements, offering payment plans, and providing financial counseling when necessary.
7. Ongoing Monitoring and Analysis: Ongoing monitoring and analysis of A/R days is essential to identifying areas for improvement and implementing changes to reduce A/R days. This includes tracking A/R days over time, analyzing trends, and identifying areas for improvement.
The industry standard benchmark for Days in A/R is 30 days or less. This benchmark is important because it indicates the efficiency of a healthcare provider's revenue cycle management process. If a provider's Days in A/R is higher than 30 days, it may indicate that there are issues with billing and collections processes, which can lead to cash flow problems and decreased revenue. To calculate Days in A/R, divide the total accounts receivable by the average daily charges. For example, if a provider has $100,000 in accounts receivable and an average daily charge of $10,000, the Days in A/R would be 10 days. It's important to note that the benchmark for Days in A/R may vary depending on the type of healthcare provider and the payer mix. For example, hospitals may have a higher benchmark due to longer payment cycles from government payers. However, regardless of the benchmark, healthcare providers should strive to keep their Days in A/R as low as possible to ensure a healthy revenue cycle.
Revenue cycle software can significantly improve the Days in Accounts Receivable (A/R) metric by automating and streamlining the billing and collections process. With the help of revenue cycle software, healthcare providers can easily track and manage their accounts receivable, identify and resolve billing errors, and streamline the collections process. Revenue cycle software can also help providers to identify and address the root causes of delayed payments, such as coding errors, claim denials, and insurance verification issues. By addressing these issues proactively, providers can reduce the number of days that outstanding payments remain in accounts receivable, thereby improving the Days in A/R metric. If you're looking to improve your healthcare organization's Days in A/R metric, consider booking a demo with MD Clarity's revenue cycle software. Our software is designed to help healthcare providers streamline their billing and collections process, reduce errors, and improve their overall revenue cycle management. Book a demo today to see firsthand how MD Clarity's revenue cycle software can help you improve your Days in A/R metric and optimize your revenue cycle management.