Accounts Receivable (AR) indicates the money owed to the healthcare provider for services already provided. In the process of healthcare accounts receivable management, the provider takes complete control over its unpaid accounts and payment status on various debts.
However, having favorable AR statistics does not guarantee the financial stability of the provider. Questions that need to be asked include the following: What the age of accounts receivable is, why they are unpaid, what payers/processes are involved in non-payment, and the time to resolve them.
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What Are Accounts Receivable in Medical Billing?
Accounts receivable in medical billing is defined as outstanding balances once a provider provides health care services and charges for them.
Medical AR can be divided into two types:
- Insurance AR: Payments owed to healthcare providers from commercial insurers, Medicare, Medicaid, or any other type of payer.
- Patient AR: Patient debt, such as deductibles, co-pays, and co-insurance.
In addition, healthcare accounts receivable management can arise from unpaid claims (including a claim that has been denied), underpaid claims (as in claims that were covered by secondary payers), patient balance disputes, and incorrect entries in the accounting books. The payment and remittance information will give valuable information regarding whether or not a claim was paid and what adjustments were made.
How Does Medical Billing AR Work?
The process of accounts receivable medical billing kicks off long before a claim has become overdue.
- Patient registration
- Eligibility Verification
- Documentation
- Coding
- Claim Transmission
- Payment Adjudication
- Payment or Denial of The Claim
- AR tracking
- Resolution
Errors made at registration can result in problems in later stages. Insufficient documentation might result in coding errors, or misfiling the claim could lead to a denial. Problems, if not resolved early, will later turn into aging AR.
Thus, the administration of AR in medical billing has to concentrate on prevention and resolution of the problems rather than on old ones.
What Goes Into a Medical Practice’s AR?
It is important to remember that it is misleading to gauge total accounts receivable, as a large number of new claims may need a less urgent response than a small number of old claims. Here’s what accounts receivable of a practice can include:
- Insurance claims that are still pending
- Claims that have been denied or rejected
- Claims in which the amount paid is less than what is owed
- Secondary claims that have not been settled
- Patient payment obligations
- Payments and adjustments that have not been recorded correctly
- Accounts that have not been settled for a long time
What Causes High Accounts Receivable in Healthcare?
Among the most common reasons are mistakes in determining eligibility, incorrect demographics, a problem with documentation or coding, claim filing mistakes, problems with getting authorization, medical necessity decisions, or denial, underpayment, delayed follow-up, mistakes in determining and making payments, or increased balances and patient responsibility.
Rising patient balances are often tied to a lack of upfront cost clarity; patients frequently don’t know what a procedure will actually cost until after care is delivered. This is one reason cost-comparison and treatment-planning platforms like Bookimed have gained traction, as they give patients clearer cost expectations before treatment, which can, in turn, reduce disputed balances and payment delays for providers.
However, even with solving individual denials, the same problems may arise over and over. The reason for this is that the RCM team should search for the root causes of the denials and try to make adjustments in the process so that the cause of denials could be avoided.
How to Read an AR Aging Report
An aging report separates unpaid amounts into categories dependent on how long they remain unpaid.
Note: The figures shown in an aging report are entirely fictitious. The aging classification will vary depending on the type of service offered, type of payment modes accepted, type of practice employed, or current operations of the practice.
An organization will categorize the overdue amounts according to its own categories:
| Aging | Hypothetical Balance | What to Investigate |
|---|---|---|
| 0–30 days | $250,000 | Normal claim/payment cycle |
| 31–60 days | $125,000 | Delayed claims or payments |
| 61–90 days | $75,000 | Follow-up and denial trends |
| 91–120 days | $30,000 | Escalation and root-cause review |
| 120+ days | $20,000 | Resolution, appeals, patient balance, or write-off review |
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What Are AR Days in Medical Billing?
AR days express the number of days of revenue in the form of accounts receivable.
A typical formula used is the following:
AR Days = Total AR / Average Daily Net Patient Revenue
Let’s say that a practice has $600,000 in AR and daily net patient revenue of around $20,000:
$600,000 / $20,000 = 30 AR days
If AR days are increasing, it might signify less efficient collection, more claim denials, longer waiting time for claims to be followed up on, and certain other problems related to the workflow. However, it should be noted that AR days should be analyzed in conjunction with aging, trends in denial rates, payer concentration, and collection results.
In other words, “AR is high” does not necessarily mean “AR is unhealthy.” The underlying composition and trend matter.
6 Key Metrics for Healthcare Accounts Receivable Management
A successful accounts receivable management healthcare strategy has to pay attention to the following KPIs:
- Days in AR— This Indicator measures how long it takes for the revenues to be collected.
- AR Aging— This metric shows the amount of receivables that are getting old and start becoming more difficult to collect.
- Denial Rate– This Indicator shows how often the payers deny the claims.
- Clean Claim Rate- This means talking about the number of claims announced at the given time.
- Net Collection Rate- This metric measures the ratio of the amount collected to the money that is supposed to be collected.
- Payer-specific A/R- This metric can help you determine whether the payer has too large a share of the total account age.
7 Signs that Your Medical Accounts Receivable Needs Attention
Every pattern should be analyzed, instead of being taken at face value. Look out for these warnings:
- 90+ days accounts receivable are still growing.
- Days sales outstanding is going up.
- One insurer owns a large part of aged accounts receivable.
- The same reasons for denials keep occurring.
- High-value claims stay unresolved.
- Patients’ balances keep going up.
- Write-offs or unresolved adjustments are on the rise.
How to Improve AR Management in Medical Billing
The concept of practical AR encompasses prevention and targeted resolution. Examples of implementations include:
- Improvement in claims and demographic information: Before filing a claim, make sure all demographic and insurance information of a client is accurate.
- Submitting claims on time: All claims must be complete, properly coded, and filed on time.
- Monitoring claim status: It is necessary to check active claims on a constant basis to identify issues with payments in advance.
- Denials root cause analysis: Identify patterns of denial that occur repeatedly and resolve related billing issues.
- Identifying underpaid amounts: Compare the amount paid by each payer with the expected amount.
- Reconciliation: All payments and adjustments must be perfect to make sure nothing else is owed.
- Prioritizing aged and valuable accounts: Take into consideration only older and valuable accounts that would have the highest impact on collections.
- Analysis of the trend by a payer: Analyze the AR results by the payer to identify habitual delays.
- Regular monitoring of AR KPIs: The most important KPI’ for AR monitoring are AR days, aging, denial rates, collection rates, etc.
Medical Accounts Receivable Collection: Insurance vs. Patient AR
In the field of insurance accounts receivable collection (AR collection), it may be necessary to follow up on claims, carry out investigations into denials, resubmit claims, appeal against decisions made, and perform investigations into underpayments.
In cases involving patient account receivables, collection has to involve accurate billing, good description of one’s financial obligations, correct ways of communicating, available payment options, and adherence to appropriate policies.
Collection methods should comply with federal laws, state laws, contracts with payers, and the policies of the organization.
Both processes of collection and billing require attention to the health information that is protected from disclosure and has many data protection requirements.
How Patient Privacy Applies to Medical AR Management
Medical billing records may have PHI. Hence, AR departments must ensure the use of appropriate measures of access to information as well as means of communication and data handling regarding billing and collecting information.
Good AR management is not only about collecting the money involved; it requires good handling of patient information.
When Should a Practice Consider a Medical Accounts Receivable Service?
Evaluating the possibilities of applying a medical AR service can be a good idea when:
- The accounts receivable are getting older.
- Internal employees cannot keep up with follow-ups.
- The denial rate is increasing.
- The high-value claims are still not settled.
- The availability of useful information is problematic.
- The follow-up is not performed properly.
- There is no sufficient experience in this field.
When thinking about choosing a medical AR service, it can be useful to find out how it prioritizes the aged receivables, estimates its efficiency, deals with the denials and the appeals, ensures the confidentiality of the clients, integrates the system with the existing one, etc.
Expert Example: How an RCM Team Diagnoses High AR
Consider an example of an organization that is seeing an increase in its AR days, is getting higher balances of over 90 days, and is also facing more denials from one of its payers and increased balances from patients.
An expert RCM team does much more than just working on the accounts randomly.
What they do is:
- Establish the Trend
- Segment AR
- Find the Reason
- Prioritize the Accounts
- Rectify the Process
- Evaluate the outcome
This is how the data of AR is transformed into operational intelligence.
Conclusion
Healthcare accounts receivable management refers to things that are still unpaid; however, the numbers alone do not dictate the financial performance.
Good healthcare accounts receivable management in healthcare means looking deeper into aging, AR days, denials, payer trends, collection performance, and root causes. This means working hard to avoid any AR that could have been avoided otherwise.
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Frequently Asked Questions
What does accounts receivable mean in the world of medical billing?
Accounts receivable is the money that the healthcare provider is still owed in accordance with the services already rendered.
What are the reasons for high medical accounts receivable?
The common causes for this situation are claim errors and denials, underpayments, not being followed up in time, problems with eligibility, and rising patient balances.
How can a medical practice reduce its AR aging problem?
Medical practices can have a more effective process before the renewal of claims, send clean claims, prioritize those ARs that have been outstanding for the longest time, deal with the cause of claim denial, and follow the operations of payors.
What is the differentiation of patient accounts receivable (AR) as opposed to insurance AR?
Essentially, patient AR denotes outstanding debts due from patients, whilst insurance AR signifies debts that need to be paid by the insurance policy.
What distinguishes insurance AR from patient AR?
Insurance AR is represented by the amounts that are still owed by the payers. Patient AR, however, is the amount that is assigned to the respective patients.
When should a practice outsource AR management?
Outsourcing can be considered when the available internal resources are not enough to keep up with follow-up procedures, the aging AR is growing, or there are special requirements for AR management skills.
