Net days in A/R and Cash collections as a percentage of Net Patient Service Revenue
These two are pretty simple to handle as well and give you a better handle of your cash performance.
Net days in accounts receivable A/R
You need to know your days in AR stone cold. At any point, you should be able to tell your net days in AR trends.
How to calculate days in A/R (account receivables)
You wait to get paid from the payers and your patients. The faster you get paid, the better it is for you (of course).
Whether you outsource your medical billing or have inhouse medical billers, always know your days in AR. This shows you how well your billing operations are doing (i.e their efficiency).
Here’s how you calculate it.
Total A/R year to date divided by the total billing (not collections) per day.
First, calculate your “Total Accounts Receivable”.
If you have been following this article, you already did it above.
If you use a blended model of in-house and outsourced billing, add both of these amounts.
If you get any CAH (critical access hospital) payments- add those up.
Add up all your Insurance balances + Patient balances.
From this, deduct any Credit Balances and Collection Agency Accounts.
Next, deduct any charitable amounts. Remove any contractual allowances from any payers that you might have.
Next, take your 12 months of charges (gross charges) and divide it by 365 (days). This gives you your average daily billing / Average Daily Net Patient Service Revenue.
Finally, divide the “Total accounts receivable” by this number.
“Total Accounts Receivable”. Add up all your Insurance balances + Patient balances. From this, deduct any Credit Balances and Collection Agency Accounts
— divided by —
12 months of charges (gross charges) and divide it by 365 (days)
How did you do?
Net days in A/R – industry benchmarks
If your days in AR is < 35 – that’s GREAT
Days in AR between 35-50 days – you are around the industry average
If your days in AR is more than 50 days – this truly is a RED FLAG and you need to address this immediately.
Keep in mind that this also depends on the specialty we are talking about and the payer mix as well.
You should calculate this per payer as well, to identify problematic payers. There might be an issue with the payer in question. There might also be an issue with your billing department with regards to that particular payer (some process might be missing or misunderstood).
Sometimes you really do not have a choice of payers you want to work with (e.g. in NYC, how do you avoid HealthFirst).
Other times, you can drop a payer from your accepted insurances if you find that they are problematic payers. Or, at the very minimum, bring this up to that payer’s provider relationship manager.
Points of Clarification:
Do keep in mind that should not include any A/R related to non-patient specific third-party settlements. Look out for any lump sum payments – we have encountered such lump sum payer payments in the past where a reconciliation project from the past was wrapped up in a year that we were working on those accounts.
If there are any Non-patient A/R, exclude those.
Keep in mind that if you’re an FQHC, 340B drug purchasing program revenue is NOT recognized as a patient receivable
You can’t include any state or county subsidies.
If you’re getting payments for capitation or getting risk based payments- don’t include those either.
You can’t include ambulance services payments.
For daily billing average / Average Daily Net Patient Service Revenue, you can also use the most recent three-month daily average of total net patient service revenue.
Keep in mind to deduct contractual allowances, charity care provision, and any provision for doubtful accounts.
Keep in mind that you cannot include 340B drug purchasing program revenue if your accounting department has not recognized this as a patient receivable.
Also, keep in mind that you cannot include capitation and/or premium revenue related to value or risk based payer contracts
Cash collection as a percent of net patient service revenue
This is pretty simple. As you know that your net patient services revenue per month depends on both payers and patient responsibilities.
More often than not, the frontdesk (i.e. front end revenue cycle management team) is not the best at collecting from patients at the time of the patient’s visit.
All you have to do is to find out
- The total patient service cash collected.
- The average monthly net patient service revenue (you have already been calculating this as above)
Points of Clarification:
You need to deduct refunds from the total patient service cash collected for the reporting month
After collecting cash, there will be occasions where the payment is not distributed. You need to include those as well.
However, you have to exclude non patient cash – e.g. retail pharmacy, optical, capitation etc.
For Average Monthly Net Patient Service Revenue, you can take the year to date calculation we provided above or do a 3 month average.