Calculating Accounts Receivable (A/R) Days in Medical Billing
Definition of Accounts Receivable (A/R)
The term A/R days or accounts receivable days may be defined as the number of days that a medical billing office/hospital takes to collect the outstanding amount from an insurance carrier for all the services it provides to insured patients. A/R days are calculated for the time period of 3 months, 6 months, and 12 months. This metric can describe either the insurance payments or patient payments. The reason practices should know how to calculate days in A/R is so they can quantify the efficiency of their billing operation. Calculating accounts receivable (A/R) days and ensure financial sustainability of your practice for a long time.
When calculated correctly, the Days in A/R formula yields a number that signifies a value for days. Use the following metrics as guideposts:
- 35 or less A/R days: Good or High Performance
- 35-50 A/R days: Average Performance
- 50 or more A/R days: Below Average or Poor Performance
Calculating Days in A/R
A/R Days = (Accounts receivable ÷ Annual revenue) x Number of days in the year
First, you’ll need to calculate your practice’s average daily charges:
- Add all of the charges posted for a given period: 3 months, 6 months, 12 months
- Subtract all credits received from the total number of charges
- Divide the total charges, less credits received, by the total number of days in the selected period (e.g., 30 days, 90 days, 120 days, etc.)
Next, calculate the days in accounts receivable by dividing the total receivables by the average daily charges.
A/R Days Calculation
In the sample calculation below use these values for your variables. Receivables of $70,000, Credit Balance of $5,000, and Gross Charges of $600,000
- (Total Receivables – Credit Balance)/Average Daily Gross Charge Amount (Gross charges/365 days)
- [$70,000 – $5,000] / ($600,000/365 days)
- $65,000/1644 = 39.54 days in A/R
Few Things to Remember
- Calculate A/R days for all payers: It is essential to know both your average days in accounts receivable across all payers as well as broken down for specific payers. By identifying payers with a higher-than-average day in A/R, you may be able to spot some inefficiencies in your billing process for that payer and take steps to reduce the amount of time that it takes to get paid.
- Priority for 90 and 120 AR Bucket: Monitoring the percentage of A/R that has aged beyond 90 and 120 days is an important factor in measuring the capability of your practice to get paid in a timely manner. This percentage indicates the percentage of receivables that are older than 90 and 120 days of the total current receivables. The actual age of the medical claim should be used as a base for your calculations (e.g., date of service) to achieve an accurate number and get a holistic view of your medical billing.
- Accounts sent to collections: Often times, accounts which are sent to collections are written off from the receivable records. This would create an incorrect impression since these monies are not being accounted for. Sending a large number of accounts to collections will make the days in A/R days look better. Avoid confusion by calculating and comparing your days in A/R with and without the accounts sent to collections.
A/R follow-up is both a challenging and exhausting task. The process requires a trained professional to follow A/R and make correct calculations of A/R days for all payers. Therefore, it is beneficial to outsource A/R services from a medical billing and collection company and get professional assistance. You can contact us at 888-552-1290 / info@e2eMedicalBilling.com for AR management services.