Does your practice’s cash flow suffer because of high accounts receivable? If so, you are not alone – many practices experience revenue delay for the same reason. Below, we explore some of the most common problems – and solutions – in managing accounts receivable.
Before we jump right to solutions, here’s a brief explanation of accounts receivable and frequent errors:
A/R 101 – What is A/R in Medical Billing?
Once your practice bills a patient or insurance company for services, the money they owe is called accounts receivable (A/R).
Typically, practices measure A/R as “days in A/R”, which is calculated by dividing the total A/R amount by the practice’s average daily charges. If your practice is 30 days in A/R, you have not been paid for 30 days worth of work.
A/R can be classified by age, which is the time since the patient or insurance company was billed. In this method, A/R are placed in aging buckets that reflect how long they have been outstanding: 0-30 days, 31-60, 61-90 and on.
A practice with good cash flow has the highest percentage of A/R in the first bucket and a diminishing amount in each following bucket.
Common A/R Issues
Medical practices experience high A/R for variations of the same reason: patients and insurance companies aren’t paying moneys owed. A patient bill that has been outstanding for over 90 days is worth less than half its original value – some estimates report only 20% (*based on standard collections rates as a function of bill age)! Here are the most common high A/R causes:
Insurance Claim Denial
Claim denial is the most prevalent reason for high A/R. Other than the patient copay or deductible, most payments come directly from the insurance company. A claim denial can interrupt or even halt cash flow.
Insurance companies often deny claims for five basic reasons: missing/inaccurate information, duplicate submissions, uncovered procedure, coding errors, and late filing. They also tend to find reasons when they can…lost records, lost claims, missing info…the list of reasons is quite literally limitless. The harder they make it for you to get paid, the more likely you are to drop the follow up work. This is why diligent A/R work is so invaluable.
Unwarranted Write-offs
Some write-offs are necessary. Others lead to high A/R. If your practice lacks a set procedure for write-offs, you probably have too many.
Oftentimes, practices will write-off unpaid balances and denied claims after a period of time, without exploring alternative payment options. Even if the balances are small, the write-offs accumulate to a larger net loss.
This is why it is incredibly important to have your billing team set an approval process for adjustments. Claims should not be adjusted unless there is a acceptable rationale. As a rule of thumb, you don’t want to see write offs for reasons outside of over the max allowable (“overmax”)…and even then you want to be sure your rates are being applied properly.
Bad Debts
With deductibles and out-of-pocket costs rising, many patients are unable to pay their bills, leading to bad debt. An analysis by TransUnion Healthcare found that 68% of patients with balances of $500 or less did not pay the entire amount.
Plastic surgery has one of the highest out-of-pocket averages: $1,566, which places more responsibility on the patient than many other specialties.
Collection Culture
Medical practices often shy away from collection culture because their purpose is to help patients. They value excellent customer service and bedside manner over collecting unpaid balances. However, a practice must receive payment to continue operating.
Many practices lack the tools to collect unpaid balances in an efficient, timely manner. Done correctly, instituting a collection culture can increase patient satisfaction. The patient understands all money owed, and your practice has more money available to improve patient experience.
We recommend setting the expectation up front in your financial policy and sticking to a process (send your dead accounts monthly!) as well as the guidelines. In this day and age, the threat of a negative online review often scares practices away from utilizing collections agencies. Don’t forget that this is money you earned!
Improve A/R and Improve Cash Flow
A high A/R inhibits cash flow and, consequently, your practice from functioning. Here are 8 steps you can take to improve your A/R:
1. Run A/R Reports
Keep track of A/R trends and fluctuations by running A/R reports every month. These reports should include aged receivables so you can track progress with older bills. Run these reports from the service date instead of the billing date to identify billing schedule issues. The MGMA likes to see no more than 20% over 90 days. This statistic will of course vary based on specialty, practice size and payermix though so keep these items in mind!
– If you take two weeks off, your charges for that month drop and thus the ratio of new to aged claims drops.
– If you have a high volume of Workers’ Compensation claims versus a BlueCross or Medicare, your A/R will vary.
– If you have a smaller case load, and are a surgeon, who’s surgical claims represent the vast majority of your revenue, a single claim caught up for records can push X% of your monthly A/R out 30 business days.
– If you operate a practice with a large self-pay/cosmetic/fee-for-service component, you’re probably taking a large number of prepayments. Don’t forget to pull these out of your A/R reports as the credits sitting on your accounts can impact the A/R and skew the numbers significantly.
2. Follow-up with Outstanding Accounts
Patients with outstanding balances should be sent frequent notices. If they continue to neglect these reminders, have your office follow up by phone. Phone calls are more difficult to ignore than letters. If your patient is ignoring both…you may need to utilize the more aggressive tools of a collections agency.
3. Increase Billing Cycles
Medical offices often mail bills once a month, which impinges cash flow. Try mailing patient invoices once a week and insurance invoices twice a week. The quicker a bill arrives at the proper recipient, the sooner it can be paid.
4. Examine Claims Closely
Collect your staff and examine your claims for accuracy and completeness. Claim errors increase A/R. Prior to submitting claims, proofread your submissions. Most software programs and clearinghouses have “claim scrubbing” tools to catch clerical and simple coding errors. Make sure your billing staff is auditing beyond these simple issues though!
5. Check Insurance
Before a new patient arrives, verify they are eligible to receive the treatment with their insurance. After you have confirmed eligibility, determine how much they will owe based on their copay and deductibles. Notify them before the appointment so they understand what to expect.
6. Examine Write-offs
Practice reviewing each potential write-off before you send it through. Determine which situations – by dollar amount, medical procedure, etc. – require approval. Make sure to exhaust all alternative payment options before writing-off an unpaid balance.
7. Collect Payment in Office
Insist that each patient submit their copay before leaving the office. This will decrease aged receivables and decrease bad debt. Require that your staff submit a report of copays collected so that you can identify delinquent payments quickly.
Many practices are also estimating benefits ahead of surgery and requesting a deposit of the full estimate or a percentage therein. Most facilities are following this protocol so patients are becoming accustomed to it.
Some practices are also adopting a “card on file policy” that requires patients keep an active credit card on file and carry an auto-run policy as well (e.g., all unpaid balances over 30 days will be run utilizing the card on file).
8. Outsource Billing
Hire a medical billing company to reduce stress and manage your A/R. Outsourced billing companies code and examine your claims for error, follow-up with denials, and increase your cash flow.
