BY REED TINSLEY, CPA, CVA, CFP, CHBC
Administrators produce pounds of paper as part of the month-end close process. Typically, buried deep within these reports lies the key to Accounts Receivable (AR) performance. These statistics are usually filed away with other documents, often without analysis. This is not to say that they are unimportant, but who has the time?
Though I can’t provide you with more “time” I can do the next best thing: provide a time-saver. The following is a summary of key statistics, how to best view them, and what they may indicate about your practice.
Charges, Payments, and Adjustments
The most effective way to view this information is to compare against the prior years’ same period performance. Monitoring for changes in trends can provide effective early defense against profit margin deterioration and protect practice cash flow.
Charges, payments and adjustments can be analyzed either together or separately (depending on one’s comfort level with complexity). If charges are fewer, one can expect that revenue dips will follow within 30-90 days and vice versa. Charge variances can indicate a variety of issues including but not limited to: changes in referring physician patterns, productivity variances, coding/billing issues and payor mix movement.
With respect to payments, if charges remain consistent, in most instances actual reimbursement/bundling issues or billing/ collections activities are the most common factors involved in revenue deterioration. Additionally, variances in patient portion collections can have a large impact on practice cash flow as the national trend to pass along more financial responsibility to the patient continues.
Last, but not least, adjustments should be monitored regularly. These changes relate to contractual arrangements, write offs for hardship, and accounts sent to collections. Increases in adjustments could be triggered in a number of ways including: increases in billed charges, changes in reimbursement relative to contracted payors, bundling variances, additional accounts written of as hardship, and/or increased amounts sent to collections.
Total Outstanding AR
The total outstanding AR as a function of provider is a useful statistic in forecasting expected revenue and should be compared regularly to peer performance. The receivables “aging” should be examined as well given its relationship to collection potential. It is also a valuable tool for monitoring, in conjunction with other measures, AR team performance.
As mentioned, these statistics represent total accounts receivable and are typically shown in time frame “buckets” (i.e., 0-30, 31-60 etc.). An effective way to review this data is to compare it to prior rolling periods as well as examining it against peer performance. This analysis can assist in determining if old accounts are being worked, if the claims submission process is performing adequately, and in general how the AR team is functioning. In addition, always look at an aging by payor class to determine if you might have collection issues with one or more of your payors.
Gross Days in AR
This statistic reveals how long on average it is taking the AR team to collect outstanding balances. Generally speaking, the older the account, the less the likelihood of collecting the outstanding balance. This statistic can be compared to peer group performance as well. In most instances, analyzing front end as well as back end collection processes can lead to improvement in this area. Bad Debt
This statistic represents the total amount of surrendered accounts sent to collections. Many practices are unaware of the volume of dollars that may be being turned over too quickly. This can indicate issues in the billing/collection area of your practice such as an overwhelmed or under-trained AR team. Bad debt statistics should be compared regularly to peer performance.
Practices that monitor these statistics consistently are likely to be more proactive in addressing AR issues. Predicting the future instead of reacting to it positions the practice for stronger financial health.