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Understanding Accounts Receivable (A/R) in Healthcare: Why It Matters
There are many components attached to your practice’s Revenue Cycle Management(RCM). But one of the most essential components is your accounts receivable or (A/R).
Analyzing and optimizing A/R reports in health care is critical to making a strong financial structure for your practice.
This blog post resolves your following questions
- What Is Accounts Receivable (A/R) in Healthcare and Why It Matters
- Why Is A/R Important for Healthcare Practices?
- Essential A/R KPIs to Track
- Best Practices for Reducing A/R in Healthcare
- Challenges in Managing A/R in Healthcare
What Is Accounts Receivable in Healthcare?
At its core, Accounts Receivable (A/R) in healthcare represents the money that healthcare providers are owed for services they’ve delivered. This includes everything from hospital stays and surgeries to routine check-ups and specialized treatments. When a patient receives care, an invoice is generated, and until that invoice is paid—whether by the patient or their insurance company—it remains part of the A/R.
Why Is A/R Important for Healthcare Practices?
So why should we care about A/R in healthcare? Here are some compelling reasons:
1. Cash Flow Management
A well-managed A/R system ensures that cash flows smoothly into the organization. This is essential for maintaining operations, paying staff salaries, and investing in new technologies or facilities. Without effective cash flow management, even the most well-regarded healthcare provider can face financial difficulties.
2. Financial Stability
High levels of outstanding A/R can signal potential cash flow problems. If a practice sees its A/R days increasing (the average number of days it takes to collect payments), it may indicate that cash flow is tightening. This can impact everything from hiring new staff to expanding services.
3. Minimizing Bad Debt
Proactive A/R management helps reduce bad debt—payments that are unlikely to be collected. By addressing issues early on and following up on outstanding invoices, healthcare organizations can protect their revenue streams.
4. Enhancing Patient Satisfaction
Clear communication about financial responsibilities and timely follow-up on payments can improve patient relationships. When patients understand their bills and feel supported in managing their payments, they’re more likely to have a positive experience with their healthcare provider.
The Unique Challenges of Healthcare A/R
Healthcare A/R is not just a straightforward billing process. It comes with its own set of challenges:
High-Deductible Health Plans:
With more patients facing high out-of-pocket costs, collecting payments can be tricky. Patients may delay payment or struggle to pay their bills, leading to increased A/R.
Insurance Claim Denials:
Claims can be denied for missing information, coding errors, or policy exclusions. Each denial adds complexity to the collection process and can extend the time to receive payment.
Ageing Receivables:
A/R is often categorized by age (e.g., 0-30 days, 31-60 days). As time goes on, collecting older receivables becomes increasingly tricky. After about 120 days, providers may only expect to recover a small fraction of what they’re owed.
6 Steps to Improve your Accounts Receivable
1. Streamline Insurance Verification
Verifying insurance eligibility before an appointment reduces the chance of denied claims. Incorrect or unverified insurance is a common cause of unpaid bills, leading to high A/R balances.
The Medical Group Management Association (MGMA) warns that poor Accounts Receivable (A/R) management can cause a 5-15% revenue loss annually. Accurate insurance information helps reduce claim denials, which can delay payments.
2. Invest in Revenue Cycle Management Software
Utilizing revenue cycle management (RCM) software can streamline the entire billing and A/R process. RCM tools offer automated claim scrubbing, tracking, and follow-up, significantly reducing the time it takes to collect payments and improving overall cash flow.
3. Send Cost Estimates and Collect Upfront Payments
One of the most effective ways to reduce A/R is to collect payments upfront. Providing patients with a cost estimate before their appointment prepares them for potential out-of-pocket expenses, increasing the likelihood of on-time payment. Collecting at the point of service helps eliminate post-visit billing delays.
4. Monitor A/R Regularly
Regularly tracking A/R balances and trends is crucial. Monitoring A/R allows practices to identify patterns in payment delays, whether they’re related to specific patients, insurance companies, or types of services. For example, if a certain insurer has a higher-than-average days-in-A/R, it may be necessary to review claims or renegotiate contract terms to reduce delays.
5. Automate Claims Submission and Processing
Manual billing processes can be time-consuming and prone to errors, leading to increased claim rejections and denials. Automated claims processing reduces errors, minimizes rejections, and ensures faster payment, keeping claims from staying in A/R longer than necessary.
6. Seek Help from A/R Experts
If your healthcare accounts receivable (A/R) is becoming unmanageable, it may be time to enlist the help of a Revenue Cycle Management (RCM) team. These professionals specialize in navigating A/R challenges and can assist your practice in securing payments while also decreasing the average days in A/R.
At Vital Health Services, we have a dedicated and experienced RCM team ready to collaborate with your practice to enhance the reimbursement process. Utilizing industry expertise and cutting-edge AI-driven tools, we aim to boost your collections and help you develop a successful medical practice.
Discover how Vital Health Services’ RCM and medical billing solutions can benefit you by scheduling a brief introductory call today.
