The “Accounts Receivable Summary”, “Aged Accounts Receivable,” or “Aged Trial Balance” (AR summary) gives an account of charges that have not yet been collected. The AR summary can assess your receivables in any number of ways, including by individual patient, by insurance plan, and by payor class.
Since this report is perhaps the most heavily utilized report in many practices, it may be helpful to review it in detail, particularly the various uses for it, which in turn determine the format in which to generate the report.
We will discuss how to analyze the AR summary, how to “avoid” AR, and how to “work” the AR.
First, the most common use for the AR report is collecting delinquent accounts. For this purpose, the report should be generated by patient. Most of you probably generate an AR summary by patient on a monthly basis. However, from the perspective of the billing and receivables management process, the AR should be reported as a summary by payor class. If you recall our discussion of payor classes, the classes are defined principally by the expectation of payment. By generating an AR summary by payor class, you can determine whether the AR in each class is appropriate for the payment patterns in that group of payors.
Analysis of the AR Summary
Each payor class should be examined to determine if the pattern of AR totals by time category (30, 60, 90, 120 days, etc.) is appropriate for that class. For example, large volumes of Medicare AR in the 120-day bucket suggest either that Medicare claims are not being worked or that they are not being appropriately written off as contractual adjustments. If the Indemnity bucket shows large balances over 120 days, patients are not being contacted appropriately or effectively for collections.
Conversely, it may be appropriate for Medicaid to have large amounts over 120 days, given how slow they are to pay in some states.
Another important factor in analyzing both the AR summary and the aging of individual accounts is to understand how your computer system ages accounts. Is the aging from the date of service or from the date of the original bill? Is the aging clock reset when an insurance company is rebilled? You cannot accurately analyze your AR without having the answers to those questions.
Here is a sample AR summary by payor class:
|FFS Managed Care||$82,928||$66,582||$23,810||$9,780||$2,650||$276||$186,026|
1. The more than $98,000 in Medicare charges outstanding over 90 days ($9,365 + $2,186 + $86,720) and the $86,720 over 150 days suggests that either Medicare patient balances are not being “worked,” or that Medicare secondary insurance plans are not being appropriately billed and collected. Another possibility is that the contractual allowance (difference between the charged amount and the Medicare allowable) is not being appropriately written off.
With Medicare billing done electronically, the Medicare portion of the charge is generally collected in five to 15 days. In areas where most Medicare patients have Medi-Gap insurance and where the Medicare carrier automatically bills the secondary insurance, the collection of 95% of those charges should be complete in 30 days.
Even if most Medicare patients have no secondary insurance, aggressive collection of co-payments at the time of office services should reduce the outstanding Medicare AR.
2. In the Self-Pay category, there is more than $52,000 over 90 days with a monthly charge total of just over $16,000. This indicates either that the self-pay charges are not being aggressively pursued, or that the charges are being inappropriately made (see “Avoiding AR,” below).
3. In the Medicaid Category, there is more than $27,500 in AR over 90 days against a monthly charge of $12,000. Unless your state is very slow with Medicaid payments, there should be virtually no AR over 60 days in this category. If your state is terribly slow in paying Medicaid claims, you should see a pattern in which the monthly charges and at least the 30-day, 60-day, and 90-day categories are roughly equal.
In summary, the AR pattern for each payor class should be appropriate with regard to the expected payment pattern for that class.
Days in AR
There is a measurement of Accounts Receivable called “Days in AR.” This represents the average time it takes to collect a bill. Put another way, it represents the number of days of average charges that are yet to be collected.
Assume that a practice charges $3,898,272 per year, $324,856 per month, or $10,819.56 per day. To calculate the “Days in AR,” the following formula is applied:
Days in AR = Total AR ÷ Average daily charge
Average Daily Charge = $10,820
Total AR = $916,752
Days in AR = $916,752 ÷ $10,820 = 85 days (84.73)
In today’s managed care environment, 85 days seems excessive. If your practice is largely Medicaid, and the Medicaid agency in your state never pays in less than 90 days, the 85 days would be appropriate. Unless your payor-mix or some circumstance of a major payor can explain the excessive days in AR, you must look at your collection process to discover why you are slow in collecting your charges.
In summary, the appropriate level of days in AR is determined by an analysis of your payor-mix and of the average time for those payors to pay claims.
The most effective way of reducing your AR is to collect charges at the time of service. Under no circumstances should a fixed co-payment (e.g., $5 or $10 for managed care patients) be billed to the patient. Virtually all of these should be collected at the time of service, before the physician sees the patient.
Similarly, patients with a variable co-payment (e.g., the 20% of the Medicare allowable owed by patients without secondary insurance) could be charged at the time of service. Arm the staff person at patient checkout with the Medicare allowable payment schedule for those services provided in the office, along with the precalculated 20% co-payment amount. Have the patient’s insurance information available, and for those Medicare patients without co-insurance, collect the co-payment before the patient leaves the office.
The most common use of the AR report is to collect overdue balances from both insurance companies and patients. The report should be stratified by payor (by patient balance vs. insurance balance), by age (e.g., patient balances over 90 days), and by balance amount (e.g., within a category, list accounts in descending order of balance owed).
Have the staff work the largest accounts first when making the collection calls to patients.
Additionally, determine the minimum level for small balance write-offs (i.e., make no effort to collect a balance that is under $10).
Finally, whatever system you use to work your AR, make sure that it covers each and every account. Even if you’ve stratified and prioritized the accounts, if you know that you are not going to take action on an account, either change your process to allow each account to be worked (e.g., increase staffing) or raise your low-balance limit and reduce the number of accounts to work.
Remember, Accounts Receivable is a measurement of charges not yet collected, a report of what has not yet happened‹valuable information to have if used properly. Its proper use is accurately reporting charges and collections‹reports of what HAS happened.
From a management perspective, the AR reports will identify problems with your receivables management process. From an operational perspective, the AR reports identify accounts that require collection action.