Accounts receivable as an asset

Episode 6: Accounts Receivable as an Asset

In our last episode, we walked through how claims get created after you’ve seen a patient. Once the claims are sent to the insurance companies, you’ve now got a bit of a wait until they get paid. It is important to keep track of all of those outstanding monies, and to follow up promptly if there are any issues with getting a claim paid.

When you think about all of this money that is owed to you, businesspeople refer to that as an asset, and they call it accounts receivable or A/R for short. In most medical practices, it is one of the most significant assets that the business owns. It usually represents several weeks’ worth of services to patients and can be in the hundreds of thousands or millions of dollars. And, because we haven’t given you any business training, this asset is frequently overlooked and under managed, and then we have physician owners wondering why their cash flow is so poor.

With the rise of physician offices submitting their claims electronically through a clearinghouse, and the resulting increase in insurance companies sending remittances electronically, we are seeing clean claims being processed and paid or in insurance speak, “adjudicated,” in as few as 10 business days in some markets. As we continue to increase our usage of technology in the revenue cycle, we should be able to decrease the amount of time it takes to get paid once you’ve served the patient.

Highly performing practices track several metrics with regard to their accounts receivable asset, so that they can assure that their money is always well managed.

When you review accounts receivable as an owner, your main goal is to see that the money that’s owed to you hasn’t been outstanding very long. The reason for this is that as accounts receivable age, the likelihood of you getting paid goes down, so the accounts are worth less. As an example, if you saw a patient within the last 30 days and billed $100, we’d estimate that account is worth about $90, as there’s still a high likelihood that you’ll get paid. By contrast, if you saw a patient more than 6 months ago, and you billed $100, there is now a low likelihood that you’ll get paid, and we’d estimate that account is now worth an estimated $10.

Every billing or practice management system will generate a standard Accounts Receivable Aging report. If you’re not familiar with this, I’d encourage you to request one, and take some time to review it with your billing team.

It will show you accounts by age, so the first column will be those claims for dates of service from today and going back 30 days. The next column will be for services you performed between 31 and 60 days ago. They continue to go out until you can see the detail of claims that are very old, and still unpaid.

Optimal aging will vary by subspecialty, but in general, having 50-75% of your total dollars outstanding in the 0-30 or “Current” bucket is very healthy. More than 75% has you in the highly performing category.

Many groups have a large percentage sitting out in their oldest bucket, especially if they don’t effectively rework denied claims, or if they don’t clean out old claims that have timed out. If this is the case for you, it’s a good opportunity to take action. There is likely some of the money still collectible, but each day you delay is likely to cost you. All of your commercial insurance contracts will include a clause that gives you a deadline for filing a claim. It generally says that if your date of service was today, you must submit a claim within 90 or 120 days, or it will not be paid. This is called “Timely Filing,” and many groups who don’t have a well-organized billing function wind up losing a lot of money they should have collected, because it “went to timely filing.”

We have found millions of dollars that physicians should have been paid that were not collected, despite the fact that the doctors did the work. This is not the outcome anyone wants, so we need to assure that there are good people and good systems in place for your billing and revenue cycle function.

There are 4 major metrics we recommend that groups track to assure their A/R is well managed:

1. Days in Accounts Receivable or Days in A/R – this calculation takes the average charges per calendar day, and divides that into the total accounts receivable balance. This lets you know the average number of days it will take you to get paid for patients you’ve seen today. Most groups are in the 30-50 days range. Highly performing groups are able to get this down into the 20’s. The lower the better, as we want those accounts to be young!
2. % Under 30 – this is a slightly different view of the first metric, and just concentrates on what percentage of your outstanding accounts were from visits conducted in the last 30 days. In this case, the higher the better.
3. Clean Claim Rate – this metric seeks to know what percentage of your claims go out and are paid by the insurance company the first time. Most groups are in the 85-90% range, and 90-95% would put you in the highly performing category.
4. Claim Lag – this is the length of time between the date you rendered the service, and the date the claim arrived at the clearing house. Optimally this is 1-2 days, but no more than 5. This can be impacted by many factors, including how quickly you finish your documentation and submit your charges.
5. If you use coders to code your claims before they go out, we also recommend tracking Coding Lag as a metric as well. This is the length of time between when you sign off the note and the coder submits it to the clearinghouse. We’ll talk more about coders in a later episode as many have a depressive effect on physician incomes.

There are state laws regarding prompt payment or prompt response from the insurance companies in most states, and I’d encourage you to be sure that someone on your billing team is familiar with those, and works with your state or county medical association if any payers are not paying according to those guidelines.

We talk quite a bit about working denials, and this refers to that 10 – 15% of claims you submitted that didn’t get paid. Some got underpaid, or “paid” at $0, or “Zero Pays” and all of those need to be followed up on by your billing team so that you collect the money. Many groups don’t have good processes for working denied claims, and this can be very costly.

As we mentioned in the previous episode with Kem and Taya, working denials in an organized fashion is the hallmark of a well run billing office. If denials are not worked appropriately, you will begin to see them age out and you will see them on your Accounts Receivable Aging Report. Do not let you billing team let claims age out. Every day that those claims get older, they get harder to collect. I cannot stress this enough. Please make sure you have systems in place, and people well trained to do this follow up and work those denials so that you get paid for the service you’ve provided for your patients!

Once the insurance has paid their portion, you will typically also need to collect some percentage of the total visit directly from your patients. As we’ve said before, this amount is 20-25% of the total reimbursement, and it’s on the rise.

It’s important to have efficient systems in place to allow your patients to pay you easily! We highly recommend that groups send electronic statements and allow patients to vault a credit card in your system for all future payments. If the statement is texted to them and they can pay on their phone, all the better. Studies show that the average person responds to a text in about 90 seconds. Imagine getting your patient accounts settled that quickly!

If you’ve sent 2 outbound statements to a patient and made one outbound follow up phone call, our experience shows that you’ve done what you can. Your patient now needs to hear from someone else, like a collection agency. The lazy bill payers can be caught with a pre-collections program, and the ones who really have no intention of paying you will need to be sent to hard collections. This does impact their credit rating, and many patients are keen to avoid this if possible.

We always recommend that the billing team sends the list of patients who are ready to go to collections to the physicians first – you always have more information about the patient, and may choose not to send them to collections.

While there are specific collections laws at both the state and federal levels to be aware of, there are no requirements to send patients to collections. If you are running a private practice, this decision is up to you as the business owner. We’ve worked with some physicians who will never send a patient to collections. Some will continue caring for the patient, and some will dismiss the patients from the practice for non-payment. This is all about your personal philosophy or that of your group.

That’s it for this episode about Accounts Receivable as an asset. Join me for our next episode where we’ll hear from forensic accountant, and national expert on embezzlers, Tiffany Couch. She’ll talk with us about how to safeguard our assets, and how to spot the thief in your clinic.