AR Days – What this Number Means for the Health of your Practice
Medical professionals, like yourself, are focused on providing the best healthcare possible to the patients, however, that is not all that matters to ensure a successful practice. The business aspect of your practice might be a taxing part of your job, but an important part nevertheless. There are multiple other factors that contribute to the health and success of your practice. One such factor is the AR days as they determine the cash inflow and how well your business is doing.
What are AR Days?
AR Days or Accounts Receivable Days are a measure of how long it takes your practice to collect the outstanding bills from the insurance providers for the claims made for insured patients. It refers to both patient payments and insurance payments and is generally calculated for periods of 3 months, 6 months, and 9 months.
The average range for AR days is 30 days to 70 days, although anything over 50 days could be indicative of financial trouble for your practice. The purpose of calculating AR days is to receive payments for the bills and claims at the earliest, and if it is taking over 50 days, then your billing operation may be lagging, putting your practice under AR stress.
Why are AR Days Important for your Practice?
As a practitioner, you want to be able to provide the best healthcare to your patients and while your intentions are good, they are not always enough. You need finances to be able to do so and these are achieved through the bills paid by both insurance providers and patients. If your AR days are over 50 days, it is highly likely that your financial department is severely backlogged with very few assets available for you to hire the best staff and make upgrades to your medical equipment. Timely payments are essential for the smooth running of your service, and without them, your practice will eventually crumble under the pressure. And it all starts with increased AR days.
How to Calculate AR Days?
Given the high importance of AR Days, it is highly recommended that you calculate the AR days for your practice and evaluate how well your billing operation is doing. The formula for the calculation of AR days is as follows:
A/R Days = (Accounts receivable ÷ Annual revenue) x Number of days in the year
The formula is quite simple but before using the formula, you have to calculate your practice’s daily charges. To do so, add all the charges posted by your service for a given period of time, and then subtract the credits that you received for these charges. The final number now should be divided by the number of days you had selected in your time frame, and then that number can be applied to the formula above.
For example, you have receivables of $80,000, Gross charges of 700,000, and a credit balance of $10,000. The calculation would be as follows:
(Total Receivables – Credit Balance)/Average Daily Gross Charge Amount (Gross charges/365 days)
($80,000-$10,000)/ ($700,000/365 days)
$70,000/1917 = 36.91 AR days
To assess if the result indicates a good performance or not, you can use this scale:
Less than or equal to 35 AR days: Excellent performance
35 AR days to 50 AR days: Average performance
Over 50 AR days: Poor performance
How to Reduce AR Days?
Increased AR days are not going to be the end of your practice, as long as you are spending time, resources, and energy on reducing them significantly. You can easily reduce AR days by using some of the tricks mentioned below:
Electronic Claims Billing
Electronic claims billing software can facilitate the process and reduce the AR days significantly. If you are billing your claims using electronic software rather than on paper, it will save you a lot of time, especially if you are sending them to federal payers. The AR days can be reduced to almost 14 days with electronic claims billing. Moreover, Medicare requires payers to hold the payment for a set number of days, known as the payment floor.
The payment floor for electronic payments is 13 days, meaning that you get paid by day 14, whereas the payment floor for paper claims is 29 days. It is important to note that not all payers are like Medicare and the payment floor may change between payers, but there will be a marked difference between payment floors for paper and electronic claims, always.
Even if payment floors were not to be considered, using electronic claims billing software easily cuts out around 1 day to 3 days of the mailing time that paper claims require.
EFT payments are a great way to reduce AR days while keeping the best interest of your practice in mind. It is recommended to opt for EFT bank deposits, when suitable, so that the moment a claim has been approved by the payer, you can easily get your payments. This is a no-fuss method with no requirement for paper checks that must be printed, signed, mailed, received, and deposited. Good for the environment and good for your business.
Reduce Claims Denial
Denial of claims means that you will need to re-file a claim, which will prolong the process further, hence, racking up AR days. You should monitor every denial to identify the mistakes made and improve the system at hand, to ensure that those mistakes aren’t being repeated. Once you begin to improve your claims process, you are less likely to receive a denial from the payer, meaning that you can facilitate the AR days and improve the billing operation along with the claims operation of your practice.
Practolytics provides AR analysis, resolutions and complete one-on-one support to practices to ensure the financial health of the practice is in safer hands. Talk to our experts and we will walk you through the process further with complete insight into managing AR and addressing claim denials in a professional manner.