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Medical Billing & Collection Accounts Receivable Management
March 2005

Accounts receivable management is a series of events that must occur at the right time and place to accomplish the successful goal of turning a physician service into cash. This process is best defined much like the auto industry’s production model for making cars. As the “service” moves through the physician’s office, many different and precise steps need to be taken to ensure that the conversion from service to cash is done efficiently, and legally.

There are several benchmarks you can use to manage the performance of your accounts receivable. I will focus on one common benchmark:

*Days in A/R
 Days in A/R

Days in A/R refers to the average number of days it takes from the service date to the date of initial payment.I’ve seen this called days sales outstanding (DSO) and more recently net days revenue outstanding. Whatever you want to call it, I think it is one of the easiest benchmarks to do that lets you know if you are moving forward or backward. This calculation is best done on a quarterly basis:

Total Gross Accounts Receivable ÷ (Total charges for the quarter÷ total number of days in the quarter)

Example: $195,000.00÷($150,000.00÷ 92=$1630.43)=119.6 Days

In this example the average days in outstanding charges is 119.6 days. Remember this is a benchmark only—be careful when you see documents that rate your performance. For instance, I recently read an article that said 49.3 days in A/R would be superior in performance. If you have a predominantly Medicare electronic payer mix, then 49.3 days would not be a “superior performance.” If you use this formula on a payer or financial class basis to track specific pay groups, you will be amazed at the difference in some of them. The main issue is that you want to get paid in as little time as possible. By tracking whatever the number is, you can monitor your progress on a quarterly basis with the hopes of reducing your A/R days. Reducing the A/R days in the above example by 5 days increases the cash flow by $ 8,152.15. This is a great benchmark to get your staff to focus on. If you are sending out your billings on a weekly basis, start sending out billings daily and watch the A/R days move down for the next quarter. You may also want to provide incentives to your manager and/or billing service based on the quarterly calculation.

MBC SYSTEMS, CAP’s strategic partner for medical billing and follow up services, authored this article. Above is just one example of what MBC SYSTEMS can do to help you better manage your A/R. Please refer any questions or comments to:

David Conrad
(800) 333-5240

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