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Improving your accounts receivable in healthcare requires active management of your revenue cycle and addressing any process inefficiencies. Dedicating efforts towards optimizing administration, running AR reports, and tracking claims help providers in the healthcare practice recover what otherwise would be lost revenue.
Should aging accounts receivable begin to pile up, providers may wish to investigate outsourcing reimbursement collection to a revenue cycle management (RCM) company. Let's dive in.
What is an Account Receivable?
A medical account receivable refers to the outstanding reimbursement owed to providers for issued treatments and services, whether the financial responsibility falls to the patient or their insurance company. Healthcare providers must stay on top of efforts to collect reimbursement for their accounts receivable account.
The longer an AR goes unpaid, the less likely healthcare providers receive payment at all-after 120 days, clinicians can only expect ten cents per dollar owed. The AR cycle starts when healthcare providers bill a patient or their insurance company. Despite indicating money owed, ARs do not qualify as assets. Providers typically classify accounts receivable in terms of their age:
- 1-30 days
- 31-60 days
- 61-90 days
- 91-120 days
Failure to collect reimbursement lengthens the AR cycle and risks revenue leakage (i.e., situations, where issued care, is not reimbursed and the provider suffers a loss).
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The Consequences of Revenue Leakage
Excessive revenue leakage poses a severe risk for U.S. healthcare providers. Many hospitals already operate on negative margins that fall short of their income by hundreds of millions of dollars.2 Hospitals located in rural areas are closing at their highest rates since 2005.3
A 2018 survey conducted by Fibroblast of C-suite executives in healthcare revealed that over 40% of respondents' organizations lose 10% or more to leakage. Perhaps more frightening remains that 23% of respondents do not know the leakage costs their organizations bear.4 Providers cannot afford long periods of hemorrhaging revenue.
Revenue Cycle Management (RCM)
Whereas the AR cycle begins with billing, the longer revenue cycle begins with patient registration and scheduling their first appointment. The AR cycle is the final segment of the revenue cycle. Issues that may occur throughout the revenue cycle, even as early as collecting patients' personal and insurance information, threaten the success of both.
Revenue cycle management (RCM) seeks to streamline the process, identify areas to make more efficient, and minimize instances where mistakes can occur. RCM requires ongoing engagement, and sophisticated efforts may leverage data analytics.
Ongoing Challenges to Achieving Short AR Turnaround-the ACA
Following the Affordable Care Act's passing in 2010, many Americans signed up for high-deductible plans to reduce their monthly expenditures. However, this choice leaves many patients responsible for a higher percentage of their medical bills.5
Recouping reimbursements from individual patients places a more significant burden on medical providers' AR processes. Providers must wrangle with missed collections during visits, individuals delaying payments due to financial hardship, the unpredictability of AR duration, and more.
How to Reduce Days in Accounts Receivable
Evaluating your accounts receivable process remains one of the easiest ways for many medical providers to improve their accounts receivable. When process inefficiencies and oversights go unaddressed, ARs begin to accumulate, age, and turn into revenue leakage.
Getting it Right the First Time
It's critical that providers properly collect patient information and submit correct claims on their first attempt. Inaccuracies and mistakes set providers up for insurance claim denials and lengthened AR cycles from the start. The accounts receivable turnover ratio or how many times a company has collected on its accounts receivable is one of the main factors an analyst looks at.
Unverified insurance poses the biggest threat to medical claim reimbursement. According to Gary Marlow, Vice President of Finance at Beverly Hospital and Addison Gilbert Hospital: "From a revenue cycle perspective, getting the most accurate information up front starts with patient scheduling and patient registration that provides the groundwork by which claims can be billed and collected in the most efficient and effective manner possible."
Set Payment Expectations and Collect Patient Portions Promptly
Providers can reduce patients' delinquent payments by setting payment terms or expectations for their financial responsibility ahead of scheduled visits. Additionally, providers who do not make a concerted effort to collect patient copays before patients depart care settings risk letting revenue walk out the door with them. When patients do not pay immediately following appointments, providers are 20% less likely to collect reimbursements.
Collecting immediate payment from patients helps quickly bring one portion of the AR cycle to an end and eases tracking efforts further along the AR cycle. Integrate prompt collection of customer invoices with release processes, as nearly half of all patient financial responsibility ends up written off by hospitals as bad debt.6Even if patients cannot cover their portion of the bill directly after receiving care, providers should investigate offering partial payment plans to lock up some reimbursement and establish an easily tracked schedule.
Charge Entry
Following a patient visit, providers take on the administrative burden of determining the exact charges for the care provided before submitting and tracking claims through the end of the AR cycle. Charge entry in medical billing refers to the process clinicians follow for submitting detailed lists of the services patients receive, which must be coded for claims submission. A single healthcare provider must keep track of thousands of healthcare codes for various procedure charges.
Inaccurate charge entry impacts providers' bottom lines. Research estimates that up to 1% of net charges are captured incorrectly due to discrepancies between documentation and billed services or missed charges.8 While 1% may seem like an acceptable loss, a hospital expecting $250 million in yearly revenue stands to lose $2.5 million due to administrative errors.
If charges are miscoded, providers leak revenue due to underpayments and risk audit penalties when overcharging payors and patients.
Claims Submission
Once providers have captured and coded charges, they must submit claims to payors and patients to collect reimbursements. Charge entry errors and patient information inaccuracies on submitted claims lead to claim denial and lengthened AR cycles. On top of bridging the lag between care and reimbursement, resubmitting claims increases staff expenses.
Submitting claims for Medicare reimbursement becomes even more complicated should patients have additional insurance coverage. Providers must monitor:7
- The patient's supplemental insurance information and whether the coverage remains active
- That the supplemental insurer received the correct bill from Medicare
- The list of expenses not covered by Medicare and the resubmission process for those charges
- Patient collections for the remaining amount not covered by their Medicare and supplemental deductibles.
AR Tracking
Tracking your accounts receivable every month gives providers the information necessary to identify those at risk of becoming leaked revenue and contributing to bad debt. Providers can compare ARs over time to recognize dangerous trends early and determine any outstanding reimbursements that may prove easy to close. Using a balance sheet to record accounts receivable, outstanding invoices, and customer payments is a great way to track AR.
Providers should analyze their AR data to determine aged debtors and collection rates. These two metrics provide an overview of providers' AR cycles and whether they are trending in the right direction. Aged debtor reports reveal how many receivable accounts exist within each age group. Collection rates demonstrate how successful providers are at converting ARs to reimbursements in a given accounting period.9When tracking accounts receivable, providers should run reports to determine their average AR cycles. Is there a delay between providing care and invoicing? As longer ARs carry a higher risk of becoming forgotten by patients, leading to unpaid invoices, starting the cycle as quickly as possible can keep them from aging beyond collection. Determining how long the different stages of the AR cycle take can help providers identify where to make improvements.
Outsourced AR and RCM
Suppose providers still find themselves at a loss over how to reduce days in accounts receivable or do not have the bandwidth to evaluate their current processes. In that case, considering an outsourcing solution, such as PayrHealth, will not only reduce accounts receivable and revenue loss but also leverages data and revenue cycle management trends.
RCM companies such as PayrHealth can leverage their expertise and big data analytics to identify where providers encounter their biggest AR complications. Integrations with your electronic health records to capture all charges, guaranteed code accuracy, and automatically resubmit denied claims immediately address many of the opportunities for administrative errors through revenue and accounts receivable cycles. Contact us today to partner with our team of dedicated AR and RCM specialists and maintain your company's financial health.
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Sources:
- Physician's Practice. A/R Primer for Medical Practices.https://www.physicianspractice.com/view/ar-primer-medical-practices
- HIT Consultant. Revenue Leakage: How Big Data can Address Challenging Medical Denials at Academic Medical Centers.https://hitconsultant.net/2018/11/12/revenue-leakage-academic-medical-centers/#.YL7LEmZKhdg
- Cecil G. Sheps Center for Health Services Research. Rural Hospital Closures. https://www.shepscenter.unc.edu/programs-projects/rural-health/rural-hospital-closures/#citem_3b75-ca6b
- Fibroblast. Patient Leakage: A new survey highlights high costs, limited control. https://fibroblast.com/wp-content/uploads/2018/10/Patient-Leakage-A-new-survey-highlights-high-costs-limited-control-October-2018-1.pdf
- RevCycleIntelligence. Preparing Providers for the Healthcare Consumerism Shift. https://revcycleintelligence.com/news/preparing-providers-for-the-healthcare-consumerism-shift
- alth IT Answers. Revenue Leakage in Hospitals and Healthcare Systems: 10 Numbers You Absolu
- Medical Economics. How to Manage Accounts Receivable. https://www.medicaleconomics.com/view/how-manage-accounts-receivable
- Healthcare Financial Management Association. Avoiding the High Cost of High-Capture Leakage. https://www.hfma.org/topics/article/55358.html
- Houston Chronicle. How to Track a Medical Practice's Accounts Receivable. https://smallbusiness.chron.com/track-medical-practices-accounts-receivable-74188.html
