Evaluating Your Practice’s Revenue Cycle: Days in Accounts Receivable

Days In A/R

Presenter:
Asia Blunt, MBA, CPC
Practice Management Strategist

Plan to watch this first in a series of quick, easily digestible online education modules. In only a few minutes, you'll gain a better understanding of accounts receivable and how it impacts your bottom line.

After watching this presentation, you will:

  • Obtain a better understanding of days in A/R and why it's important for your practice.
  • Learn how to calculate days in A/R.
  • Discover problems to avoid, including recognition of collection accounts, the impact of credits in the calculation of days in A/R, and insurance carriers whose days in A/R are higher than they should be.

Revenue cycle management includes tracking claims, making sure payment is received, and following up on denied claims to maximize revenue generation. Several metrics can help you determine whether your revenue management cycle processes are efficient and effective.

The first metric is Days in Accounts Receivable (A/R). Days in A/R refers to the average number of days it takes a practice to collect payments due. The lower the number, the faster the practice is obtaining payment, on average.

Best Practice Tip
Days in A/R should stay below 50 days at minimum; however, 30 to 40 days is preferable.

Calculating Days in A/R

First, calculate the practice’s average daily charges:

  1. Add all of the charges posted for a given period (e.g., 3 months, 6 months, 12 months).
  2. Subtract all credits received from the total number of charges.
  3. Divide the total charges, less credits received, by the total number of days in the selected period (e.g., 30 days, 90 days, 120 days, etc.).

Next, calculate the days in A/R by dividing the total receivables by the average daily charges.

Sample Calculation

  • (Total Receivables  - Credit Balance)/Average Daily Gross Charge Amount (Gross charges/365 days)
  • Receivables: $70,000
  • Credit balance: $5,000
  • Gross charges: $600,000
  • [$70,000 – ($5000)] / ($600,000/365 days)
  • $65,000/1644 = 39.54 days in A/R

Other Considerations

Understanding your practice’s revenue cycle will help you anticipate income and address issues preventing timely payments. Keep the following in mind when evaluating your revenue cycle and A/R processes:

  • Slow-to-pay carriers. Some insurance carriers take longer to pay claims than the overall average number of days in A/R. For example, if your practice’s average days in A/R is 49.94, but Medicaid claims average 75 days, this should be addressed.
  • The impact of credits. Be sure to subtract the credits from receivables to avoid a false, overly positive impression of your practice.
  • Accounts in collection. Accounts sent to a collection agency are written off of the current receivables, and the revenue may not be accounted for in the calculation of days in A/R. Be sure to calculate days in A/R with and without the inclusion of collection revenue. 
  • Appropriate treatment of payment plans. Payment plans that extend the time patients have to pay accounts can result in an increase in days in A/R. Consider creating a separate account that includes all patients on payment plans and determine whether your practice should or should not include this “payer” in the calculation of days in A/R.
  • Claims that have aged past 90 or 120 days. Good overall days in A/R can also mask elevated amounts in older receivables, and therefore it is important to use the “A/R greater than 120 days” benchmark.