As managers or stakeholders in a healthcare facility, one of your priorities must be ensuring the organization has enough revenue so it can run smoothly and provide patients with high-quality care. If you are looking at documents regarding financial health and operational efficiency, you will notice AR in the reports. So, what is AR in healthcare, and why is it important?
In the revenue cycle management, AR, or accounts receivable, plays a significant role. As experts in managing the revenue of healthcare, we can provide you with some insights regarding the importance, challenges, and best practices.
What Is AR in Healthcare?
Accounts receivable, or A/R, in short, is one of the key finance metrics for healthcare organizations. As such, the AR is part of the revenue cycle management. The category of accounts receivable includes all invoices and reimbursements that your medical organization is supposed to receive.
Depending on the situation, the accounts receivable can be owed by the patients, insurance companies, and even government payers.
The AR is an essential part of the healthcare organization’s balance sheet. The AR is recorded as current assets. They are revenue that is still not received.
The AR is a constantly changing financial metric. The three factors that influence the AR balance are:
- The new services your healthcare organization provides
- The payments for the services you have already provided
- Any adjustments and write-offs made.
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Accounts Receivable Categorization
We can categorize accounts receivable using different factors, such as balance due, payer type, and balance amount.
Considering the balance due as a categorization factor, accounts receivable are put into categories according to days. The categorization by days, and not by months, is utilized to achieve precision since accounts receivable are assets due in the short term.
The categorization is divided into 30-day buckets. The first one covers from 1 to 30 days, the next from 31 to 60 days, and so on, until over 120 days have passed.
Amounts that the patients themselves are responsible for paying are separated from the ones covered by insurance.
Ultimately, for a better visual representation of the AR report, the entries can be ordered according to the balance owed. This is typically done in descending order so your organization can have a clear look at who owes the most.
Key Components of Accounts Receivable
You can’t entirely understand what is AR in healthcare without the main components, which are: billed charges, payments received, adjustments and denials.
As the name suggests, a charge is the amount that you, as a healthcare facility, have billed to the payer for the services provided. The amount billed gets determined by a medical biller according to a fee schedule.
Another important component of accounts receivable is the payments. They are defined as funds that the payer has already reimbursed. All payments are deducted from the AR balance.
Besides the normal medical billing process, there are specific situations where discounts, write-offs, or reductions are applied according to a contractual agreement. They go under the name of adjustments.
The last component is denials, which is when the payer, for whatever reason, refuses to reimburse the healthcare provider for the service. Typically, all claim denials must be properly managed and investigated. Some of the most common reasons for denials include missing documentation and coding errors.
Importance of Accounts Receivable Management
Running a healthcare facility is definitely a challenge. You have to juggle different things, from providing high-quality care and continuous staff development to using the best medical technology, being among the most common. All of these require funds, and the main source for medical facilities is payments for the services they provide.
The accounts receivable give an insight into the funds the organization should receive for the treatments and services patients have gotten. By having a detailed overview of future cash flow, your facility can effectively manage its operations.
Furthermore, AR is an important financial metric for investors and stakeholders. The AR is an indicator of your effectiveness and capability as a healthcare facility to collect the funds. The more accounts in AR, the less money your healthcare organization receives. The longer you wait, the less likely you’ll get paid in full.
There are many healthcare facilities that don’t manage their accounts receivable properly. As a consequence, they might experience a negative impact on their financial well-being by missing out on revenue. When the claims in the AR pile up, you have less money to maintain operations and pay your staff. Worst case scenario, you’ll have to write off patient payments that are late or left unpaid, resulting in a loss in revenue. If you want your healthcare facility to have excellent revenue management, you should contact us at CLICKVISIONBPO so we can create a tailored strategy for your organization. We can offer you proper management of accounts receivable that will optimize your working capital and reduce the amount you have tied up in unpaid invoices.
Challenges in Accounts Receivable Management
The management of accounts receivable for healthcare facilities is a complex process. It requires a lot of dedication and expertise. Compared to other revenue cycle management services, accounts receivable is one of the most challenging.
Our experience has taught us that we have to be prepared to solve many problems that might come along the way. The most common challenges in accounts receivable management include:
- Acceptance and tracking of digital payment methods
- Claim denials
- Handling slow payment cycles
- Getting payer parties to pay promptly
- Errors in data entry and invoices
- Resolving payment disputes and declines
- Follow-ups and collecting funds from late payers
- A high amount of write-offs
- Disorganized collection process
- Not enough payment options available
Best Practices for Accounts Receivable Management
A successful revenue cycle management requires the adoption of accounts receivable practices. By creating a tailored strategy for AR management, your organization will benefit from better financial health.
Set clear payment policies
Firstly, setting clear payment policies is an excellent practice for AR management. Considering the fact that patients often find healthcare bills and payments complex and confusing, your organization should aim towards making the payment process concise and understandable for people with low literacy.
Timely billing and regular follow-ups
In addition to the clear payment policies, your organization should put an effort to do timely billing and regular follow-ups. Your prompt claim submission is likely to result in fewer days in AR and a reduced number of payments that are overdue. By tracking AR regularly, you get to highlight and improve the claims process in order to avoid delayed payments. If you see one claim being in AR for over 40 days and the others in the 30 days range, it may be time to find a way and reduce the AR time for the former claim.
Regarding the follow-ups, you can leverage technology and use automated invoice reminder software. This way, your healthcare facility will minimize the risk of having patients not paying their invoices because they weren’t reminded to do so.
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Provide different payment methods
Consumers find it extremely helpful when they have different payment options to choose from. We are living in a digitalized world, and people are expecting their healthcare facilities to accept electronic payments. According to recent research by PYMNTS and Lynx, 25.4% of consumers prefer to pay for their healthcare services and products by using a digital portal.
To provide your patients with a seamless experience, it is recommended to use electronic billing and online payments. As an added benefit, the AR management for digital payments is way more accurate and straightforward. Digital payments are generally easier to track, allowing you to have a precise AR balance at all times.
Ensure accurate medical billing and coding
Did you know that four out of five medical bills have coding errors, and they are one of the reasons for delayed payments and denials? To contribute to better AR management, you should invest in accurate coding.
One of the best strategies to reduce the time in AR because of medical billing errors is to outsource the process. With our services at CLICKVISION BPO, you will have access to an experienced team of medical billers and coders who will contribute to efficient claims submission and handle denials professionally.
Precise patient balance management
The healthcare billing system in the U.S. is a complex one. In most cases, a certain amount of the healthcare services is covered by the insurance provider, while the remaining funds must be covered by the patient.
If you decide to do your AR management in-house, your organization will be responsible for effectively managing the patient balances. You should ensure the patient is informed about their share of the bill. Having an in-house AR management can be demanding because it requires effective communication, strategies for dealing with different situations, openness to offer flexible payment plans, and much more compared to a third-party service provider.
Measuring and Monitoring Accounts Receivable Performance
If you are interested in having a realistic picture of the financial situation of your healthcare organization, you need adequate measuring and monitoring of the accounts receivable performance. The importance of accounts receivable monitoring can be seen from different aspects.
The accounts receivable performance is a direct indicator of the cash flow in the healthcare facility. It gives a detailed overview of the funds that the organization should receive for treatments and services it has already provided.
The measuring and monitoring of accounts receivable performance is crucial for identifying and addressing potential financial risks. Also, your healthcare organization can forecast trends and patterns in payment behavior.
Here are some of the most important metrics in measuring the AR performance.
Average days in accounts receivable
The days in accounts receivable are not only a crucial metric for AR performance but also for the overall healthcare revenue cycle. The average days in accounts receivable represent the time your organization needs to collect the payments for the services provided.
The average days in accounts are a direct indicator of your organization’s billing and collecting efficiency. In addition, when you notice that the average days in accounts receivable are increasing, you should start looking for the reason why it happens. This helpful metric can remind you when it is time to look at areas for improvement.
AR over 90 days
As we previously mentioned, one of the ways to categorize accounts receivable is to classify them according to age. One important metric for AR performance is the AR over 90 days.
The AR over 90 days is an exact number or percentual representation of the accounts receivables that are older than 90 days. If your healthcare facility has a high value for this metric, it is highly likely you have an inefficient AR management strategy.
Some of the ways you can turn these measurements around are:
- Analyzing claim denials
- Separating the administrative from the clinical work
- Keeping a close look at the AR trends and fluctuations
- Considering AR automation
- Creating a system of prioritization
- Investing in top-notch medical billing and reducing billing errors
- Negotiating payment plans
- Keeping up with the latest regulations regarding billing and collections
First-pass acceptance rate
Another important metric is the first-pass acceptance rate. In the healthcare industry, it is significantly important to know how many of the patients have paid the due amount after they got the first claim submission.
Your organization should aim to keep the first-pass acceptance rate at 90% or above. When you have such high rates, you can rest assured your billing and coding are done properly, allowing your healthcare organization to achieve financial stability and growth.
In-House vs Outsourcing Accounts Receivable
The entire management of the organization’s accounts receivable depends on the expertise of the people doing it. Your healthcare facility can either have an in-house department for accounts receivable or outsourcing. Both options come with pros and cons.
The benefits of managing your accounts receivable in-house include greater control and immediate access to all the financial data you need. With all the financial data at hand, you might be able to understand the entire revenue cycle management better.
If you want to have your own in-house accounts receivable department, you will have to invest in hiring and training the employees. Also, in-house accounts receivable departments require proper hardware and software. Consequently, you should be prepared to handle both the initial and operating costs.
In addition, you will have to keep up with the latest government regulations and guidelines for accounts receivable and ensure your work is compliant with them. Hence, you will probably need to organize constant staff training.
On the other hand, outsourcing your accounts receivable will take off a lot of managerial burden from your organization. The only thing that you should do is find a reliable outsourcing company with a trained and experienced team.
By collaborating with us, you can improve your AR processes while reducing your costs. We can minimize AR errors, improve your cash flow, do prompt invoicing and follow-ups, and boost your financial metrics.
Our priorities are to reduce your administrative overhead and speed up collections. Ultimately, as our specialty is accounts receivables, we know the best ways to solve the common challenges that come with AR and typically have excellent collaboration with all types of payers.
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Conclusion
Understanding what is AR in healthcare is crucial for everyone doing administrative or management work in a medical facility. Accounts receivable are undoubtedly an important part of the revenue cycle management of every healthcare organization. Implementing the best AR practices optimizes revenue cycles, contributes to financial stability, and fosters long-term business success.