Best Practices in Healthcare Accounts Receivable Management

Healthcare providers and hospitals have to submit claims to insurance companies and payers to seek reimbursement for the services that they render. According to the Centers for Medicare and Medicaid Services, only 70% of the claims are paid the first time that they are submitted to the insurance companies. Thirty percent of the claims are either denied, lost, or ignored. In this blog, we explore why practices and hospitals neglect accounts receivable (AR) and steps you can take to ensure your AR plan is on track to recoup your revenue.

Healthcare Accounts Receivable Management

Since denials consume time and resources, 60% of them are never resubmitted to insurance companies. As a result, 18% of the denied claims are never collected by the healthcare providers, affecting the bottom line of the medical practice.
The money that is owed to the healthcare providers for services which they have rendered and billed is known as “Accounts receivable or AR.” All payments that are due from payers, patients and other guarantors are part of AR. The revenue goal of every healthcare practice is to ensure that it receives timely payment and can manage AR efficiently. Any increase in AR from time to time indicates that copays are not being collected up front, which could potentially lead to cash-flow problems unless corrected.

Days in Accounts Receivable

In practice, AR is measured as “days in AR.” This is calculated by dividing total AR by the average daily charges for the practice. For example, “50 days in AR” means that the payment is due within 50 days of work. This calculation does not include the “age” of the payment. “Age of payment” means the time since the healthcare provider billed for the service. A payment that is due for services billed in the first 30 days is placed in a 0–30 days bucket while payment billed between 31–60 days is placed in the 31–60 days bucket. Percentage of AR can be calculated by dividing AR in each bucket by the total AR. This provides a measurement of the collection performance of the healthcare practice. Ideally, every healthcare practice should monitor the percentage of R every month and compare it with that of the previous month. Studies have proved that if a practice is unpaid for more than 120 days, then it is unlikely that it will ever get paid.
Several factors currently contribute to delays in healthcare reimbursement. A weak economy, high deductibles, new regulations such as Patient Protection and Affordable Care Act, and complex rules formulated by payers can all contribute to more denials, underpayments and harder for healthcare providers to get paid for services rendered and billed. Concurrently, healthcare providers and practices are under pressure to earn more money and reduce their operating costs while providing top-level healthcare to their patients.

Importance of AR to the Revenue Cycle

Electronic health records (EHRs), patient portals, and automating revenue cycle management can help healthcare practices reduce operating costs and improve patient care. The revenue cycle plays a very important role from the time a patient makes an appointment or walks into the healthcare practice and ends once all payments are received by the billing department and posted. If a claim is not paid when it is submitted for the first time, then the possibility that the healthcare facility will ever receive the money is low. Some of the strategies to improve accounts receivable are detailed below:
  1. Catch potential denials even before the claims are submitted to insurance companies. This ensures that the claims are paid the first time itself. Software can help solve the problem if it is designed to identify claims that are likely to be denied automatically. The software should be intelligent enough to update constantly and adapt to changing rules so that it can improve claims denials and increase collection rates. The ideal software should have a higher first pass resolution rate (FPRR) so that practices get paid on the first submission itself; it should catch potential denials early to enable the healthcare practice to submit more accurate claims which can get processed quickly. By ensuring that claims are paid when first submitted, you can avoid the tedious process of reviewing denials and following up with insurance companies and payers.
  2. Underpayment from insurance companies is another problem faced by healthcare providers. It is difficult for a medical practice to track all the payments and keep track of every insurance company contract. This makes it impossible to know when the practice Is being underpaid. Again, software can help identify underpayments, track and automatically compare the actual payments versus the specified payments in the insurance contract. Accurate information of AR thus collected can provide a timeline of when money is expected and help plan budgeting decisions.
  3. Traditionally, account receivables were tracked at 30-day intervals. However, different insurance companies operate on their own schedules. So, two receivables from different payers would require different actions if received from two different payers. The ideal method would be to use software that allows daily aging of receivables. By automating the process, a letter can be generated, claim resubmitted and the claim sent to the collector’s queue.
  4. The tedious manual process of scheduling patients to collecting final reimbursement can be made more efficient with the use of the designated software. This will improve efficiency, increase visibility and control and enhance staff management.
  5. Use of data analytics along with access to real-time news and easy-to-understand data can help to identify and recognize trends. With strong analytics, you can identify underpayments early and make better decisions.
  6. An efficient revenue cycle helps ensure payment accuracy and can increase the likelihood of being paid fully for services rendered. Electronic remittance advice messages (ERAs) from insurance companies are standard reports that can be read by a computer detailing payment received. An ideal ERA increases collections,  improves efficiency and ensures that your practice gets paid faster.
  7. Effective AR management applications require advanced tools to improve the efficiency of the practice. With a single click, the applications should be able to track all denials, underpayments, lost and ignored claims, and charges for a better-organized workflow.


To summarize, revenue cycle management can be a complicated process. Automated software can help reduce accounts receivable by identifying errors in claims before submission. This will help to reduce denials at first submission. Software can also help track underpayments and improve revenue collection enabling the healthcare provider to focus on patient care.