Don’t Forget These Analytical Tools to Review Practice Receivables

February 19, 2016

The importance of reviewing and analyzing medical practice accounts receivable each and every month should never be overlooked. However, for some practices, this is not the case. Keeping the practice’s accounts receivable balance as low as it can possibly be would obviously help maximize the cash flow of the practice. This is why at a minimum, the practice’s management, the practice’s physicians, and its advisors each and every month [I emphasize this because you would not believe how many practices don’t do this!] should be printing a detail aging of the accounts receivable and reviewing it very closely. You should print these reports by physician if you possibly can and also print them by patient aging and insurance-pending aging. If you cannot produce these specific reports, maybe it’s time to upgrade to a better medical billing system.

At a minimum, you should do the following with the aging reports:

1. Review all balances 90 days and older. Make the collection staff accountable – ask them why these accounts have not been collected yet. Adjust collection procedures if necessary. Even more important, add collection personnel if necessary.

2. Review for bad debt write offs. It makes no sense keeping balances on the books that will never be collected. Practices should be writing off accounts as bad debts if not each month, at least every other month.

3. Determine if there are collection problems with a specific physician’s accounts. It might be the physician is interfering with the staff’s collection efforts.

In addition to the suggestions listed above, you should also conduct an analytical analysis of the accounts receivable. There are several excellent A/R ratios you can and should be using; you should be using them to analyze not only your receivable balance, but the practice’s collection efforts as well:

a. Avg Days Receivable. This statistic is calculated by dividing the A/R balance by daily average charges [YTD Charges/365 days]. You can use 30.41 (365/12 months) in place of 365 days when calculating monthly ratios. You want to keep this figure under 90 days.

b. Accounts Receivable Turnover Rate. This is calculated by dividing the A/R balance by average monthly receipts. This statistic indicates the number of months of work that have not yet been collected yet.

c. Accounts Receivable Ratio. Calculate this analytical tool by dividing total accounts receivable by average monthly charges [either for the YTD or a rolling 12 month average]. For primary care and other office-based practices, this figure should be between 1.0 and 2.0 of average monthly charges. All other practices (ex. Specialty practices) should have between 2.0 and 3.0 of average monthly charges in their accounts receivable balance. Any practice that has over 4 times of average monthly charges in its accounts receivable balance has a collection problem!

Reviewing and analyzing practice receivables on an ongoing basis should be a commonplace occurrence and exercise for ALL medical practices. Unfortunately we have seen quite often that it is not the case. Size of practice does not discriminate here – larger practices can be just as guilty of this offense as smaller ones. If you are a CPA or consultant reader of this newsletter, make sure you and your clients are performing this task on a monthly basis. If you are a reader that works in, or deals with, the management of a medical practice, you too must ensure that proper review and analytical procedures of the accounts receivable are in place and implemented each and every month. In today’s healthcare operating environment and all of its associated management pressures, one cannot ill afford to pay strict and close attention to practice accounts receivables.

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