Old receivables are an “age old” problem for most all medical practices. It a fact of life for any active medical practice for which there seems no cure. Unfortunately, old receivables are much like the common cold – There is no cure but there is preventive medicine. For most practices, there is usually a heavy emphasis on billing and less emphasis on collections. While everyone knows the importance of collections, most offices are understaffed to adequately perform the collection function. There just never seems to be enough time for both billing and collection. Therefore, the first step is to make sure collections are receiving the same amount of time and attention as the billing process. Adding additional personnel is difficult but usually the return on the investment is quite high.
The next form of preventive medicine is to track the aging of the practice’s accounts receivable on a monthly basis. We recommend creating a comparative worksheet that displays an aging of the receivables from month to month. By viewing this worksheet, you can see what is normally called “bracket creep.” In other words, you can see the receivables getting older and older. This usually indicates a problem with office collection activities and must be investigated at once. Also using the worksheet, track the percentage of the receivables that are ninety days old and older. The benchmark should range from 15% to 18%. If the ninety-plus receivables balance exceeds 18%, investigate immediately.
Another area worth a practice’s attention is the amount of filed insurance claims that have yet to be paid. In other words, how much of the practice’s total receivables are really unpaid insurance accounts. Ideally, every practice should receive payment on average within 45 days from the date of service. If the average exceeds this benchmark, there is usually a problem with either the billing process or the collection process. Either the claims forms are getting filed late or the insurance receivables are not getting followed up on a timely basis. To speed the collection process and thus maintain a lower receivables balance, a reminder to bill as many claims as you can electronically.
When reviewed an aging of the accounts receivable at any point in time, identify the balances that are less than $200. If there are many of these type balances, determine if the amounts could have been collected at the front desk at the time the patient checked out. Any problem with front desk collections will almost surely result in a receivables problem.
Finally, another form of prevention is to track on a monthly basis the practice’s accounts receivable ratio. Oftentimes we are asked what should be a “reasonable” balance for any particular practice. Our answer is based on this ratio. The accounts receivable ratio is calculated by dividing the month end accounts receivable balance by the practice average gross production for the prior twelve month period. The following are acceptable receivable balances based on the calculation:
Primary care practices Ratio between 1.0 and 2.0
Specialty & others Ratio between 2.0 and 3.0
Under no circumstances should the accounts receivable ratio exceed three times average monthly production. If it does, or if your practice’s ratio falls outside the ranges above, investigate immediately.