Analyzing the Impact of Accounts Receivable Days on Cash Flow Management in Healthcare Facilities

Accounts receivable (AR) is the money that healthcare organizations are owed by patients, insurance companies, and others for services they have already provided. In healthcare, payments often take days or weeks to arrive after services are given. This makes managing the money owed a big challenge.

Days in Accounts Receivable (Days in A/R) shows the average number of days it takes a healthcare provider to collect payments. It is found using this formula:
Days in A/R = (Total Accounts Receivable) / (Average Daily Charges)

For example, if a facility has $100,000 owed and charges $10,000 daily on average, the Days in A/R is 10 days. A smaller number means payments come in faster and cash flow is better.

Many in the industry say healthcare places should keep Days in A/R at 30 days or less. But some, like hospitals, often take longer because billing is complex and government payers take time to pay.

Why Days in A/R Matters for Healthcare Facilities

When Days in A/R is higher, money comes in later. This holds back cash that healthcare places need to pay bills like salaries, equipment upkeep, and building costs. If payments are late, healthcare groups might run low on cash and have money problems.

A study by Samuel Yeboah shows that longer Days in A/R lead to higher financial leverage. This means organizations borrow more money to cover short-term needs. According to this study, done from 2018 to 2022 in U.S. healthcare, every extra day in Days in A/R raised borrowing by 2.20%. This makes the organization rely more on outside money, which can add costs and reduce flexibility.

In fields like drugs and medical devices, effects are stronger. They see a 5.10% increase in borrowing for each extra A/R day. This shows how fast collections affect cash flow and money health, especially in areas needing lots of capital.

Accounts Receivable’s Effect on Cash Flow Management

Managing cash flow in healthcare depends a lot on when money comes in compared to when bills must be paid. When revenue is tied up in accounts receivable, delays in collecting payments cause cash shortages. This affects daily work and cuts down the ability to invest.

Mike Enright, a specialist in accounts receivable, says, “Accounts receivable represent an investment. The payoff doesn’t happen until customers pay their bills.” The longer this “investment” stays unpaid, the less cash the provider has to use in their operations.

One way to check if cash flow is good is to look at the average collection period. This shows how fast sales turn into cash. Lowering this time helps providers pay bills, fund upgrades, and offer good care.

Challenges in Managing Accounts Receivable in Healthcare

• Complex Billing Processes: Medical billing is hard because it uses many codes, insurance plans, and rules. Mistakes can cause denied or delayed claims.
• High Denial Rates: Up to 30% of healthcare claims get denied. Denials must be fixed fast to avoid payment delays.
• Patient Balances: Collecting from patients after service is hard. Only about 57% of patient balances are collected after billing, says the Medical Group Management Association (MGMA).
• Long Payment Cycles by Payers: Insurance plans often take a long time to process claims and pay.
• Limited Staff and Resources: Small practices may not have enough trained staff to follow up on claims quickly. This leads to longer Days in A/R.

Fixing these issues is important to improve money cycles and lower financial risks.

Key Performance Indicators for Healthcare Revenue Cycle Management

Healthcare groups check certain KPIs (Key Performance Indicators) to see how well their revenue cycle works. Days in Accounts Receivable is a main financial metric. They also watch related points like:

• Denial Rate: The percent of denied claims, which shows billing or eligibility problems.
• Cost to Collect: The money spent on getting payments, including staff and tech costs.
• Adjusted Collections Ratio: The actual money collected compared to what was expected.
• Total Discharged Not Billed: How many claims for done services were not sent out.
• Bad Debt: Money likely not to be collected even after billing.

Jordan Kelley, CEO of an AI RCM company, says these KPIs help healthcare groups watch efficiency and find areas needing work. Using clear data and assigning people to track KPIs makes finance management better.

Best Practices for Reducing Days in Accounts Receivable

Healthcare providers wanting to lower Days in A/R and improve cash flow should try:

1. Accurate and Timely Billing
   Submit correct claims fast to avoid denials and get payments sooner.
2. Insurance Eligibility Verification
   Check patient insurance before service to prevent rejected claims.
3. Denial Management
   Fix denied claims quickly by finding the causes and resubmitting them.
4. Patient Financial Communication
   Tell patients clearly about costs and offer payment plans to collect more balances.
5. Aging Schedule Analysis
   Review overdue accounts regularly to focus follow-up on slow payers.
6. Outsourcing
   Hire experts for tasks like claim processing and denial follow-up to boost efficiency.

These actions help keep cash flow steady and reduce the need for expensive outside loans.

Impact of Accounts Receivable A/R Aging on Cash Flow

An accounts receivable aging schedule breaks down unpaid bills by how late they are: current, 1-30 days late, 31-60 days late, and over 60 days late. It is a key tool for managing cash flow. This report shows where payments are late and where risks lie.

For example, Roth Office Supply’s aging report once showed $7,000 of its $11,200 AR was current, but $4,200 was late. This showed a risk to cash flow. Healthcare providers can use similar reports to find payers likely to delay payments and focus collection efforts there.

AI and Workflow Automation in Healthcare Revenue Cycle Management

AI-Powered Front-Office and Revenue Cycle Solutions

Technology helps improve managing accounts receivable and reduces Days in A/R. Artificial intelligence (AI) and workflow automation are strong tools for this.

Simbo AI uses AI for front-office tasks like phone answering, appointment reminders, eligibility checks, and payment talks. This cuts down admin work and makes patient communication faster and accurate.

AI-driven revenue cycle software also automates billing, sending claims, tracking denials, and posting payments. These systems find coding mistakes, spot underpayments, and flag claims that might be denied. Machine learning allows them to get better over time by learning patterns and improving workflows.

Benefits of AI and Automation

• Faster claim processing with fewer mistakes and quicker payments.
• Automatic denial analysis and advice on fixes.
• Better patient communication that clears billing doubts early and raises payment rates.
• Frees staff from repetitive work so they can handle tougher cases.
• Real-time reports on KPIs like Days in A/R, denial rates, and collection trends.

One company, MD Clarity, offers software that helps healthcare providers lower Days in A/R by improving billing, appealing denials, and tracking payments. This speeds up revenue and improves cash flow.

Financial Impact of Inefficient Accounts Receivable Management

Without good AR management, healthcare groups lose a lot of money. MGMA says providers lose 5% to 15% of yearly revenue because of poor AR processes. High denial rates or slow payments can lead to cash flow problems that threaten running day-to-day operations.

Hospitals provided about $41.6 billion in unpaid care, says the American Hospital Association. This relates to billing problems inside and payment delays outside. Also, each claim costs $15 to $20 or more to handle. If denied, costs can triple.

These losses push administrators and IT managers to improve revenue cycle steps, lower AR days, and boost collections.

Practical Suggestions for Medical Practice Administrators and IT Managers in the U.S.

To better manage accounts receivable and improve cash flow, healthcare administrators and IT managers can:

• Use revenue cycle management (RCM) software for automating claims, denial handling, and tracking performance.
• Train staff in billing accuracy, payer rules, and fixing denials.
• Check KPIs like Days in A/R, denial rates, and aging reports regularly to catch issues early.
• Use AI tools for patient calls and messages to reduce no-shows, verify insurance, and collect payments.
• Outsource certain AR tasks or denial follow-ups to experts for better results.
• Use automation to reduce billing mistakes, speed payments, and free staff for important work.

By doing these things, healthcare facilities can get payments faster, improve cash flow, and keep finances stable.

Wrapping Up

Days in Accounts Receivable is an important number that affects cash flow. Good cash flow is needed for smooth healthcare operations. Managing AR well, supported by technology like AI and automation, helps reduce payment delays and lowers financial strain on U.S. healthcare organizations.