Managing Accounts Receivable

Increase Cash Flow by Managing Accounts Receivable

 Physician practices have an opportunity to speed up cash flow and maximize income from health plans and patients by managing their accounts receivable (A/R) using techniques that are standard in commercial business and the hospital industry.  The aggressive management of outstanding bills will provide the physician with (1) an understanding of how the billing function is working, (2) a check on health plan compliance with contact terms, (3) an early alert to potential contract payment problems, and (4) a tool for early intervention to resolve problems.

The Aging Report as a Primary Tool for Managing Accounts Receivable

Some of the most frequently voiced concerns in physician practices deal with the amount of outstanding A/R.  Is this amount standard for similar practices, or is it too much?  Is this a crisis, or a manageable problem?  What is causing it?  Can it be reduced?

Much of the confusion about A/R comes from billing reports that are not adequate to assess and manage receivables.  Frequently physicians are given extensive reports about cash collections, but these provide only a “snapshot” of cash that has come in for the immediate period of time covered by the report.  These reports are fine for the purpose of short-term cash accounting, but do not provide the data necessary for the assessment and management of A/R, which requires a “long term” look at financial performance.

The basic tool for such a long-term look is an Aging Report.  All medical practices that accept health plan payments have a certain amount of their billings tied up in A/R that stretches from 0-150 days in length.  The usual breakdown of A/R is measured in 30-day increments, and a percentage of A/R is calculated for each category.  This basic report should be split out to measure (1) Total A/R, (2) Health Plan A/R, and (3) Guarantor A/R (the patient’s share of the bill after the insurance plan has processed the claim).

Aging reports are easily produced by mainstream billing software.  The effective use of such reports will enable the practice to identify problems, early, prioritize, and concentrate efforts on resolving the “big ticket” items first.

The following is an example of an Aging report broken down by individual health plan for a medical group.  The numbers are hypothetical and are intended to illustrate issues in analysis.

Aging Report Major Carriers

Days Outstanding

Analysis of the Report

It is important to prioritize (1) the cumulative percentage of A/R under 60 days and (2) over 90 days.  The more A/R under 60 days (preferably 65% – 70% of the total) and the less over 90 days (preferably less than 15%), the better the cash flow.

The above report shows that overall, the A/R of the practice is acceptable (56% under 60 days, 15% over 90 days), but there is a problem with Plan C, which has only 37% of A/R under 60 days, and 21% of A/R over 90 days.

The practice should follow up by running a report on Plan C A/R by further breaking this down by individual patients.  This will enable it to pin down which accounts are not paying, and if the deficit is caused by the plan (processing issues) or the patient(s) not paying.

Health Plan A/R may be calculated by either the Date of Service or the date the bill is sent to the plan.  It is preferable to calculate based on Date of Service.  Guarantor A/R is calculated based on the date the plan processes the bill and makes the determination of what the patient owes.

Key Issues in Evaluating A/R Reports

1. Comparison of community average days in A/R for similar practices. It is important to determine if the aging patterns are standard for a similar practice in this geographic location, and if this pattern has changed significantly over time.  There are different percentages for each type of practice, and the amount in each category will vary significantly if the practice is hospital based (General Surgery) or office based (Family Practice) and if the mix of payors (Medicare vs. Commercial Insurance) is different from the community average.

2. Comparison over time and identification of unfavorable trends. It is important to compare the practices’ data over time (preferably once every quarter) to see if the percentage of A/R in the 0-60 day and over 90-day categories is changing significantly.

3.  Validation of data and identification of anomalies. If an unfavorable trend is identified, is it the result of one or only a few large bills?  Are these bills outstanding due to denials or ineligible patients (non-contracted, no prior authorization)?  Is one poorly performing health plan or patient skewing the data?  Determining the size of the problem in dollars is critical.

4.  Is the A/R Aging Report current and accurate? The report should contain only A/R that is truly collectible.  If an account has been determined to be non-collectible, or sent to a collection agency, it should be written off the aging report.  If this is not done, the uncollectible A/R will unfavorably skew the data and give a misleading image of plan performance.

5.  Prioritize efforts in working A/R. First, address the biggest outstanding bills, starting in the 60+ day category for both health plan and guarantor A/R.  This is the most “collectible’ category of billings, as enough time has elapsed since the date of service (or EOB posting for Guarantor A/R) for the bill to have been received and paid.

It is recommended that your billing system work the A/R as follows:

• Send a bill to the health plan no later that 3 business days after date of service
• Sent out a second bill (if the first bill has not been paid) 3 weeks later
• If this second bill has not been paid within 2 weeks, call the health plan or Guarantor to see if the bill has been received, and if not, if the address is correct
• When dealing with a Guarantor, try to get a commitment to pay within two weeks, or
• Set up a payment plan for large bills ($200+). Try to get 50% right away, and the remaining balance within 6 months (depending on the size of the remaining balance)
• If you can not get in touch with the Guarantor, send a letter indicating payment is due within two weeks, and request the Guarantor get in touch immediately by telephone.
• If no payment is received by the deadline set by the first letter, send a second letter indicating the account will be sent to a collection agency if funds are not received within another two weeks (be date specific).
• If no funds are received, send the bill to a collection agency, send a third letter indicating the account has been sent to an agency, and note the Guarantor is to contact them directly for payment. Generally, the patient is discharged from the medical practice at this point, and not permitted to return until the bill is paid and future payment arrangements are worked out with the practice.

Use Focused Sampling to Identify Billing Problems Affecting A/R

One technique for drilling down on A/R problems is to sample a small number of accounts, focusing on specific plans and large bills.  This “management by exception” technique works by identifying major problems and concentrating on efforts on resolving problems with a high monetary return.  Sampling is prioritized as follows:

• Sampling of major payors only
• Sampling of high volume, high reimbursement CPT codes
• Concentration on one payor per month or other defined time period

Pull an EOB for a particular bill, and note:

• How long after the DOS was the bill received by the health plan
• If there are any revenue denials, what was the reason
• The percentage of total payment expected (health plan + Guarantor) to the prevailing Medicare rate

Key Issues in Reviewing a Sample

1. Time intervals. Are there excessive time delays between the date of service, the date the biller received the paperwork, and the date the claim was submitted?

2. Expected payment. Does the expected payment correspond to the fee schedule set by the payor?

3. Payments to date. Was the co-pay collected, and was it in the correct amount?

4. Posting of payments. Were all collections posted in a timely manner?  After 100% of the contracted rate was paid, were the remaining billed charges adjusted off the system?  Were all over payments by the Guarantor paid and posted in the system?

5. Were uncollectible accounts identified? Was the cause for non-collection identified?  Was a recommendation forwarded to practice employees about what caused the denial?  If the account is truly not collectible, was it forwarded to a collection agency in a timely manner?

Frequently Encountered Problems

• Excessive delay in getting the encounter from the physician to the biller
• Excessive delay in electronically submitting claims resulting from the biller “batching” claims for convenience (which causes a delay in transmittal to the health plan or Guarantor)
• Coding that does not match that of a “facility (hospital, ASC or OTC)”
• Payor issues: no or incorrect NPI or Tax ID on file, incorrect or outdated practice address, no record of receiving the claim
• Human error – claims submitted with demographic errors (patient age, sex, address) or typographical errors
• Inaccurate or late posting of charges or payments
• Guarantor refunds not posted

Questions about how we can help you manage your accounts receivable? Contact HSC Management today!