A seamless billing operation means lower AR days. And any practice with a higher AR turnout is not only profitable but gives a sign of healthy practice.
So now the question that most providers and healthcare practices and even hospitals have in their mind is what is Accounts Receivable (A/R) Turnover Ratio and how is it helping the practice? To make it easy for you -AR ratio is mainly the critical area where the Accounts Receivable (A/R) Turnover Ratio indicates the financial metric that reflects a company's ability to efficiently collect payments from its customers. And this becomes vital for healthcare providers as monitoring this ratio is essential to ensure timely receipt of payments for services rendered, which directly impacts cash flow and overall financial health.
Do you know when setting benchmarks to accelerate payments and enhance your revenue cycle, the A/R turnover ratio should be a key performance indicator (KPI)?
So to make it easy for you and improve your healthcare accounts receivable management services here are a few tips and expert resolution.
What Are Accounts Receivable?
If you want to understand what is healthcare accounts receivable you have to understand that - the outstanding payments owed to a company by its customers for services provided. In the healthcare industry, this typically involves payments from insurance companies and patients. Reducing the lag time in accounts receivable, especially when it exceeds three months, is essential to maintaining a healthy cash flow and staying below national MGMA benchmarks.
Why the A/R Turnover Ratio Matters the most for the healthcare providers or hospitals?
As most healthcare practices in the U.S. aim to receive payments within two months of providing services, at times getting this dream come true can be a real challenge. Moreover, factors such as geographic location, payer mix and the type of practice can also influence the time it takes to collect payments. It is no doubt that understanding the A/R turnover ratio not only helps in identifying inefficiencies but also shows the areas for improvement in your billing processes that you can work on.
So how can one calculate accounts receivable turnover ratio?
To get a clear picture of your collection efficiency, you need to first understand how to calculate both your days in A/R and the A/R turnover ratio.
Days in A/R Formula
Days in A/R = (Total Accounts Receivable / Monthly Charges) * Number of Days in the Month
A/R Turnover Ratio Formula
Also, accounts Receivables Turnover = Net Annual Credit Sales / Average Accounts Receivables
Understanding why averages can be misleading
While the A/R turnover ratio provides valuable insight, it's essential to remember that it represents an average. This means it can obscure important details, such as
Hidden Past Due Receivables: Faster payments can offset slower ones, hiding delinquent accounts.
Aging Analysis: To detect slow-paying customers, reviewing a detailed aging report of accounts receivable is crucial.
How to one ensures benchmarking and monitoring A/R Turnover?
It depends on the time when you've done calculating your A/R turnover ratio; compare it with previous periods to track trends. This comparison will not only help you determine if your collection rates are improving but further if there are signs of lagging collections that you need to work on. Always remember: a good rule of thumb is that your total accounts receivable should not exceed 1.5 times your monthly charges.
A/R Categories
Current A/R: Payments due within 0-30 days.
Outstanding A/R: Payments due within 30-60 days should be actively managed by your billing team.
If you notice Medicare claims falling into the 30-60 day range, it could signal payer denial issues that need immediate resolution. Below here are few exceptional strategies to improve your AR turnover in months.
How Outsourcing Can Improve A/R Turnover
A/R Turnover improvement strategies
Stifling credit policies: In case your ratio of turnover is too low, stricter credit policies can be made as well as the collection effort becomes more aggressive.
Too aggressive: At the other extreme, in case your turnover becomes too high, you are preventing sales because it is being curbed through excessive strictness.
Tracking and Adjustment: The ability to track and thus plan to change the cash inflow A/R turnover ratio creates an avenue to improve.
Improving A/R Turnover through Outsourcing
Outsourcing your medical billing and accounts receivable management to a specialized company can significantly improve your A/R turnover ratio. Here's how:
Expertise in Revenue Cycle Management: Professional billing companies have in-depth knowledge of the revenue cycle, ensuring faster claims processing and fewer errors.
Advanced Technology: Outsourcing partners utilize cutting-edge billing software and automation tools to streamline collections.
Focus on Denial Management: They proactively address payer denials, reducing delays in payment.
Follow up: Dedicated teams follow up with unpaid claims, reducing the possibility of accounts aging unnecessarily.
Reporting: Customized reporting on regular and detailed reporting on your financial performance helps in decision-making.
Do you struggle with high days in A/R and delayed claims? An experienced billing company can help accelerate your collections and improve your cash flow, so you can focus on patient care while maintaining a healthy financial outlook.
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