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Business Advisor: How to Measure Your Cash Flow
AR days tell you how long it takes to collect on the case.
Stephanie Martin
Publish Date: September 3, 2015   |  Tags:   Financial Management
bill submission CHECK IN THE MAIL Every day that passes between surgery and submission of the bill will accumulate on the back end in your accounts receivable days.

Of all the benchmarks we can track in surgery, AR days might be the most meaningful. Accounts receivable measures the days from the time you see the patient until you collect money for the case. How quickly you turn billed charges into revenue is a true indicator of your facility's financial health. For surgery centers, 28 AR days is a good benchmark. For hospitals, the goal is 40 AR days. Here's a simple formula to compute AR days.

receivables ?? 4 weeks of gross charges x 30 days = AR days

Let's walk through this formula. First, to determine your receivables, develop an aging report that shows how much money your business office staff is currently collecting. Next, determine your facility's total charges for the past 4 weeks. Divide your receivables by 4 weeks of gross charges, and then multiply that figure by 30 to come up with AR days.

Simple arithmetic
Now let's plug in some real numbers to see what cash flow looks like. Say you have $3,693,486 in total receivables and $3,631,469 in gross charges over the last 4 weeks. You get 1.02 when you divide gross charges by receivables. Multiply 1.02 by 30 and you get 30.6, which is the average number of days it takes you to collect on your case. That's a healthy number, but you should strive for less than 30 days.

It's also a good sign if you've got slightly more to collect (receivables) than you've billed out (4 weeks of gross charges). That means that everyone is doing their part, from surgeons dictating op reports between every case to your business office submitting bills within 24 hours of surgery. Our business office generates daily AR numbers so we can keep constant tabs on our collections. You'll see patterns. For example, we receive payments from one of our primary third-party payers every Thursday, so we know our AR days will typically climb until then.

Trouble spots?
Tracking benchmarking trends on a regular basis gives you a feel for your overall performance and also provides insight into areas you can improve. Maintaining AR days between 25 and 30 is a sure sign of financial health. If you collect money in less than 25 days, every member of your business office deserves a raise. If your AR days are 35 or more, you likely have a collections issue that you need to address. If it takes longer than 60 days to collect money you're owed from third-party payers, you're basically giving them an interest-free loan.

If your AR days extend past 35 days, explore ways to improve it. Is your facility waiting too long to send out bills? How soon after procedures do surgeons complete and submit operative notes and how soon after that does your business office code the cases and submit the bills to the insurer? Every day that passes between surgery and submission of the bill will accumulate your AR days on the back end. We ask surgeons to complete their dictations between cases to ensure we have the op notes the next day, when we code the procedure and send the bill. We try to have the entire process completed within 24 hours of surgery.

To catch potential collection issues before they become major problems, keep claims in a 15-day tickler file, so your business staff can confirm that insurers received the claims you've sent. If they haven't, you've only wasted 2 weeks in your collection process instead of waiting 30 days to find out a bill wasn't processed correctly. OSM

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