Why days in accounts receivable is a key metric for healthcare finance pros

While every financial metric carries importance in running a healthcare business, tighter margins means managing days in accounts receivable is becoming more important than ever.

While every financial metric carries importance in running a healthcare business, tighter margins means managing days in accounts receivable is becoming more important than ever.

Days in accounts receivable measures the amount of time between patient discharge and when payment is made. This directly impacts cash flows for the facility.

"The quicker the turnover in your accounts receivable, the less cash you have to find somewhere else," said Sean McAleer, senior director of revenue cycle operations at NYU Langone Medical Center in New York City. "More to the point, it is the metric we use to monitor how quickly insurance companies process claims and pay the cash we are owed."

The ultimate aim is minimizing the lag between claim submission and when the payment for those services is received. A/R days measure how well you are completing that objective.

"First and foremost is dropping a clean, accurate claim to the payer as close to discharge as possible," said Alex Fernandez, chief financial officer at Broward Health Medical Center in Ft. Lauderdale, Florida. "The sooner this is completed, the sooner the check should be issued."

[Also: Why days cash on hand is so important for hospitals]

One of variables tracked as part of A/R days planning is your payer mix. You need to have a good handle on which payers cut a check sooner than others.

"Insurance payment is absolutely the biggest part of what we do and what we manage," said Wesley Smith, vice president medical center finance, revenue cycle operations at Langone. "We have payment goals based on our experience with the major payers. From this history, we know we should be getting a certain amount of money each month. If we don't, we have metrics in place to find out where the issues are."

A metric often used is "cash in 60 days," which shows how quickly the newer bills are paid. Often when the cash flow isn't as expected, the problems are with the newer bills. This is an early warning system for delays that may appear in the future.

Another area is payment discrepancies. Even in the electronic age, humans are involved and they can make mistakes. Langone has a team looking at every check to make sure they are paid correctly. They meet weekly with their payers to go through problem claims and try work out bottlenecks. Senior representatives of both meet monthly with the team that negotiates the Center's contracts to find reasons for discrepancies and work out ways to avoid them.

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"We also have a very robust process for analyzing denials," said Debra Menaker, senior director of revenue cycle operations at Langone. "We look at reasons, fix what we can, go back to the department to fill in any blanks and look at needed process changes."

Minimizing A/R days is a team effort. Participants are drawn from various areas around the facility.

"In a team approach, everybody impacts on the ability to collect on a claim," said Jody Halpine, revenue cycle manager at Broward. "All should understand the importance of their responsibility in the revenue cycle as well as how their work quality impacts other members of the revenue cycle process."

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