This article examines the importance of the 90-day Account Receivables rate. To define Accounts Receivable (AR), AR is outstanding money owed to your practice by its debtors. Debtors are insurance companies, patients, etc.
Current Accounts Receivable is money due your practice that has been outstanding between 0 to 29 days. 30-day AR is money due for 30 to 59 days. 60-day AR is money outstanding for 60 to 89 days. 90-day AR is 90 to 119 days. 120-day AR is receivables that has been outstanding for over 120 days. The rate is calculated by dividing the outstanding amount for a period by the total amount of all outstanding money owed your practice. For example, let's assume for a single visit you are owed $100. The patient has a copay and has paid you $50. Your Current AR amount includes the outstanding $50. Your current AR rate for this transaction is 50%.
The most important AR rate to use for management and comparison purposes is the 90-day AR rate. Outstanding receivables that move from the 90-day AR to the 120-day AR are highly susceptible to arbitrary write-offs or other accounting "fixes". Most billing organizations will write-off older outstanding receivables without the approval of practice management. Another billing trick is to arbitrary write-off amounts over the Medicare fee schedule, not maximizing reimbursements. Receivables, that are greater than the Medicare fee schedule and owed to the practice by private insurance, are harder to collect. Another trick is not to challenge insurance companies when they bundle claims. Maximizing reimbursements, no arbitrary write-offs and fighting bundling takes time, billing expertise, and cause your AR and collection rates to suffer. Extra work reduces the billing operation's efficiency/profits and makes comparisons suffer by increasing their AR rate and pointing out their lack of billing expertise. The 90-day AR rate will tell you if your billing operations is doing its job.
The collection rate is not a good Key Performance Indicator (KPI). This number is easy to game by a billing operation not doing their job. If you bill out at Medicare's fee schedule, then you would have a 100% collection rate, but would be losing money by not maximizing your reimbursements from private insurance companies. If you bill out multiples of the Medicare fee schedule, then you would capture more of what private insurance companies owe you. The reason they owe you this money is because you negotiated for this higher fee when you went through their certification process. Thus, when you set your fee schedule to collect the additional reimbursements you negotiated for, your collection rate will look bad when amounts greater than the Medicare Allowable fees are written-off. But, you will collect more money. Remember, the collection rate, can be gamed and not a true indicator of a billing company's performance.
The industry standard for 90-day AR is between 15%-20%. Based on those percentages, let's look at a practice that grosses $1,000,000 a year and has a 90-day AR of 18.5%. If we take a ¼ of $1,000,000 ($250,000), we have a 90-day AR of $46,250. That means you still have $46,250 still owed to you on work performed over 3 months ago. Also, remember it is hard to say what happens to that $46,250 after 120 days because of the uncertainty of how write offs are handled. Yearly, $185,000 of your money that might be lost.
Let's now transition into how SMB Medical Billing works for you to get your money and shore up your financially security. For 18 years of business, SMB Medical Billing's focus has been on Accounts Receivable. Owner Glen Sands has determined that if a biller can keep the cash flowing for a podiatry practice, by squeezing every cent out of each claim, it would add tremendous value to the practice. SMB's standards for Accounts Receivable has always been a 3% 90-day AR rate and 1% 120-day AR rate, with NO arbitrary write offs or accounting "fixes" to achieve those numbers. Any claim that isn't fully paid within 31 days, SMB physically picks up the phone and calls the people who owe you money. Additionally, SMB doesn't allow payors to bundle claims thus increasing your reimbursement.
Let's circle back to the example of a $1,000,000 practice where SMB is now handling the billing, achieving 3% after 90 days. With this low AR rate, the 90-day AR amount is only $7,500. This is a savings of $38,750 from the $46,250 of the average practice's 90-day AR! Annually, that is a savings of $185,000. The extra cash flow allows you to achieve many practice goals. These goals may include: increasing salaries, increasing marketing (growth), maxing out retirement programs, acquiring other practices - -your financial goals are thus more easily realized. Essential cash saved is used to purchase valuable assets and increase net worth.
Key Take Away:
* Industry standard is 18.5% for 90 AR
* SMB's consistent 90-day AR standard is 3%
* Cash flow, and getting paid in full is the life blood of a practice
* SMB is recession resistant which makes your practice more recession resistant
* Partnering with SMB creates a consistent cash flow
Thank you for your time. If consistent cash flow is something that is important to you feel free to call anytime at 888-874-5503.