Special Report:
Understanding and Measuring Accounts Receivable in an
Ambulatory Surgery Center

Definition: Accounts Receivable (A/R) is the proceeds or payment which the company will receive from its customers who have purchased its goods and/or services on credit. Usually the credit period is short ranging, from few days to months or in some cases maybe a year. A/R represents money owed by entities to the firm on the sale of products or services on credit.(1)

Said simply, for an ambulatory surgery center (ASC), A/R is money owed by a patient for services already provided (a type of credit, i.e., unsecured promises by patients to pay in the future). This is considered a short-term asset by most accountants.

Definition: Accounts Receivable Days (Days in A/R) is an accounting concept related to A/R. It is the length of time it takes to clear all A/R, or how long it takes to receive the money for goods it sells. This is useful for determining how efficient the company is at receiving the short-term payments it is owed.(2)

In other words, for ASCs, days in A/R signifies the average number of days it takes to collect monies owed by patients for services rendered. This measurement assists ASC revenue cycle management staff in determining where to concentrate collection efforts. While there are national benchmarks for A/R days, adjustments may need to be made based on the ASC's payer mix and patient collection policies.

ASC A/R Best Practices: 9 Areas of Focus

The following identifies areas affecting A/R and how measuring A/R can assist ASCs in collecting their money more efficiently.

1. Computer-generated A/R reports. Most ASC software programs offer several ways to report A/R; however, it is important to understand how the report pulls information and whether the center’s A/R is stated as gross or net charges. The most common A/R reports are:

  • A /R by payer
  • A/R by financial class
  • A/R by patient
  • A/R by date
  • A/R by procedure

The "aging of A/R by payer" report is usually found to be the most helpful (this may have a different title in different software). It lists accounts due from each payer and how long they have been owed. These are reported in 30, 60, 90, 120, 150-plus days categories.

In addition to the number of days in A/R, this report assists in evaluating payer mix. Certain payers pay faster than others and, depending on payer mix, this will allow evaluation as to whether days in A/R may be higher or lower than the national benchmark.

2. Factors that affect A/R. There are many things that may influence the size and accuracy of A/R:

  • Accuracy and timeliness in posting charges
  • Contractual adjustments — whether adjustments are posted at time of ASC billing or time of payment
  • Accuracy and timeliness of payment posting
  • Switching guarantor responsibility at the correct time
  • Pursuing non-payments or erroneous payments from payers
  • Collecting upfront co-pays and deductibles
  • Timeliness in collection activities
  • Policy regarding write-off of non-collectible accounts

3. Contractual allowances. One of the reasons payers contract with medical providers like ASCs is to obtain a discount in exchange for volume. This means payers will direct their contract holders (patients) to the ASC in exchange for allowing the payers to pay at a discounted rate. The most common ways to contract are for rates based on a percentage of Medicare rates and rates based on a percentage discount off billed charges.

4. Contractual adjustments. It is important to decide when to adjust the contractual allowances and maintain consistency in those adjustments. Choose one of the two following methods:

  • Adjustment at the time of charge posting (i.e., the claim is submitted with the full fee). If this method is chosen, contracts can be loaded in most ASC software and the contractual adjustment made automatically, which means less chance for error. In addition, this allows the payment poster to cross-check for accuracy of payments as they should match the balance in the system.

    The biggest advantage to making contractual adjustments at the time of charge posting is that it provides a more accurate picture of net A/R and realistic collection expectations. However, there are some accounts in A/R that remain as gross. This includes uncontracted payers whose payment amount is unknown as these cannot be adjusted off until payment is received. This results in a mixed A/R (some at net and some at gross); however, these unadjusted accounts (gross) are usually in the minority.
     
  • Adjustment at the time payment is received. If this method is chosen, ensure the payment poster has copies of all contracts and/or a contract matrix to perform this function accurately.

Since additional adjustments may be made by the accountant, financial reports provided by the accountant may reflect the most accurate A/R total.

5. Calendar versus business days in measuring A/R. Customarily, surgery centers are not open 365 days a year; however, most benchmarks are based on calendar days. It is important to benchmark against other similar ASCS to measure how the center is progressing. If the center chooses to use working days rather than calendar days, this will result in a smaller number and cannot be compared to benchmarks using calendar days. Whichever method is used, make sure it is consistent

6. Third-party payers versus all payers when measuring A/R. When measuring ASC accounts receivable, the goal is usually to pinpoint how long it takes third-party payers to reimburse the center. This information assists collectors in detecting non-payment trends and which payers are not abiding by prompt payment regulations.

However, it is also important to understand how patient balances affect A/R. When measuring total A/R (payers and patients), it often appears much higher than expected, reflecting the possible effects of today’s economy, higher deductibles and more payment plans. That is why patient financial counseling and up-front collections are so important.

Therefore, it is recommended that two separate A/R aging reports be generated, one that includes patient balances to assess the overall picture and another without patient balances which focuses on third-party payers.

7. Non-commercial third-party payers. Be aware of other payers that may inflate A/R over a longer period. Included in the third-party payer category are several other types of claims:

  • workers' compensation;
  • automobile accidents;
  • liability;
  • litigation/lien/letter of protection; and
  • out-of-network.

National A/R benchmarks are customarily based on commercial third-party payers and in-network cases. If the ASC has a preponderance of any of these types of cases, because of the longer time it takes to collect these types of accounts, the A/R may be considerably higher than these benchmarks. It may be necessary to review the A/R history over several months and establish center-specific benchmarks.

8. A/R in a new ASC. There are several reasons why reimbursement may be slower in a new ASC:

  • More out-of-network patients as contracts have not been completed yet.
  • Even when contracts are signed, they may not show up yet in payer software.
  • Financial policies are new and may not be fully implemented (e.g., patient financial counseling, up-front collections, timely patient statements).

Take these factors into consideration when comparing A/R to national benchmarks or establishing goals.

9. Measuring A/R. Although there are several ways to measure A/R, the following method that uses a rolling three-month period is recommended:

  • Use net patient revenue numbers for each of the last three months. 
           a) For accrual method of accounting, this number will be found on the financial statement.
           b) For cash basis accounting, use the gross revenue less adjustment number found in the software program. 
     
  • The total of the three-month net patient revenues should be divided by the number of days (calendar or working) that occurred in the last three months. This number represents the average net revenue per day.
     
  • Use the dollar amount of net patient A/R at the end of the third month in the three-month period being measured. In the example below, this would be the net A/R dollar amount at the end of March.
           a) For accrual method of accounting, this number will be found on the financial statement.
           b) For cash basis accounting, use the net A/R number found in the software program.
     
  • Divide the net patient A/R number by the average net patient revenue per day.

The following example demonstrates the A/R using both calendar and working days. The example shows a 90-calendar-day period with 63 working days.

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Using the above example, the calculations are as follows:

  • $825,000 (net patient revenue) / 63 (working days) = $13,095 net revenue per working day
  • $825,000 (net patient revenue) / 90 (calendar days) = $9,167 net revenue per calendar day
  • $500,000 (March net A/R from financials or software) / $9,167 (net revenue per calendar day) = 55 days in A/R
  • $500,000 (March net A/R from financials or software) / $13,095 (net revenue per working day) = 38 days in A/R

    The net A/R for this three-month period demonstrates how much of the ASC’s money is considered a non-spendable asset ($500,000). This measurement tool can be used to compare the ASC’s quarter-to-quarter progress in collecting the outstanding A/R.

ASC Accounts Receivable: Key Takeaways

Understanding A/R and focusing on the different factors that affect it is paramount to maintain a grasp on an ASC's financial well-being. Measuring days in A/R is important for determining the financial progress of the ASC. This should be used together with other financial reports to further analyze the A/R composition and assist in identifying fluctuations in revenue.

Your center depends on effective and timely collections to sustain a positive cash flow. Controlling the A/R is the critical first step toward attaining that goal. 

References

1. https://economictimes.indiatimes.com/definition/accounts-receivable

2. www.wallstreetoasis.com/finance-dictionary/what-is-accounts-receivable-days