What Is The Best Way To Calculate Insurance A/R Days?

Account receivables turn around time or A/R days (as it is commonly known as well) is the time an insurance claim takes from the moment the practice submits it, to the moment it gets paid. In other words, A/R turn around time is the indicator that measures how fast a health insurance company is paying you.

Recently, the topic of how to calculate this key indicator came up on SOAPM. Chip Hart – my Pediatric Practice Management AwesomeCast co-host – replied with his thoughts on this key metric.

It has been a while since Chip contributed to PediatricInc, so I reached out to him to ask if I could republish his reply to the inquiry made on SOAPM.

Chip answered that his insights are worth thousands of dollars… he also said something about consultants charge for this info, etc., etc. BUT, since he loves the PediatricInc readers so much and is grateful for all the praise and support we’ve given him over the years, he was willing to do an exclusive (*) PediatricInc only 100% discount. :-)

(*) and by exclusive, I mean everybody that didn’t read the post on SOAPM

Continue reading for Chip’s nuggets of practice management wisdom.

Before I begin, we should remember that calculating “turn around time” or “A/R Days” or any of these similar measures requires making a lot of compromises and assumptions. None of the typically used benchmarks are really accurate, in my humble opinion, at least as far as what people think they actually mean. It can still be enlightening work, however.

OK. Thanks for heads up. So, how does one calculate insurance AR days?

Technically, the only way to truly calculate it is to measure the actual dates of each and every charge/payment pair and find the average.

How or where does one find the actual dates of each and every charge/payment?

Your PM ought to be able to generate that data, but even then there are some questions you should consider.

Like what?
  • Is the starting date the date of service or date of billing?
  • Is the ending date when the entire charge is paid off or just some portion
    of the insurance part? Or all of the insurance part?
  • How do you manage claims that are denied first?
  • How about claims that are partially paid?
  • How should you distinguish the patient portion of your balances?
  • Do you distinguish secondary claims?
  • If a claim isn’t paid off yet, exactly how do you count it?
Those are a lot of questions. Does you have to answer them all to calculate insurance AR Days?

If you want to approximate the time it takes you to collect (or, at least, the VALUE of what is uncollected put in terms of your charge rate), do this:

Screen Shot 2015-04-15 at 10.43.07 AM
What does the formula tell you exactly?

This [formula] would produce the “A/R Days” figure most commonly used by a consultant.

Can you offer an example with numbers?

For example, you might have $20,000 in A/R for BCBS and you routinely do $1,000 worth of charges every day for BCBS -> 20 A/R Days. The divisor is, simply, your total charges for Insco A during a time frame divided by the number of days in that time frame. Also note that for the divisor, you want an “average day” sample of AT LEAST 3 months. I prefer 3-6months.

Why is that?

I’ll spare you the math, but you really want a sample that’s a little larger than your expected value…if
you are in the 30-day range, as many of your readers should be, use a 60-90 day sample. There are inherent dangers to sample sizes that don’t reflect your present volume, so don’t use a year or a month (or less).

Seems straight forward. Anything else?

Having grown wary of this measurement, however, I looked for something similar that was more valuable.

Do share

The number I like to track is the relative A/R in the 60-90 days category.

How do you calculate this number?

This can be tracked in different ways, but if you want to compare payers, you can do it with two measures, in my opinion:

  1. How much of your A/R do your TOTAL 60-90 day balances represent?
  2. How much of your 60-90 A/R balances does Insco A represent?

…for 1, you might get a number like “18% of my A/R is in the 60-90 bucket.” Why is this important? Because anything >90 days is practically uncollectable (it happens, but you’re really looking at 10 cents on those dollars).

Of course we don’t want that number to grow, ever. Right?

If that number grows, you might be looking at a collections issue, a billing problem, etc. It’s a key figure,
in my opinion.

How about #2 (how much of your 60-90 AR balances does ins A represent?)

If BCBS suddenly goes from 25% of your 60-90 day A/R to 40%, something bad is probably happening or you wrote off/collected a lot of other money!

Note that you can’t really look at #2 in isolation. BCBS could maintain a steady chunk of your 60-90 A/R and you’d be fooled into thinking things are OK when the entire section is increasing as a result of your biller not doing the job (for example).

For those that don’t know, Chip also has his own blog. Make sure to visit: Confessions of a Pediatric Practice Management Consultant. Hurry over there before Chip decides to forgo keeping pediatric practices alive and independent for fame and fortune.

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