Healthcare Practice Strategies – Spring 2013 - Monitor Your Collections Performance
How do you know if you’re doing a good job of collecting receivables? Owen J. Dahl, author of Think Business – Medical Practice Quality, Efficiency and Profit, suggests three different collections performance indicators that practices should monitor every month.
1) DAYS IN ACCOUNTS RECEIVABLE – This is a measure of how well you are turning cash over and getting it into the practice. Simply add up the charges posted for a period of time and divide by the total number of days in that period. Then divide the total accounts receivable by the average daily charges.
For instance, if you have charged $320,000 in the past six months, and if there were 182 days in those months, your average daily revenue is $1,758. Then, if your total accounts receivable are $80,000, the Days in Accounts Receivable is 45.5. That means it is taking an average of 45.5 days to collect your payments. (Goal: Less than 35 days)
2) PERCENTAGE OF ACCOUNTS RECEIVABLE OVER 120 DAYS – This measures the percent of your accounts receivable in each “aging bucket.” Dahl suggests that, in an ideal A/R scenario, your receivables would fall into the following buckets: 0-30 days = 60 percent, 31-60 days = 20 percent, 61-90 days = 5 percent, 91-120 days = 5 percent, and over 120 days = 10 percent. (Goal: Less than 15 percent over 120 days)
3) NET COLLECTION PERCENTAGE – Add up your total collections and divide by adjusted charges (e.g., contractual write-offs) to determine how much you have actually collected on all of your provider contracts. You aren’t always going to be able to collect 100 percent of charges, but you do want to collect 100 percent of everything that is available to be collected. (Goal: 95-98 percent)
Healthcare Practice Strategies – Spring 2013 Issue