Calculating the true cost of accounts receivable for medical providers is an abstruse and challenging task. In fact, on a DIY basis, the real cost of A/R is almost impossible to figure. In 2009, the Harvard Business Review issued a study that calculated the cost of carrying accounts receivable for businesses in general.
Their findings follow:
30 days -1.82%
60 days — 10.29%
90 days – 19.74%
120 days — 30.71%
Calculating the True Cost of A/R is Difficult
Looking at a medical practice on an accrual basis may show it is a success — that is until an analysis of cash flow shows a severe shortage of cash to support operating expenses.
Unless a practice only accepts private pay patients, the cost of A/R is difficult to pin down. There are several reasons for this including,
- More insurers are shifting the costs of healthcare to patients with higher deductibles and copays;
- Federal payment programs such as Medicare reduced the time for “timely” filing of claims and appeals — Medicaid and commercial insurance carriers are following the lead of CMS;
- Some payers are increasing efforts to cut payment or deny claims; and
- Coverage for previously covered treatments and medical devices are less or eliminated.
However, the most important reason A/R is so difficult to measure is that many, if not most ASCs use a single Master Charge Sheet, with a “retail” charge, thus the nominal value of Accounts Receivable is usually overstated. In other words, a cash-paying patient charge is $2500 for a particular procedure. That is the charge carried on the receivable for all payers. It is not until the charge arrives and the discount applied that the correct receivable number is meaningful.
Finding the Cost of Your A/R
The first step in finding the true cost of accounts receivable is to load each contract and then bill at the contract rate, making sure to bill the copay and deductible to the patient at the proper amount.
This is a labor-intensive task for many facilities, however, as many commercial contracts pay Medicare + a percentage it is the deductible and copay that is more troublesome.
Next, review the dollars in each group from current to 120 days. Multiply the total for each category by the percentage in the chart above. For instance, if 60 days has $87,000 total uncollected, multiply that by 10.29. That equals $8,952. If you add the total to the amount of your 60 days outstanding, the cost to your facility is $95,952 ($87,000+$8,952). Do this for each bucket and then add them up. Wow! The number is huge! It is also more estimate that firm.
The cost of your accounts receivable is more than the cost of the money owed to your ASC. There are other expenses involved in carrying and managing your A/R. These expenses include,
For ASCs without a CFO, the task of figuring out the true cost of A/R will either fall to the CEO with many other challenges facing him or perhaps a majority owner.
One cost-effective solution is to use a billing service that specializes in ambulatory surgery center billing. Select a company with a proven track record for the knowledge, staff, and technology to value your A/R and help lower it.