A/R Management Performance

To print the RBMA Key Indicators of A/R Performance from PDF, click here.

1. Adjusted Collection Percentage
Formula: (Adjusted Collections ÷ Adjusted Charges) X 100
Definitions:

• Adjusted Collections: (Gross Collections – Collection Offsets)
• Adjusted Charges: (Gross Charges – Total Adjustments)
• Gross Collections: Revenue collected from Gross Charges.
• Collection Offsets: Refunds of dollars collected in error + returned checks.
• Gross Charges: Full dollar amount of all services rendered to patients.
• Total Adjustments: Amounts which were never expected to be collected, by virtue of laws, regulations, contracts or internal policies applicable to the services provided by the entity.

The adjusted collection percentage is a measure of the effectiveness of a business in collecting on accounts that are available for collection.

2. Days Charges in Accounts Receivable
Formula: (Total A/R Balance ÷ Average Daily Gross Charges)
Definitions:

• Average Daily Gross Charges: (Average Monthly Gross Charges ÷ 30)

The days charges in accounts receivable indicator provides a rough measure of the amounts that are outstanding in the accounts receivable. This measure provides a context for evaluating the total accounts receivable balance among practices whose operations are very different in size and scope. RBMA recommends using a 6 to 12 month average.

3. Total Write-offs as a Percentage of Gross Charges
Formula: (Total Write-offs ÷ Gross Charges) x 100
Definitions:

• Total Write-offs: Amounts that were expected to be collected, but the organization was unsuccessful in collecting. Bad debt, bankruptcy, non-covered services, timely filing denials, small balance, return mail (unable to locate the responsible party), and patient deceased all are reasons money may not be collected as originally anticipated.
• Gross Charges: Full dollar amount of all services rendered to patients.

This key indicator represents the relationship between the total value of all services billed (gross charges) and the balances that are not collected and are removed from the A/R books as write-offs. The expectation at the time the services were billed was that they were available to the organization for collection.

4. Total Write-offs as a Percentage of Adjusted Charges
Formula: (Total Write-offs ÷ Adjusted Charges) x 100
Definitions:

• Total Write-offs: Amounts that were expected to be collected, but the organization was unsuccessful in collecting. Bad debt, bankruptcy, non-covered services, timely filing denials, small balance, return mail (unable to locate the responsible party), and patient deceased all are reasons money may not be collected as originally anticipated.
• Adjusted Charges: (Gross Charges – Total Adjustments)
• Gross Charges: Full dollar amount of all services rendered to patients.
• Total Adjustments: Amounts which were never expected to be collected, by virtue of laws, regulations, contracts or internal policies applicable to the services provided by the entity.

Total write-offs as a percentage of adjusted charges is closely related to the previous key indicator, total write-offs as a percentage of gross charges. It adds another dimension to the overall analysis by calculating the statistic after removing from consideration the adjustments which, for the most part, are known prospectively.

5. Bad Debt Recovery as a Percentage of Collection Agency Write-offs
Formula: (Amount Recovered by External Collection Agency ÷ Collection Agency Write-offs) x 100
Definitions:

• Collection Agency Write-offs: Amounts that, in an ideal world, the practice would have collected from patients, but which the patients failed to pay and were sent to an outside collection agency for additional pursuit; e.g., bad debt write-offs.

What constitutes a “good” value for this statistic is problematic because of the hidden interaction between the effectiveness of internal collection processes and the performance of the collection agency. Although the Data Committee has chosen to have a higher number represent a more desirable outcome—focusing on collection agency performance—this is not necessarily the case if accounts could have been collected more efficiently internally.

6. Billing/Collection Expense Percentage
Formula: (Billing/Collection Expense ÷ Adjusted Collections) x 100
Definitions:

• Billing/Collection Expense: All costs identified as incurred in the process of collecting, recording and transmitting charge information, plus the costs of collecting, posting and depositing payments for these services. Bank lockbox fees, credit card fees, and fees paid to mailing services and to collection agencies are included here.
• Adjusted Collections: (Gross Collections – Collection Offsets)
• Gross Collections: Revenue collected from Gross Charges.
• Collection Offsets: Refunds of dollars collected in error + returned checks.

The primary reason for analyzing the relationship between the expenses that are incurred for billing/collection purposes and the adjusted collections is to evaluate the efficiency of the billing/collection process.

7. Billing/Collection Cost per Procedure
Formula: (Billing/Collection Expense ÷ Number of Procedures)
Definitions:

• Billing/Collection Expense: All costs identified as incurred in the process of collecting, recording and transmitting charge information, plus the costs of collecting, posting and depositing payments for these services. Bank lockbox fees, credit card fees, and fees paid to mailing services and to collection agencies are included here.
• Number of Procedures: Total Professional Component, Technical Component or Global CPT^®/HCPCS codes billed during the reporting year. Counts of the following commonly billed items are not included: a) contrast media, b) radiopharmaceuticals, c) computer evaluation of images (e.g., CAD review of mammograms), and d) other similar codes used for supplies and technical services that are tangential to providing the ordered services

This key indicator drives the organization’s expense analysis to a per-unit or per CPT^®/ HCPCS code level and assesses the relationship between total billing/collection expenses and a unit of service.

8. Accounts Receivable Aging Percentage Over 120 Days
Formula: (Dollars Aged Over 120 Days ÷ Total A/R Balance) x 100
RBMA recommends calculating A/R aging from billing date rather than from date of service.

When managing outstanding accounts receivable, prevailing wisdom is that the older the account, the more difficult it becomes to collect. It is important to analyze this key indicator by responsible payor, if possible, to facilitate the identification of specific payor problems within the aging category.