How to Calculate A/R Days - Denial and Collection Rate

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How to Calculate A/R Days

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Example - Calculate A/R Days. Photo Courtesy of Joy Hicks

The accounts receivable, or AR, report is designed to analyze the financial health of the medical office. Using the discharge date of the patient account, the AR report calculates the length of time it takes for medical claims to get paid.

Why is it important to know this information? If you see a patient today and in ten days the account has been paid in full and reflects a zero balance, it is clear that you are being paid for your services very quickly and your medical office is operating efficiently.

However, if you see a patient today and six months from now the account still has not been paid, it is clear that it is taking way too long to resolve patient balances and your medical office is not operating efficiently. 

The formula for calculating A/R days is as follows:

Number of days in A/R equals the current net receivables balance divided by the average daily charge amount (A/R days = A/R balance/average daily charge amount)

The A/R balance reflects the total amount of outstanding accounts receivables.

The average daily charge amount is calculated by taking the total gross charges for the last year divided by 365 days.

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How to Calculate Denial Rates

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Example - Calculate Denial Rate. Photo courtesy of Joy Hicks

Denial resolution is necessary for achieving financial goals for a medical office. One important way to improve cash flow in the medical office is to track denials by calculating denial rates. 

Why is it important to know this information? Your goal is to get payment as quickly as possible. Taking a proactive approach to handling denials can improve AR days substantially. In order to reduce denials, the medical office must calculate denial rates to see how well or poorly the office is performing. 

The formula for calculating denial rates is as follows:

Denial rate equals the total dollar amount of denied claims divided by the total dollar amount of submitted claims. Based on the volume of claims in your medical office, this can be calculated using monthly, quarterly, or yearly time frames.  (Denial rate = Denied dollars/total dollars submitted)

Denial rate can also be calculated by the actual number of claims submitted and denied.  If you choose to use this method, the formula for calculating denial rates is as follows:

Denial rate equals the total number of denied claims divided by the total number of submitted claims. Based on the volume of claims in your medical office, this can be calculated using monthly, quarterly, or yearly time frames.  (Denial rate = # of Denied dollars/ # of total claims submitted)

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How to Calculate Collection Rate

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Example - Calculate Collection Rate. Photo courtesy of Joy Hicks

Collection rates help the medical office determine how successful the office is in collecting receivables. This rate tells a lot about the financial performance of the medical office how effective you are at collecting receivables.

Why is it important to know this information? All collection efforts should be evaluated for efficiency. The collection rate is different because it actually shows the correlation to the portion of collectible receivables to the portion of actual collectible receivables collected.  Any collection rate less than 100 percent means there is room for improvement.

The formula for calculating collection rate is as follows:

Collection rate equals total dollars received divided by total expected receivables (collection rate = total dollars received/total dollars expected)

Total expected receivables is calculated by subtracting the contractual adjustment amounts from the total charges.

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