7.6 Accounts Receivable & Patient Billing
Key Takeaways
- A/R aging buckets group unpaid balances by age — 0-30, 31-60, 61-90, 91-120, and 120+ days — and older buckets signal collection risk.
- Days in A/R equals total A/R divided by average daily charges, measuring how long it takes to collect.
- Denial rate — denied claims divided by total claims submitted — is a core revenue-cycle KPI, with strong practices typically under 5-10%.
- Patient collection notices must follow the Fair Debt Collection Practices Act (FDCPA) when third-party collectors are involved.
- Charity care is written off for qualifying low-income patients, while bad debt is uncollectible amounts patients could have paid; Medicare credit balances must be reported quarterly.
- Credit balances from overpayments must be refunded; unrefunded overpayments are a compliance risk under the False Claims Act.
What Accounts Receivable Measures
Accounts receivable (A/R) is all the money owed to the practice for services already provided but not yet collected — from payers and from patients. Managing A/R is about collecting that money quickly and completely while staying compliant.
A/R Aging Buckets
The A/R aging report sorts every open balance by how long it has been outstanding:
| Bucket | Age of balance | Interpretation |
|---|---|---|
| 0-30 days | Current | Healthy; recently billed |
| 31-60 days | Slightly aged | Normal payer turnaround for many claims |
| 61-90 days | Aging | Needs follow-up; possible denial or no response |
| 91-120 days | Old | High risk; aggressive follow-up required |
| 120+ days | Very old | Often uncollectible; review for write-off |
The more dollars sitting in the 120+ bucket, the greater the collection risk. A common goal is to keep A/R over 90 days below roughly 15-25 percent of total A/R.
Key A/R Formulas and KPIs
- Days in A/R = Total A/R ÷ Average daily charges. Average daily charges are total charges over a period divided by the number of days. A lower number means faster collection.
- Denial rate = Denied claims ÷ Total claims submitted, usually shown as a percentage. Well-run revenue cycles target a denial rate under 5-10 percent.
- Net collection rate measures how much of the collectible (allowed) revenue the practice actually collected.
Patient Statement Cycles
After insurance adjudicates and PR balances are posted, the practice runs statement cycles — typically a series of statements (for example, every 30 days) escalating in tone, followed by a final notice before the account moves to collections.
FDCPA-Compliant Collections
The Fair Debt Collection Practices Act (FDCPA) governs how third-party debt collectors communicate with patients — restricting call times, prohibiting harassment, and requiring validation notices. Practices that use a collection agency or sell debt must ensure notices and agency conduct comply. Many practices also offer payment plans to keep balances out of collections.
Charity Care vs Bad Debt
| Write-off type | Definition |
|---|---|
| Charity care | Amounts written off for patients who qualify as unable to pay (financial-assistance policy) |
| Bad debt | Amounts a patient could have paid but did not; deemed uncollectible after collection effort |
| Small-balance write-off | Tiny balances (e.g., under a dollar threshold) written off because pursuit costs more than the balance |
Correct classification matters for cost reporting and compliance — charity care is determined before services or by financial screening, while bad debt is determined after collection attempts fail.
Credit Balances and Refunds
A credit balance occurs when a payer or patient overpays — for example, both primary and secondary pay without proper coordination. The overpaid amount must be refunded to the correct party. Keeping a known overpayment is a compliance violation; under the False Claims Act and the 60-day overpayment rule, identified Medicare overpayments must generally be returned within 60 days. Facilities also file the Medicare Credit Balance Report (CMS-838) quarterly to report and refund Medicare credit balances.
A practice has $300,000 in total accounts receivable and average daily charges of $10,000. What is its days in A/R?
Both a primary and a secondary payer paid a claim in full, leaving a $120 overpayment on the account. What must the biller do?