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 money owed to the practice for services already provided but not yet collected — from payers and from patients. Managing A/R means collecting that money quickly and completely while staying compliant. The CPB exam tests both the formulas and the compliance rules that govern patient collections.
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 and the higher the likelihood the claim has blown past timely-filing limits. A common management goal is to keep A/R over 90 days below roughly 15–25% of total A/R, and to keep total days in A/R under ~40 days.
Key A/R Formulas and KPIs
- Days in A/R = Total A/R ÷ Average daily charges. Average daily charges = total charges over a period ÷ number of days. Lower means faster collection.
- Denial rate = Denied claims ÷ Total claims submitted, shown as a percentage. Well-run revenue cycles target under 5–10%.
- Net collection rate = Payments ÷ (Charges − Contractual adjustments). It measures how much of the collectible (allowed) revenue you actually collected; a strong target is 95%+.
- Gross collection rate = Payments ÷ Gross charges. Lower and less meaningful because it includes amounts you never expected to collect.
- First-pass resolution rate = claims paid on the first submission ÷ total claims.
Worked example: A practice has $300,000 total A/R and $10,000 average daily charges. Days in A/R = $300,000 ÷ $10,000 = 30 days. If charges were $900,000 over 90 days, average daily charges = $10,000, confirming the figure. Memorize the order of operations: compute average daily charges first, then divide total A/R by it.
Patient Statement Cycles
After insurance adjudicates and PR balances post, the practice runs statement cycles — typically a series of statements every ~30 days, escalating in tone, followed by a final notice before the account moves to collections. Statements must show services, payer payments, adjustments, and the patient's remaining balance clearly.
FDCPA-Compliant Collections
The Fair Debt Collection Practices Act (FDCPA) governs how third-party debt collectors communicate with patients — restricting call times (generally 8 a.m.–9 p.m. local), prohibiting harassment, and requiring a validation notice within five days. Practices using a collection agency or selling 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 | Timing |
|---|---|---|
| Charity care | Written off for patients who qualify as unable to pay under a financial-assistance policy | Determined before service or by screening |
| Bad debt | Amounts a patient could have paid but did not; deemed uncollectible | Determined after collection effort fails |
| Small-balance write-off | Tiny balances (e.g., under a set threshold) written off because pursuit costs more than the balance | Per policy |
Correct classification matters for cost reporting and compliance. Nonprofit hospitals must maintain a Financial Assistance Policy (FAP) under IRC §501(r), limiting amounts charged to FAP-eligible patients and restricting extraordinary collection actions until eligibility is determined.
Credit Balances and Refunds
A credit balance occurs when a payer or patient overpays — for example, both primary and secondary pay without coordination. The overpaid amount must be refunded to the correct party. Keeping a known overpayment is a compliance violation: under the False Claims Act 60-day overpayment rule, an identified Medicare overpayment must generally be reported and returned within 60 days of identification (the 2025 final rule ties "identified" to the FCA "knowingly" standard). Facilities also file the Medicare Credit Balance Report (CMS-838) quarterly to report and refund Medicare credit balances.
Patient Collections Compliance Beyond FDCPA
The FDCPA technically binds third-party collectors, but practices that bill patients directly must still collect lawfully. The Fair Credit Reporting Act (FCRA) governs reporting medical debt to credit bureaus, and recent rules limit reporting small or paid medical debts. The No Surprises Act restricts balance billing for out-of-network emergency care and certain in-network facility services, so a biller may not bill a patient amounts the law assigns to the plan.
For nonprofit hospitals, IRC §501(r) bars extraordinary collection actions (lawsuits, liens, credit reporting) until the facility has determined whether the patient qualifies for financial assistance. The exam expects billers to recognize that aggressive or non-compliant collection conduct is both a legal and a reputational risk.
Tying KPIs to Action
A/R metrics are only useful when they drive work. Rising days in A/R or a growing 120+ bucket signals slow follow-up or claims aging past timely filing. A climbing denial rate points to front-end or coding problems to fix upstream. A falling net collection rate means the practice is leaving collectible dollars on the table — often from under-worked denials or premature write-offs. Strong billers review these numbers weekly, work the oldest and largest balances first, and document every write-off with a reason code so charity care, bad debt, and contractual adjustments stay correctly separated for compliance and cost reporting.
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?