What Is The Best Way To Calculate Insurance A/R Days?

Account receivables turn around time or A/R days (as it is commonly known as well) is the time an insurance claim takes from the moment the practice submits it, to the moment it gets paid. In other words, A/R turn around time is the indicator that measures how fast a health insurance company is paying you.

Recently, the topic of how to calculate this key indicator came up on SOAPM. Chip Hart – my Pediatric Practice Management AwesomeCast co-host – replied with his thoughts on this key metric.

It has been a while since Chip contributed to PediatricInc, so I reached out to him to ask if I could republish his reply to the inquiry made on SOAPM.

Chip answered that his insights are worth thousands of dollars… he also said something about consultants charge for this info, etc., etc. BUT, since he loves the PediatricInc readers so much and is grateful for all the praise and support we’ve given him over the years, he was willing to do an exclusive (*) PediatricInc only 100% discount. 🙂

(*) and by exclusive, I mean everybody that didn’t read the post on SOAPM

Continue reading for Chip’s nuggets of practice management wisdom.

Before I begin, we should remember that calculating “turn around time” or “A/R Days” or any of these similar measures requires making a lot of compromises and assumptions. None of the typically used benchmarks are really accurate, in my humble opinion, at least as far as what people think they actually mean. It can still be enlightening work, however.

OK. Thanks for heads up. So, how does one calculate insurance AR days?

Technically, the only way to truly calculate it is to measure the actual dates of each and every charge/payment pair and find the average.

How or where does one find the actual dates of each and every charge/payment?

Your PM ought to be able to generate that data, but even then there are some questions you should consider.

Like what?
  • Is the starting date the date of service or date of billing?
  • Is the ending date when the entire charge is paid off or just some portion
    of the insurance part? Or all of the insurance part?
  • How do you manage claims that are denied first?
  • How about claims that are partially paid?
  • How should you distinguish the patient portion of your balances?
  • Do you distinguish secondary claims?
  • If a claim isn’t paid off yet, exactly how do you count it?
Those are a lot of questions. Does you have to answer them all to calculate insurance AR Days?

If you want to approximate the time it takes you to collect (or, at least, the VALUE of what is uncollected put in terms of your charge rate), do this:

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What does the formula tell you exactly?

This [formula] would produce the “A/R Days” figure most commonly used by a consultant.

Can you offer an example with numbers?

For example, you might have $20,000 in A/R for BCBS and you routinely do $1,000 worth of charges every day for BCBS -> 20 A/R Days. The divisor is, simply, your total charges for Insco A during a time frame divided by the number of days in that time frame. Also note that for the divisor, you want an “average day” sample of AT LEAST 3 months. I prefer 3-6months.

Why is that?

I’ll spare you the math, but you really want a sample that’s a little larger than your expected value…if
you are in the 30-day range, as many of your readers should be, use a 60-90 day sample. There are inherent dangers to sample sizes that don’t reflect your present volume, so don’t use a year or a month (or less).

Seems straight forward. Anything else?

Having grown wary of this measurement, however, I looked for something similar that was more valuable.

Do share

The number I like to track is the relative A/R in the 60-90 days category.

How do you calculate this number?

This can be tracked in different ways, but if you want to compare payers, you can do it with two measures, in my opinion:

  1. How much of your A/R do your TOTAL 60-90 day balances represent?
  2. How much of your 60-90 A/R balances does Insco A represent?

…for 1, you might get a number like “18% of my A/R is in the 60-90 bucket.” Why is this important? Because anything >90 days is practically uncollectable (it happens, but you’re really looking at 10 cents on those dollars).

Of course we don’t want that number to grow, ever. Right?

If that number grows, you might be looking at a collections issue, a billing problem, etc. It’s a key figure,
in my opinion.

How about #2 (how much of your 60-90 AR balances does ins A represent?)

If BCBS suddenly goes from 25% of your 60-90 day A/R to 40%, something bad is probably happening or you wrote off/collected a lot of other money!

Note that you can’t really look at #2 in isolation. BCBS could maintain a steady chunk of your 60-90 A/R and you’d be fooled into thinking things are OK when the entire section is increasing as a result of your biller not doing the job (for example).

For those that don’t know, Chip also has his own blog. Make sure to visit: Confessions of a Pediatric Practice Management Consultant. Hurry over there before Chip decides to forgo keeping pediatric practices alive and independent for fame and fortune.

Also, if you haven’t already, consider signing up to receive an email alert when I post new content. That way you won’t miss valuable insights like the one you just read.

Want To Be An Awesome Practice Manager? Learn How To Calculate This Key Performance Indicator

Revenue per encounter is an excellent barometer of your practice’s financial health. There are many things that influence the revenue per encounter and consequently allow you to see the impact of things such as:

  • Are your claims being processed timely?
  • Are your claims being paid properly?
  • Are you being paid fairly?
  • Is your payor mix excellent, fair or poor?
  • Are you following proper CPT coding guidelines?

To determine your practice’s revenue per encounter, you’ll need 2 sets of data. The first is the number for patient visits during the previous 12-months. The second set of data you’ll need is the practice’s total revenue over the same time period. With these two data sets, you can calculate how much revenue your practice generates per visit.

The formula is simple:

Revenue / Encounter = Revenue Per Encounter

If you want to get a bit sophisticated, you can break down the revenue and number of encounters by month. I recommend you go the extra mile on this one. You’ll see why in a bit.

What’s Next? Screen Shot 2015-01-09 at 6.50.29 PM

Once you have the two data sets, you want to set up a simple spreadsheet that looks similar to the image on the right.

You will notice that the Excel sheet mock-up shows monthly variation in the revenue per encounter.

There are multiple explanation for the variance, but generally, it can be explained by the ratio difference between the practice’s sick and well visits.

During the winter months, the practice sees more sick visits and less check-ups while the summer months brings well visit encounters with higher per visit revenue due to vaccines and ancillary services.

Flu season influences revenue per encounter as well. A busy or mild flu season will have an obvious impact on patient encounters.

Want to go a step further? Do the same break-down by provider, by month.

With this simple exercise, the practice is able to estimate the number of encounters and revenue on a monthly basis for the coming year. Moreover, the practice is able to predict its revenue stream in an effective manner and plan for cash outlay such as when the vaccine bills are due.


Thanks to the Pediatric Management Institute for providing the majority of the content for this post. 


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What Does Taking Patient Vital Signs Have To Do With A Medial Practice’s Financial Health?

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I don’t know about you, but when I first started managing our practice, it took me a while to understand what part of the business I needed to measure. In other words, what were the best performance indicators I needed to keep tabs on to ensure the practice was doing well. Of course things like cash flow and account receivables were obvious to me due to by background.  But it was apparent that the medical business world is different than, let’s say, a law firm or an accounting firm.

In some respects, there are overlapping metrics, but in the private practice business world, there are other KPIs (that is what the cool kids call it) that are crucial to measure.

If you are in the same boat I was a few years ago, then this post is going to help you out.

But first, in order to get into the right frame of mind, think of KPIs or Key Performance Indicators as patient vitals. Just like recording body temperature, pulse rate (or heart rate), blood pressure and respiratory rate among other things are an important part of what clinical staff do to assess a patient’s well-being, good practice managers also check their practice’s “vitals” in order to determine the practice’s financial wellbeing.

Our friends at Pediatric Management Institute were kind enough to let me re-post an article they published that highlights Four key performance indicators. As if that wasn’t helpful enough, PMI also took the time to write a brief description for each metric as well as illustrate how to calculate the metric.


Accounts Receivable Turnover

ART shows your practice’s collections for a given period compared to your total accounts receivable balance.

Why Is This Important?
This KPI is important because it is a barometer of how well you are bringing in the money owed to you. In the example below, you can see that every 1.52 months, you are essentially collecting or adjusting all the money owed for services rendered. In a perfect world, the A/R will turn rapidly. During times of increasing charges such as flu season, this amount will be much different than during the spring. That is why comparing the month of January to the month of May is very misleading. Practices should compare same months when running this analysis.

Provider or Practice AR / Provider or Practice Average Monthly Collections

Show the Math:
$87,500 / $57,500 = 1.52

Clean Claim Rate

This shows the number of “clean” claims submitted compared to all claims filed with managed care plans.

Why Is This Important?
A “dirty” claim is a claim that will have payment delays. More billing systems attempt to catch claims that may be missing important pieces of information before sending to the managed care company for payment. These “dirty” claims should be routed back to the person responsible for the claim not being clean so that they can learn why their actions could have caused a delay in payment. This feedback is a learning process to ensure that your staff and providers seize the opportunity to avoid similar mistakes going forward.

Clean Claims / Total Claims Submitted

Show the Math:
950 / 1,000 = 95%

Cost per Encounter

CpE shows your practice cost per encounter.

Why Is This Important?
This KPI is important because it helps you ascertain the cost to provide care for each patient you see. This becomes a valuable statistic when you are negotiating with managed care companies so you know what it cost you to provide care to a child- especially in capitated contracts!

Total Operating Expense / Office Encounters

Show the Math:
$450,000 / 5,000 = $90.00

Net Collection Ratio

NCR shows total collections as it relates to expected contracted reimbursement rates from payors.

Why Is This Important?
While a practice may charge $300 for a series of CPT codes, the managed care company may have a contract to pay you $210 when you add up the combined allowables for the billed CPT codes. As such, many practices use the Net Collection Ratio to examine the amount of payments compared to the negotiated rates.

Total Payments / (Total Charges – Contractual Adjustments)

Show the Math:
$800,000 / ($900,000 – $75,000) = 96.97%

Keep in mind that these are not ALL the KPIs a practice should monitor. There are actually quite a few more. Don’t worry. I knew you’d ask yourself, what are the other KPIs Brandon? 

Head on over to the Pediatric Management Institute for 15 Key Performance Indicators.