Review focus: Account receivable calculation, aging analysis, collections workflow, and denial management
A practice can collect a large amount of money every month and still have a cash-flow problem. That sounds strange until you look at what is sitting unpaid. Claims may have been submitted but not processed. Some may have been denied and left untouched. Others may be waiting for records, corrected information, authorization, or a payer response. Patient balances can also remain on the books long after insurance has finished processing the claim.
That is why days in AR are useful. It gives practice leaders a way to connect the amount sitting in account receivable with the revenue the practice is actually generating. But there is a catch. One number cannot explain why money is sitting there.
A practice with 45 days of account receivable may have a very different problem from another practice with the same number. One may have clean claims moving through a slow payer. The other may have a large amount of old denied claims.
The calculation tells you how much time is represented by the receivable. The aging tells you where the problem is. And the workflow tells you what to do about it.
First, Understand What You Are Measuring
At its simplest, days in AR is an estimate of how many days of revenue are represented by the outstanding account receivable balance.
MGMA describes the metric as an indicator of how long it takes a practice to be paid for services rendered and notes that it can provide insight into revenue-cycle performance.
That makes it useful for a monthly management meeting.
But it should not be looked at alone.
If the number increases from 38 to 48, the first question should not be, “Who caused the increase?”
The better question is:
What changed inside the receivable?
Was there a payer delay?
Did claims stop going out on time?
Did denials increase?
Did patient balances grow?
Did posting slow down?
Did the practice add a new location?
Did the payer mix change?
That is where the metric becomes useful instead of just becoming another number on a dashboard.
How to Calculate Days in AR
There is more than one calculation approach used in healthcare revenue-cycle reporting, so the practice should choose one method and apply it consistently.
A commonly used days in AR formula is:
Days in Accounts Receivable = Net Account Receivable ÷ Average Daily Net Patient Revenue
For example, suppose a practice has:
– Net account receivable: $480,000
– Net patient revenue for the year: $3,650,000
– Days in the year: 365
Average daily net patient revenue would be:
$3,650,000 ÷ 365 = $10,000
Then:
$480,000 ÷ $10,000 = 48 days
So the practice has approximately 48 days in AR under this calculation.
The important word here is net.
If a practice uses gross charges in one month and net revenue in another, the trend becomes difficult to interpret.
MGMA has also published a charge-based calculation and a separate net-days approach, which is why organizations should document the exact methodology being used rather than comparing numbers produced from different formulas as though they were identical.
A Worked Example: The Number Is Not the Diagnosis
Imagine two practices. Both report 50 days.
Practice A has most of its receivable in the 0–60 day buckets. Claims are going out quickly, but a large payer takes longer to adjudicate.
Practice B has 50 days too, but 28% of its receivable is more than 90 days old.
Those two practices should not be given the same action plan.
Practice A may need payer follow-up and contract-level analysis.
Practice B may need a denial review, faster claim correction, better follow-up worklists, and closer attention to aging.
The headline number is the same.The problem is not.
Look at the Aging Before Deciding What to Fix
This is where AR aging becomes more informative.
A typical report may divide unpaid balances into categories such as:
– 0–30 days
– 31–60 days
– 61–90 days
– 91–120 days
– 120+ days
The exact buckets can vary by practice.
What matters is watching the movement between them.
A healthy account receivable balance should not simply be viewed as a large pile of money waiting to arrive.
You want to know whether claims are progressing.
A claim in the 0–30-day bucket may be completely normal.
A claim that has moved into 120+ days without meaningful follow-up is a different conversation.
Why 90-Day AR Gets Attention
Older receivables become harder to collect for practical reasons.
Documentation may become harder to locate. Staff may change. Payer deadlines may become an issue. Patients may be harder to reach. Claims may have been denied several times without a clear resolution.
MGMA’s published benchmarking material has used measures such as the percentage of receivables over 90 days alongside account-receivable days, illustrating why the aging distribution should be reviewed with the headline metric.
But a benchmark is not a diagnosis.
A specialty practice, emergency department, hospital-based group, and primary care office may have very different payer mixes and billing patterns.
A single “ideal” number should therefore be treated carefully.
Benchmark Context Matters
People often ask what number is considered good.
There is no useful answer without context.
MGMA materials have cited 30–40 days as an optimal range in one published practice-management context, while also presenting separate measures for net account receivable and aging.
That does not mean every practice should immediately treat 41 days as a failure.
Instead, compare the practice with:
– Its own previous months
– Its specialty
– Its payer mix
– Its collection cycle
– Its historical baseline
– Its aging distribution
– Its denial rate
– Its claim submission speed
A practice moving steadily from 32 to 38 to 44 days should investigate the trend even if 44 still looks acceptable on a generic benchmark.
The direction can be more revealing than one month’s result.
Diagnose Before Trying to Reduce the Number
This is where many revenue-cycle improvement efforts go wrong.
Someone sees a high account receivable balance and tells the billing team to “work the AR harder.”
That is not really a strategy.
Start by separating the receivable into categories.
Insurance receivable
Look at unpaid claims by payer.
Which insurers are taking longer?
Which claims are denied?
Which claims are pending?
Are there repeated payer-specific issues?
Patient receivable
Separate patient balances from insurance balances.
A practice can have a relatively healthy insurance collection process and still carry a large patient balance because of deductibles, coinsurance, or ineffective patient follow-up.
Denied receivable
Denials should be separated rather than mixed into a general AR worklist.
A denied claim has already told you that something went wrong.
The team needs to identify what went wrong and what action is required.
Unworked receivable
This is often where the most uncomfortable discoveries happen.
A balance can be technically “in AR” while receiving very little meaningful follow-up.
A report may show that $50,000 is outstanding.
It does not tell you whether anyone is actively working it.
Find the First Point Where Cash Slows Down
Think about the revenue cycle as a line.
Patient visit → documentation → coding → claim submission → payer processing → payment → posting → patient balance
Money can slow down at any point.
If claims are sitting in the billing system for eight days before submission, chasing payers more aggressively may not solve the problem.
If claims are being submitted quickly but rejected because of eligibility errors, the front end may need attention.
If clean claims are processed but payments are not posted promptly, the posting workflow may be the bottleneck.
If denials are piling up after payment processing, denial management becomes the priority.
This is why healthcare AR days should be interpreted alongside the rest of the revenue cycle.
Where to Look When Account Receivable Keeps Growing
Start with a few simple questions.
Are claims going out quickly?
Track the time between date of service and claim submission.
A practice cannot collect a claim that has not been submitted.
Are claims being accepted?
A claim that is rejected before adjudication has not really entered the payer payment cycle.
The reason for the rejection needs to be fixed.
Are denials increasing?
Look at both the number of denied claims and the dollars attached to them.
A small number of high-dollar denials may matter more than dozens of low-value denials.
Are payments being posted promptly?
CMS notes that electronic remittance advice can provide detailed payment and adjustment information and can support automatic posting into billing or accounting systems.
If payments are arriving but posting is delayed, the reported receivable may remain artificially high.
Are patient balances being transferred correctly?
After insurance processing, the remaining amount may become patient responsibility.
If that transition is delayed, the account can remain in the wrong part of the workflow.
How to Reduce Days in AR Without Chasing Every Dollar
The goal should not be to make the account receivable number look smaller by writing off balances indiscriminately.
That can create a better-looking report while weakening actual collections.
Instead, work on the points that control the movement of money.
Speed Up Clean Claim Submission
Claims should not sit unnecessarily after the service has been documented and coded.
Set an internal target for claim submission and monitor exceptions.
If a claim misses the target, find out why.
Work Rejections Quickly
Rejected claims have not necessarily reached adjudication.
A registration issue, missing field, eligibility problem, or formatting problem may be preventing the claim from entering the payer’s workflow.
The faster the correction occurs, the sooner the claim can move forward.
Separate Denials From Ordinary Follow-Up
A denial needs a reason-specific action.
Do not put every denied claim into one generic queue.
Group them by cause.
For example:
– Eligibility
– Authorization
– Coding
– Medical necessity
– Documentation
– Timely filing
– Duplicate claim
– Coordination of benefits
– Payer processing issue
Then identify the most frequent and expensive categories.
Work the Oldest Receivables With a Reason
It is tempting to tell the billing team:
“Start with the oldest accounts.”
Sometimes that makes sense.
But age alone should not determine priority.
A $400 balance that is 150 days old may require a different approach from a $25,000 insurance claim that is 95 days old.
Consider:
Age + dollar value + likelihood of recovery + next action
That creates a more useful worklist.
Do Not Ignore Small Balances
Large balances naturally attract attention.
But small balances can accumulate into a meaningful total.
A practice might have thousands of low-dollar patient balances that are individually unimportant but collectively significant.
That is where automation, appropriate statements, electronic payment options, and a consistent patient-balance workflow can help.
The goal is not to chase every patient for every possible dollar.
It is to avoid allowing large amounts of manageable patient responsibility to quietly age.
Use Payer-Level Reporting
A practice-wide number can hide payer problems.
Break the account receivable down by payer.
You may discover that:
– Medicare is moving normally.
– One commercial payer is consistently slower.
– Another payer has an unusually high denial rate.
– A third payer has a large 90+ day balance because of authorization issues.
That changes the conversation.
Instead of saying, “Our AR is too high,” the practice can say, “Most of the increase is coming from these claims and this payer.”
That is something the team can actually work with.
Track the Metrics Together
The account receivable metric should sit beside other revenue-cycle measures.
For example:
Days in AR: How much time is represented by the outstanding balance?
Denial rate: How often are claims being denied?
Clean claim rate: How often are claims accepted without correction?
Charge lag: How long does it take for services to become charges?
Submission lag: How long does it take for claims to reach the payer?
Collection rate: How effectively is collectible revenue being converted into cash?
90+ day AR: How much money is becoming old?
No single metric tells the complete story.
Together, they give management a much clearer picture.
What If the Number Suddenly Jumps?
Do not immediately assume the billing team stopped working.
Look for changes.
Did the practice add a provider?
Did patient volume increase?
Did a major payer change its processing behavior?
Was there a software migration?
Were payments posted late?
Did a clearinghouse issue affect submissions?
Did the practice experience a credentialing or enrollment problem?
Did a large batch of claims enter the system at once?
A sudden increase can sometimes be caused by timing rather than a permanent deterioration in collections.
That is why the calculation should be reviewed alongside operational events.
A Simple Monthly Review
A useful monthly account-receivable meeting does not need to last two hours.
Start with five questions:
- What is the current number?
- How did it change from last month?
- Which aging bucket increased?
- Which payer or workflow contributed most to the increase?
- What specific action should happen before the next meeting?
That last question is important.
If the meeting ends with “We need to improve AR,” nothing has really been decided.
Instead:
“Work the 91–120-day commercial claims from Payer X.”
“Correct the registration-related rejection backlog.”
“Review the $75,000 patient balance segment.”
“Reconcile unposted ERAs.”
Specific tasks create movement.
When You Need to Reduce Days in AR
The phrase reduce days in AR should not mean “collect everything faster.”
It should mean removing avoidable delays from the revenue cycle.
Sometimes that means improving front-end eligibility.
Sometimes it means faster coding.
Sometimes it means cleaner claims.
Sometimes it means better denial follow-up.
Sometimes it means faster payment posting.
Sometimes the answer is simply getting the right person to work the right account at the right time.
That is why a practice should diagnose the cause before changing the process.
A Practical Example of Reduction
Suppose a practice starts at 52 days.
The review shows:
– $180,000 in 0–30 day account receivable
– $120,000 in 31–60 days
– $70,000 in 61–90 days
– $90,000 in 90+ days
The team discovers that a large portion of the oldest balance consists of denied claims that were not being followed up consistently.
Rather than demanding that staff work every account faster, management creates a denial-specific queue.
The team corrects claims, submits appeals where supported, transfers appropriate balances, and writes off only those amounts that genuinely meet the practice’s approved adjustment policy.
Over the following months, the oldest bucket begins to shrink.
The improvement did not come from changing the formula.
It came from identifying what was sitting inside the formula.
Transparency Makes the Metric More Useful
If a practice reports 42 days this month and 48 days next month, someone should be able to reproduce those numbers.
Document:
– Account receivable balance used
– Whether credits were removed
– Revenue period used
– Whether charges or net revenue were used
– Number of days in the calculation
– Any unusual adjustments
This matters especially when comparing reports from different billing systems or vendors.
A transparent calculation makes conversations easier because everyone is looking at the same thing.
When Outside Revenue-Cycle Support Can Help
Sometimes the practice knows the number is high but cannot identify why.
That is where an outside review can be useful.
A revenue-cycle specialist can look at the aging report, payer distribution, denial categories, claim submission timing, posting activity, and work queues together.
The goal should not be to produce another report.
It should be to identify where the money is getting stuck.
At Prospect Healthcare Solutions, that kind of review can help a practice move from a broad statement such as “our account receivable is too high” to a more practical explanation of what is driving the balance and which workflow needs attention.
Final Words
A practice does not improve its cash flow simply by watching the account receivable number every month.
The number is a signal.
It tells you that money is still sitting somewhere in the revenue cycle.
The real work begins after that.
Find out what makes up the balance. Separate insurance from patient responsibility. Look at the aging. Check the payer mix. Review denials. Look at claim submission timing. Check whether payments are being posted promptly. Then ask which part of the process is allowing balances to become older than they should be.
That approach is much more useful than chasing a generic benchmark.
A practice might have 35 days and still have a serious problem if a large amount of high-value receivable is stuck in an avoidable denial category.
Another practice might temporarily reach 45 days because of a payer processing delay while otherwise having a clean and well-controlled revenue cycle.
Context matters. Consistency matters too.
Use the same calculation month after month. Keep the methodology visible. Review the aging rather than looking only at the headline number. And most importantly, turn the findings into specific work.
That is how days in AR becomes a management tool instead of just another metric on a dashboard.
At Prospect Healthcare Solutions, the practical goal should always be the same: help practices understand where their money is, why it has not arrived yet, and what can reasonably be done to move it through the revenue cycle.
When the calculation is transparent, the diagnosis is specific, and the follow-up is consistent, improving account receivable becomes much less mysterious.
It becomes a process. And processes can be measured, corrected, and improved.
FAQs
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What does days in AR measure?
Collection speed.
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What drives high AR?
Delayed collections.
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Why review aging?
Finds bottlenecks.
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Is one benchmark universal?
No, context matters.
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How is AR improved?
Fix workflow delays.
