ANALYZING YOUR ACCOUNTS RECEIVABLE

  Analyzing your accounts receivables using the methodology outlined below is the simplest avenue in finding out what is happening to your money.

The analysis is extremely effective and quite simple if you use EXCEL or any spreadsheet software. The analysis tells how much your accounts receivables increase or decrease. You can see why you are not collecting enough money.

The example below details a report of a six month Accounts Receivables Analysis of a practice. Here you will find footnotes analyzing how receivables were affected and projecting the performance of the balance for the year. You can use the same or similar format to analyze your practice.

If your receivables increased, chances are that there is a problem with follow-up and collections. Perhaps your office is not contacting insurance carriers for status of unpaid claims or fails to re-submit claims.

NOTE: The simplest technique to verify if your staff is performing follow-ups is by checking your telephone bill for the last twelve months. If you do not have enough long distance calls to insurance carriers, this is indicative that a problem exists.

Many times, the problem with collections is caused by a weak front desk. Critical information like patients eligibility, changes of insurance company, lack of referrals and pertinent patients’ demographic data is not recorded correctly. Consequently, bills to insurance companies are rejected and denied.

Another common problem that causes an A/R incremental is that the billing staff has problem coding and pricing services. Denials are not scrutinized and rejected claims are not corrected and re-submitted to carriers.

To analyze receivables we use the three basic elements affecting A/R:

CHARGES which INCREASE RECEIVABLES and PAYMENTS and ADJUSTMENTS that DECREASE RECEIVABLES

The formula to determine the percentage of the changes in receivable is:

((PAYMENTS + ADJUSTMENTS)/CHARGES) * 100%

Add Payments plus Adjustments/Divide the sum of Payments and Adjustments into Charges/Multiply the result by 100% - The result is a percentage amount of the net changes in A/R - We must also compute the dollar amount of the changes in A/R

EXAMPLE:

On December 31, 1999 the Accounts Receivable of the XYZ Practice was $295,000

FIRST MONTH OPERATION

• Charges during January 2000: $ 75,000
• Payments received in January 2000: $35,000
• Adjustments made in January 2000: $15,000

((35,000 + 15,000) / 75,000) * 100% = 66.67%

• A/R increased by 33.33% (100% – 66.67)
• Net changes: A/R increased during the month of January 2000 by $25,000 and the total A/R increased to $320,000 (25,000 + 295,000)

 SECOND MONTH OPERATION

• Charges during February 2000: $ 80,000
• Payments received in February 2000: $45,000
• Adjustments made in February 2000: $20,000

  MONTHLY REVIEW

·        A/R increased during Jan - Feb 2000: 18.75% (100% – 81.25)

·        Net changes: A/R increased during the month of February 2000 by $15,000

  YEAR TO DATE ACCUMULATION:

• Charges: $155,000 (75,000 + 80,000)
• Payments: $80,000 (35,000 + 45,000)
• Adjustments: $35,000 (15,000 + 20,000)
• A/R increased during Jan - Feb 2000: 25.81% (100% –74.19)
• Net changes:  A/R increased during Jan – Feb by $40,000

 CONCLUSIONS:   

The initial observation is the A/R balance of $295,000 as of December 21, 1999. Let’s assume that this figure is correct, meaning that the analysis for year 1999 showed that the A/R changes were less than 5% for the year.

 NOTES:

 First: The ideal net change for a given period is 0%, which indicates that collections are in perfect balance with the three elements affecting A/R (charges, payments and adjustments.) If the changes in A/R exceed (+ or –) 5% (under 95% or over 105%) chances are that your receivables should be monitored closely. You are not collecting enough, the adjustments are out of control or the practice is declining due to a reduction in charges.

 Second: Receivables for the two months increased at a rate of $40,000 or 25.81%, which indicates that the XYZ Practice has a problem with follow-up and collections.

 Third: The XYZ Practice must take action with their receivables because some of the unpaid claims and unpaid patients’ balances are getting old. Past due receivables are hard to collect. 

 During the last eighteen (18) years we have used the above information to analyze physicians practices with positive results. Practices that implemented this simple approach and that took action to correct problems and monitor their operation on the monthly basis, are collecting more dollars and are in full control of the practice. We know of billing services that provide their clients with this monthly analysis to demonstrate and institute confidence to the customer base.