Accounts Receivable in Medical Billing: Complete Guide

Accounts Receivable (AR), in Medical Billing Terms, is money owed to Providers from patients for services rendered prior to payment.

Accounting for AR represents an important aspect of managing the Revenue Cycle; thus supporting a continuous inflow of cash to support the financial well-being of a Provider’s Practice.

Proper AR Management promotes Timely Payment Collection, Minimizes Outstanding Balances, and ultimately supports the Financial Well-Being of a Healthcare Provider’s Practice.

What is Accounts Receivable (AR) in Medical Billing?

Accounts receivable (AR), as it relates to medical billing, is the amount of money a provider owes to either their patients or an insurance company for the medical services they have provided. Managing accounts receivable is vital to maintaining good cash flow, reducing days in accounts receivable (payment delay), and maximizing overall collections.

Why is AR important in the Healthcare Revenue Cycle?

Accounts Receivable is an important part of the Revenue Cycle of Healthcare Organizations, as it ensures that providers are paid on time for all services they provide. 

The effective management of accounts receivable (AR) provides improved Cash Flow to Health Care Providers, eliminates unnecessary delays in processing claims, and maximizes revenue potential. This enables health care organizations to be financially stable and support continued growth.

What Is the Accounts Receivable (AR) Process in Medical Billing?

After a provider submits a claim for reimbursement, the accounts receivable (AR) process of medical billing is initiated. It entails monitoring claims that are still due, as well as resolving any issues with claims and collecting on any balance owed from those claims to maintain a consistent cash flow and to maximize revenue.

Step 1: Claim Submission

Medical billing’s accounts receivable (AR) process begins with a healthcare provider filing a claim for reimbursement. 

That process involves managing those claims until payment is made, investigating why some claims have been delayed or rejected, and obtaining payment on claims for which there has been a denial. 

Moreover, continuing to pursue the collection of money owed by patients so that the healthcare organization may continue to operate with a stable cash flow and achieve its optimal level of income.

Step 2: Insurance Claim Review and Payment

An insurance company reviews each submitted claim and determines whether the services described in the claim are payable. 

Once this decision is made, the insurance company then approves or denies the claim for payment. When approval is given, the insurance company pays for the amount of the claim that was approved. 

Claims for which there was no reimbursement at all or which were only partially reimbursed are classified as “follow-ups” and require further action prior to being considered resolved.

Step 3: Payment Posting

All payments received from insurance companies are entered into the billing software for accounting purposes. In addition, any remaining patient responsibility (such as copays, deductibles, etc.) is also updated and tracked within the billing software.

Step 4: AR Follow-Up and Denial Resolution

Claims that have not yet been paid in full or which have not yet been fully reimbursed are monitored by the billing team. In most cases, these are followed up through various means of communication, including mail and/or phone calls to identify what may be causing the delay in payment or denial of service. 

Errors that caused a delay in processing or denial of a claim are corrected, and follow-up actions (such as resubmitting an appeal or resubmitting a corrected claim) are taken to collect on any additional amounts owed to the practice.

Step 5: Patient Billing and Final Collection

Once insurance payments have been processed and applied to their accounts, patients are invoiced for any remaining balance. All subsequent collections activities are directed toward achieving final payment from the patient. Upon receipt of all monies owed, the AR process is complete, and the account is closed/reconciled.

Types of Accounts Receivable in Medical Billing

Insurance Accounts Receivable (AR) and Patient Accounts Receivable (AR) are typically considered to be the two primary types of accounts receivable that a provider has for medical services.

Both categories allow healthcare providers to track their unpaid bills to different parties: insurance companies, as well as to their patients. The ability to manage each type of accounts receivable effectively will improve the overall cash flow, reduce the time it takes to receive patient payments, and provide additional support for generating increased revenue.

1. Insurance Accounts Receivable

Insurance accounts receivable represents money owed to providers from insurance companies for health care services rendered. This would include those claims that have been submitted but not yet reimbursed; those currently in process of being reviewed; or those that remain pending.

2. Patient Accounts Receivable

Patient accounts receivable comprises amounts owed by patients for copays, deductibles, coinsurance, or other uncovered services. Timely billing and follow-up with patients are necessary to collect this money and help create a steady income stream.

Key Components of AR Management

The key aspects of accounts receivable (AR) management for health care organizations are posting payments; managing denials; following up with patients/insurance companies on outstanding accounts; and conducting an aging report to determine how long it has been since a patient/insurance company has made a payment or responded to inquiries regarding their account.

1. Payment Posting

Payment Posting is the process in which an office records payments from Insurance Companies or Patients. Proper payment posting ensures that an office maintains accurate tracking of outstanding balances, identifies discrepancies, and maintains overall financial accuracy for their practice.

2. Denial Management

Effective denial management helps to identify and resolve denied claims, which can be very costly to a practice in lost revenue. It also increases the rate at which claims are accepted for payment and reduces the time required to receive reimbursement.

3. AR Follow-Up

Follow-up of the AR will be to monitor the unpaid claims and to contact both the insurance company and patient to gather current payment status information on outstanding bills. This regular communication process with insurance companies and/or patients is effective in reducing the number.

4. Aging Analysis

The process for evaluating all past-due accounts payable to determine the length of time each account has gone unpaid. This allows health care organizations to better manage their Accounts Receivable (AR) by establishing collection priorities and identifying trends that help them develop plans to enhance their AR Management Performance.

What Is an AR Aging Report?

An AR Aging Report is a type of Financial Report that organizes all outstanding Accounts Receivable (AR) by how long each account has been past due. 

The primary benefit of using an AR Aging Report is that Healthcare Providers can use this report to monitor their billing and collect overdue claims from patients or third-party payers. In addition, reviewing the AR Aging Report regularly will support quicker reimbursement and better overall Cash Flow.

 Understanding Aging Buckets

• Medicare Part A (Original Medicare)

Aging buckets are groups of amounts owed to a provider (in an Accounts Receivable (AR) aging report) that show how many days past due each amount is, for example, 0-30, 31-60, 61-90, and greater than 90 days.

These buckets allow healthcare organizations to identify delinquent accounts receivable and allocate resources to collect them effectively.

•  Importance of Monitoring Aging Reports

Reviewing the AR aged report on a regular basis will help health care organizations monitor outstanding claim payments and recognize potential delays in collections as soon as possible, thereby improving their ability to collect on accounts receivable and reducing aging accounts that negatively affect the overall financial health of their revenue cycle.

Common Challenges in Accounts Receivable Management

AR (Accounts Receivable) in a hospital setting will have to deal with many of the same challenges associated with the revenue cycle, including delays in payment, incorrect claims, and/or missing or incorrect patient information. All of which will result in longer outstanding AR accounts. It is important to address all of these issues in order to maintain a very effective and timely revenue cycle.

1. Claim Denials and Rejections

Denied and rejected claims occur when an insurance company either rejects a medical claim and/or returns it because of incorrect or omitted information.

The effect of denied/returned claims is that it causes delays in receiving reimbursement from patients. The additional time creates additional AR days, which results in reduced collections by increasing the total amount of money owed by patients.2

2. Delayed Insurance Payments

Delayed payments from insurance companies occur when they take too long to process and pay claims. Delayed payment results in disruptions of cash flows, additional outstanding account receivables, and hinders healthcare providers’ ability to make timely financial decisions.

3. Inaccurate Patient Information

When there are discrepancies with patient information (insurance info., address, etc.) the insurance provider may deny your claim. Incorrect patient information will also contribute to delayed payments from the insurance company.
By verifying patient information prior to submitting a claim, you have made efforts to ensure accurate billing practices and improved reimbursement rates.

4. Coding and Billing Errors


Coding and billing errors occur with a provider’s submission of an improper medical code or detail on a claim, leading to denied claims; payment delays; and additional time and resources needed by providers to complete administrative tasks.

Best Practices for Effective AR Management

Effective Accounts Receivable (AR) Management is crucial to a fluid Revenue Cycle in addition to maintaining Healthy Cash Flow. 

We will monitor all outstanding claims and be able to communicate with payers as well as monitor each step of the reimbursement process for your medical office. 

Your practice will get paid quicker by submitting claims on time as well as proactively collecting from patients, resulting in fewer days in outstanding accounts receivable.

1. Verify Patient Information Accurately

Patient data should be correct to allow for claims to process successfully and payments to be made on time.

Insurance information, demographic data, as well as coverage eligibility verification will help in reducing claims denial rates and also billing error rates.


2. Submit Clean Claims

Clean claims are complete and error-free claims submitted to insurance companies for payment.

Submitting clean claims increases first-pass acceptance rates and reduces reimbursement delays.


3. Conduct Regular AR Follow-Ups

Regular AR follow-ups aid in tracking unpaid accounts and resolving outstanding claims as soon as possible.

Consistent AR follow-up will improve collections, reduce AR days, and contribute to a stable cash flow.

4. Track Key Performance Indicators (KPIs)

Track Your Key Performance Indicators (KPIs) for Accounts Receivable (AR). Tracking your AR KPI’s will help you to monitor your billing performance of your health care organization and identify opportunities to improve.

Denial Rates & Days in AR are key indicators that can be used to better manage your Revenue Cycle.

5. Utilize Medical Billing Software

Medical billing software is designed to automate many billing-related functions; track claim submissions; and manage your accounts receivable.

The use of medical billing software, especially advanced solutions, can increase billing accuracy; reduce time spent by staff on administrative tasks; and ultimately increase your organization’s revenue.

Key Metrics Used in AR Management

Measuring key AR metrics enables health care providers to review their AR performance and how efficiently they collect from patients.

Regularly tracking AR metrics will also enhance a provider’s ability to receive payments on time, collect maximum reimbursement for services, and improve cash flow.


1. Days in Accounts Receivable

Days in Accounts Receivable measures how many days, on average, it takes to receive payment from your patient or insurance company after you have delivered care. Lower numbers indicate that your organization receives reimbursement more quickly; therefore, your patients experience an improved revenue cycle.

2. Collection Rate

The collection rate is a measure of the percent of billed services that were paid to the provider. High collection rates reflect successful accounts receivable collections (and therefore good revenue) for the organization.

3. First-Pass Resolution Rate

First-Pass Resolution Rate: The percentage of claims resolved (paid) as submitted without the need to correct or resubmit for payment. The greater the First-Pass Resolution Rate, the lower the administrative burden and the faster the reimbursement process.

4. Denial Rate

The denial rate is a measure of what percent of claims are denied by an insurance company. Tracking the denial rates helps to find billing issues, increase claim accuracy, and improve revenue collection.

The Role of AR Specialists in Medical Billing

Medical billing is enhanced by the role of AR specialists in that they take care of outstanding claims, which ultimately lead to timely payments. This position works directly with patients as well as insurance companies when claim issues arise; this prevents a large number of open accounts from remaining uncollected.

AR specialists also play an important role in all areas of the healthcare revenue cycle, including the number of days it takes to collect monies (accounts receivable days) and the cash flow (available funds).

1. Responsibilities of an AR Specialist

An AR Specialist follows up on overdue claims, has contact with the insurance company to see if there is a reason that they are denying the claim or have denied it in full, resolves denied claims, and pursues collections for claims that have an open balance owed to them. 
The above responsibilities will assist in lowering the number of Accounts Receivable Days and provide healthcare providers with quicker reimbursement.

2. Skills Required for Effective AR Management

Effective AR management is supported by a number of skills, including good communication, analytical abilities, problem-solving, and attention to detail.
AR Specialists who are familiar with the principles of Medical Billing as well as Insurance Policies and Billing Software can help increase collections while optimizing the Revenue Cycle.

Conclusion

Beginning with the premise that accounts receivable (AR) is an important component of medical billing for health care providers, as it supports maintaining consistent cash flow and ensures timely reimbursement from payers.

When properly managed, accounts receivable will reduce claim denial rates, minimize outstanding account balances, and improve overall efficiency in your revenue cycle. By adhering to established best practices and monitoring the associated Key Performance Metrics (KPM’s), health care organizations may achieve increased revenue collections and ultimately support their financial stability.

Additionally, when managing AR effectively, health care providers can spend less time dealing with billing issues and more time providing quality patient care.