What Is Accounts Receivable (AR) in Medical Billing?
Learn how healthcare practices manage and recover money owed for patient care, crucial for their financial stability and operations.
Medical billing is a complex system for healthcare providers. Services are provided to patients, but payment often does not occur simultaneously. This creates a situation where providers must manage outstanding amounts owed for care delivered. This process ensures the financial continuity of healthcare operations.
Understanding Medical Accounts Receivable
Accounts Receivable (AR) in medical billing refers to money a healthcare provider is owed for services rendered but not yet paid. This financial asset represents a claim to future cash payments from patients or their insurance providers. On a provider’s balance sheet, AR is classified as a current asset, signifying expected cash inflows within one year.
AR arises due to the time lag between medical service provision and payment receipt. Insurers require time to process claims, and patients may receive statements after insurance has paid its portion. The objective of managing medical accounts receivable is to convert outstanding balances into collected revenue efficiently, supporting operational needs.
Categories of Outstanding Balances
Accounts Receivable comprises various sources of outstanding balances. Patient responsibility includes deductibles, which are initial out-of-pocket expenses a patient must pay before insurance coverage begins. Co-pays are fixed amounts paid at service time, while co-insurance is a percentage of cost a patient pays after meeting their deductible. These patient balances become outstanding as they await billing statements and payment.
Payer responsibility is the other major category of outstanding balances. Commercial insurance companies owe money once claims are processed and approved. Government programs like Medicare (for those aged 65 or older) and Medicaid (for low-income individuals) also hold outstanding balances. TRICARE, serving military personnel and their families, is another payer category. Workers’ Compensation and auto insurance companies can also be responsible for medical costs from workplace injuries or vehicle accidents, with claims awaiting processing.
The Accounts Receivable Management Process
AR management involves procedural steps to ensure timely collection. The process begins with claims submission, where providers electronically transmit claims to insurance payers after services are rendered. This electronic submission, often through a clearinghouse, includes patient demographics, diagnosis codes (e.g., ICD-10-CM), and procedure codes (e.g., CPT). Timely and accurate submission is foundational for efficient AR management, typically occurring within days of service.
Following submission, claims tracking and follow-up are continuous activities. Billing staff monitor submitted claims, often using payer portals or electronic health record systems. This monitoring helps identify delays or issues that could impede payment. If a claim remains unpaid beyond a typical processing period (15 to 45 days depending on the payer), follow-up with the insurer is initiated.
Denial management addresses claims that payers refuse to pay. When a claim is denied, the billing team investigates the reason, which could include coding errors, lack of medical necessity documentation, or exceeding timely filing limits (90 days to one year from service date). Once identified, the claim is corrected and resubmitted, or an appeal process is initiated, requiring additional documentation or a formal review.
Patient collections occur after insurance processes its claim portion, determining remaining patient responsibility. Patients receive statements detailing outstanding balances, including deductibles, co-pays, and co-insurance. Subsequent follow-up may include sending reminder notices or making phone calls if payments are not received within 30 to 60 days after the initial statement. This process is cyclical, aimed at converting outstanding balances into collected cash for the healthcare provider.
Accounts Receivable and Financial Flow
AR plays a role in a healthcare provider’s financial operations and cash flow. It represents the bridge between services delivered and the realization of revenue. Balances in AR directly impact a practice’s financial liquidity.
Efficient AR management is central to maintaining a steady inflow of funds. This consistent cash flow enables a healthcare practice to cover operating expenses, such as staff salaries, utility costs, and rent. It also allows for investments in medical equipment and technology, contributing to the practice’s financial stability.