What Is Accounts Receivable in Medical Billing?

Accounts receivable (AR) in medical billing refers to the money owed to healthcare providers for services already rendered to patients. This financial aspect is fundamental to the operation of a medical practice, representing the expected income from delivered care. It is a continuous cycle that begins the moment a service is provided and concludes when payment is fully received, encompassing transactions with both patients and insurance entities.

Defining Accounts Receivable in Medical Billing

Accounts receivable in medical billing represents the total amount of money that patients, insurance companies, or other third-party payers owe to a healthcare provider for medical services already delivered. This includes services such as appointments, diagnostic tests, and therapeutic procedures. On a medical practice’s financial statements, these outstanding amounts are recorded as an asset, reflecting revenue that has been earned but not yet collected.

Effective management of this process is important for a practice’s financial health, ensuring the necessary funds are available to cover operational costs and continue providing patient care. It tracks financial obligations that are due to the provider, impacting the practice’s ability to maintain liquidity and stability.

How Accounts Receivable is Generated

The generation of accounts receivable begins with the patient’s visit and the delivery of medical services. After a service is provided, such as a consultation or a procedure, the healthcare provider creates a charge for that service. This charge is then translated into appropriate medical codes, which accurately represent the diagnosis and the treatments performed.

Following coding, a claim is prepared and submitted to the patient’s insurance company for reimbursement. This submission typically involves electronic claims, which can be processed relatively quickly. Once the insurance company processes the claim, they issue an Explanation of Benefits (EOB) or Remittance Advice (RA), detailing what they will cover and the remaining balance. This remaining balance, which may include deductibles, co-payments, or co-insurance, then becomes the patient’s responsibility. The outstanding amount, whether from the insurer or the patient, becomes the accounts receivable until it is fully paid.

Key Components of Accounts Receivable

Accounts receivable in medical billing typically consists of amounts owed by two primary categories: patients and insurance companies. Patient responsibility includes out-of-pocket costs that are not covered by insurance. These can involve co-payments, which are fixed amounts paid at the time of service, or deductibles, which are the amounts a patient must pay annually before their insurance begins to cover costs.

Additionally, patient responsibility extends to co-insurance, which is a percentage of the healthcare costs the patient pays after their deductible has been met. Non-covered services, which are procedures or treatments explicitly excluded from the patient’s insurance plan, also fall under the patient’s direct financial obligation. Insurance responsibilities, on the other hand, pertain to the portions of the bill that primary, secondary, or even tertiary payers are contractually obligated to cover.

Tracking and Financial Impact

Medical practices monitor accounts receivable through various tools, most notably aging reports. An aging report categorizes outstanding balances based on the length of time they have been unpaid, typically in intervals such as 0-30 days, 31-60 days, 61-90 days, and 90+ days. This report provides a snapshot of the overdue payments, enabling practices to identify how long money has been owed to them.

The financial implications of accounts receivable for a medical practice are significant. Accounts receivable directly affects cash flow. Delays in payment or uncollected balances can strain a practice’s ability to cover operating expenses, such as payroll and facility maintenance. A common metric, “Days in AR,” measures the average time it takes to collect payments, with a lower number, ideally below 50 days, indicating more efficient financial management.