Accounts Receivable (A/R) days rise and fall for numerous reasons including:
- An increase or decrease in case volume
- An increase or decrease in net revenue
- An increase or decrease in collections
- An increase or decrease in write-offs to bad debt
- An increase or decrease in types of cases performed (specialty) or payor mix
- The number of refunds cleared and posted
For example, a rise in case volume resulting in an increase in net revenue of $100,000 along with a decrease in collections of $50,000 creates a $150,000 swing. This will greatly impact your A/R days. Another example is a decrease in collections of $50,000 due to lower case volume. This would cancel out the decrease in net revenue due to the lower case volume. The impact on A/R days would likely be minimal.
Below are three different explanations of causes for an increase in A/R days.
- A/R days rose due to an increase in case volume of 20 additional cases – a good “problem” to have – producing additional net revenue of $98,000. There was an additional rise in A/R due to $17,000 in refunds clearing the bank. The resultant A/R swing of $115,000 resulted in a rise in A/R days.
- There was a dramatic increase in A/R days from 30.34 to 39.56. An increased case volume of 10 cases resulted in a rise in net revenue of $80,000. Collections simultaneously decreased by $61,000. The combination of these two items – a swing of $141,000 – increased A/R days by 9.22.
- A/R days rose slightly to 49.38. Case volume was down by six cases or 4%, but the net revenue rose by $126,000, an increase of 126%. The $90,000 increase in outstanding accounts receivable was not explained by either the case volume by specialty or by the payor mix. The next area to explore is the acuity of the cases performed to determine if that caused the rise in net revenue.
Combining one or more of the above scenarios can create more significant swings in your A/R and A/R days. A/R days are all about timing. While an important statistic to monitor, the statistic most investors focus on is cash receipts. After all, cash is king!
By Carol Ciluffo – Vice President of Revenue Cycle Management