Serbin Special Report:
How Your Accounts Receivable Determines Your Ambulatory Surgery Center’s Financial Future

One of the most important tasks affecting the financial success or failure of your ambulatory surgery center (ASC) is the efficiency and perseverance of your revenue cycle management (RCM) team. It is imperative that they have a thorough understanding of accounts receivable (A/R), how and why you measure A/R and, most of all, how do the measurements affect their role in maintaining a positive cash flow.

What is Ambulatory Surgery Center Accounts Receivable?

Investopedia defines A/R as "… the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivables are listed on the balance sheet as a current asset. A/R is any amount of money owed by customers for purchases made on credit."

Ambulatory surgery center accounts receivable is the money owed by a patient and their insurer for services already provided. It is considered a type of unsecured credit which the patient has promised to pay the entire balance if the insurer fails to pay. This balance is normally categorized as a short-term asset.

How to Measure ambulatory surgery center Accounts Receivable

You may have heard the term “days in A/R” (i.e., accounts receivable days). As Wall Street Oasis notes, this is an accounting concept related to A/R. It is the length of time it takes to clear all A/R, or how long it takes to receive the money for sold goods. This is useful for determining the efficiency of a company at receiving whatever short-term payments it is owed. The measurement is usually applied to the entire set of accounts that a company has outstanding at any point in time, rather than to a single account.

For your ambulatory surgery center, days in A/R indicates the average number of days it takes your revenue cycle management team to collect the monies owed by patients for services rendered. By measuring days in A/R, your RCM team has a better understanding of where to focus their collections efforts. While national benchmarks for A/R days are available, it may be necessary to adjust these benchmarks to fit your specific ASC. Several factors such as payer mix, 'collections policies and geographic location can affect days in A/R.

ASC Accounts Receivable Best Practices: 8 Areas of Focus

The following identifies areas affecting your ambulatory surgery center's A/R and provides best practices for measuring it. These can assist in collecting money more efficiently.

1. Factors affecting A/R

Let's first concentrate on what influences the size and accuracy of your A/R.

• Financial policies — An ambulatory surgery center should have policies on how to handle every financial eventuality (e.g., self-pay, workers' compensation, litigation, out of network and non-payment (collection agency)). A lack of financial policies can disrupt or lead to errors in collections processes.

• Coding — Timeliness and accuracy of procedure coding. Inaccurate or improper coding can lead to claim denial. As coding is one of the first steps in the revenue cycle process, delays in coding result in delays in claim submission, which can lead to denials due to timely filing requirements.

• Charge posting — Timeliness and accuracy of posting charges and submitting claims. Timely filing requirements vary by payer contract and, as noted, delays in claim submission may result in non-payment of claims. Inaccuracies in charge posting can result in lesser reimbursement or denials.

• Third-party payer contractual adjustments — Whether your A/R is net or gross depends on when your third-party payer contractual adjustments are made: at the time of claim submission or at the time of payment. Whichever way your ASC decides, adjustments must be done consistently the same way (see number 2 below). Lack of or inaccurate contractual adjustments result in falsely inflated A/R totals. Also, waiting to post contractual adjustments at the time of payer reimbursement often contributes to wasted time for collectors as they must chase inflated amounts that are not actually collectible.

• Pre-procedure collections — Uniformly collecting copays, coinsurance and deductibles prior to procedure. If the patient’s financial responsibility is not collected prior to the procedure, this amount increases the A/R and often becomes non-collectible.

• Post-procedure collections — Timeliness and persistence of third-party payer amounts due. Collectors are tasked with following up on amounts not paid by payers. Until the full reimbursement is received, this amount remains on the A/R.

• Payment posting — Timeliness and accuracy of posting third-party payer and patient payments. Timeliness and accuracy of posting reimbursement (patient and payer) within 24 hours of receipt results in the status quo of the A/R total. Once posted and deposited in bank, the A/R is reduced by that amount and the dollars received change from an asset to spendable cash.

• Payment accuracy — Timeliness and persistence in pursuing non-payments or erroneous payments. When inaccurate payments are received, it reduces the A/R partially but not fully. The result is additional work for payment posters and collectors. If reimbursement is denied, the A/R remains undiminished and, depending on the reason for denial, results in additional time spent by the appropriate revenue cycle team member.

• Patient balance billing — Accuracy and consistency in switching guarantor responsibility after full payment is received from third-party payer so that patient statement for balance owing can be sent in a timely manner. Non-performance of switching guarantor after appropriate third-party payer reimbursement is received can lead to the patient balance remaining in limbo: no bill sent to the patient and balance remaining on the A/R. Once correct payer reimbursement is received, the remaining balance should be moved to patient A/R and the statement should be sent.

• Write-offs — Following center policy regarding write-off of non-collectible accounts, authorized adjustments are made in a timely manner. Leaving write-offs on the A/R falsely inflates the A/R and results in extra time being spent by collectors trying to collect amounts that are not actually collectible.

2. Contractual adjustments

One of the reasons third-party payers (managed care organizations (MCOs)) contract with medical providers like ambulatory surgery centers is to obtain a discount in exchange for volume. Each payer has its own method for determining rates. This means payers will direct their contract holders (i.e., patients) to the ASC in exchange for allowing them to pay a reduced fee.

As the contractual reimbursement is always less than billed charges, it is important that your ambulatory surgery center institute a policy on when to adjust the contractual allowances and maintain consistency in those adjustments.

Choose one of the two following methods:

• Adjustment at the time of charge posting (net A/R): This is generally the preferred method. Most ambulatory surgery center software allows contracts to be loaded in the system and contractual adjustment made automatically at the time of claim submission. However, the claim submitted reflects your ASC's full fee. This method has less chance for error than the other method that will be discussed shortly and allows the payment poster to check the accuracy of payments as they should match the balance in the system.
  
  The biggest advantage to making contractual adjustments at the time of charge posting is that it provides a more accurate picture of the actual A/R balance and realistic collection expectations. However, there are always some accounts in A/R that remain as gross. This includes out-of-network or uncontracted payers whose payment amount is unknown. These cannot be adjusted off until payment is received. This results in a mixed A/R (some at net and some at gross). However, the amount of A/R in these unadjusted accounts is usually minor.

• Adjustment when reimbursement is received (gross A/R). If your ambulatory surgery center chooses to use this method, it is imperative that the contracts are either loaded in the revenue cycle management software or the payment poster has copies of all MCO and government-payer contracts (or a contract matrix including contract allowances by CPT) to perform this function accurately. If your RCM software is installed properly for this method, the system will not take the adjustment at the time of billing but will show the contracted amount at the time of payment posting. As your accountant may make additional adjustments (estimated contractual allowances on outstanding third-party payer accounts), financial reports provided by the accountant may reflect the more accurate A/R total compared to what is shown in the revenue cycle management software.

3. Third-party payers vs. all payers when measuring A/R

When measuring ambulatory surgery center A/R, the primary goal is to determine how long it takes third-party payers to reimburse the center. This information assists collectors in detecting non-payment trends and which payers are not abiding by state and contract prompt payment requirements.

However, understanding how patient balances affect ambulatory surgery center accounts receivable is also important. When measuring total A/R (payers and patients), it can often be much higher than expected. This may reflect the effects of today's economy, higher deductibles and more payment plans. That is why patient financial counseling and up-front collections are so important.

Therefore, it is recommended that two separate A/R aging reports be generated: one that includes patient balances to assess the overall picture and another without patient balances which focuses on third-party payers.

4. Non-commercial third-party payers

Take into consideration other payers that may inflate A/R over a longer period. Included in the third-party payer category are several other types of claims, such as workers' compensation, automobile accidents, liability, litigation/lien/letter of protection and out-of-network.

National A/R benchmarks are customarily based on commercial third-party payers and in-network cases. If your ambulatory surgery center has a preponderance of any of these other types of cases, the A/R may be considerably higher than these benchmarks because of the longer time it typically takes to collect these types of accounts. It may be necessary to review the A/R history over several months and establish center-specific benchmarks.

5. Calendar vs. business days in measuring A/R

Customarily, ambulatory surgery centers are not open 365 days a year. However, most benchmarks are based on calendar days. It is important to benchmark against other similar ASCs to measure how the center is progressing. If the center chooses to use working days rather than calendar days, this will result in a smaller number which cannot then be compared to those national benchmarks based on calendar days. Whichever method you use, keep it is consistent.

6. A/R in a new ASC

There are several reasons why reimbursement may be slower in a new (de novo) ambulatory surgery center than an established center. At start-up, an ASC has more out-of-network patients as contracts have not been completed yet. Even when contracts are signed, they may not yet appear in payer software. Financial policies are new and may not be fully implemented (e.g., patient financial counseling, up-front collections, timely patient statements). A new center needs to take these factors into consideration when comparing A/R to national benchmarks or establishing goals.

7. Computer-generated A/R reports

Most ambulatory surgery center software programs offer several ways to report A/R. However, it is important to understand how each report pulls information and whether the center's A/R is stated as gross or net. Common A/R reports include A/R by payer, financial class, patient, date and procedure.

The "aging of A/R by payer" report (this may have a different title in different software) is usually found to be the most helpful. This report lists accounts due from each payer and categorizes them according to how long they have been outstanding (e.g., 30, 60, 90, 120, 150-plus days).

In addition to the number of days in A/R, this report assists in evaluating your specific payer mix. The report identifies which payers pay quickly and which ones do not. This information is essential in determining where to focus collection efforts. Additionally, based on your payer mix, this allows you to more accurately compare your days in A/R to national benchmarks.

8. Measuring A/R

Although there are several ways to measure A/R, the following method that uses a rolling three-month period is recommended:

a. Use net patient revenue numbers for each of the last three months.

• For accrual method of accounting, this number will be found on the financial statement.

• For cash basis accounting, use the gross revenue less adjustment number found in the software program. 

The total of the three-month net patient revenues should be divided by the number of days (calendar or working) that occurred in the last three months. This number represents the average net revenue per day.

b. Use the dollar amount of net patient A/R at the end of the third month in the three-month period being measured. In the example below, this would be the net A/R dollar amount at the end of March.

• For accrual method of accounting, this number will be found on the financial statement.

• For cash basis accounting, use the net A/R number found in the software program.

Divide the net patient A/R number by the average net patient revenue per day.

The following example demonstrates the A/R using both calendar and working days. The example shows a 90-calendar-day period with 63 working days.

Using the above example, the calculations are as follows:

• $825,000 (net patient revenue) / 63 (working days) = $13,095 net revenue per working day

• $825,000 (net patient revenue) / 90 (calendar days) = $9,167 net revenue per calendar day

• $500,000 (March net A/R from financials or software) / $9,167 (net revenue per calendar day) = 55 days in A/R

• $500,000 (March net A/R from financials or software) / $13,095 (net revenue per working day) = 38 days in A/R

The net A/R for this three-month period demonstrates how much of the ASC's money is considered a non-spendable asset ($500,000). This measurement tool can be used to compare the ASC's quarter-to-quarter progress in collecting the outstanding A/R.

ambulatory surgery center Accounts Receivable: Key Takeaways

Understanding A/R and focusing on the different factors that affect it is paramount to maintaining a grasp on an ambulatory surgery center's financial wellbeing. Measuring days in A/R is important for determining the financial progress of the ASC. This should be used together with other financial reports to further analyze the A/R composition and assist in identifying fluctuations in revenue.

Your ambulatory surgery center depends on effective and timely collections to sustain a positive cash flow. Controlling the A/R is the critical first step toward achieving that goal.

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