Patients usually get the required care on the spot, but practices wait for full payments for weeks and sometimes even months. During this period, a claim can sit with an insurance company, come back with a denial, or result in a demand for the patient to pay their share.
This unpaid money is called accounts receivable AR in medical billing. And it’s common and natural, but the issue starts when lots of claims sit unresolved for too long.
A practice can treat a lot of patients and can still struggle to pay its operating expenses if these collections fall behind. That’s why you should track AR days just as much as you track revenue. This blog not only covers what AR is but also explains how it is calculated and how you can reduce it.
What Is AR in Medical Billing
Accounts receivable (AR in medical billing) refers to outstanding payments a healthcare provider expects to receive for the services provided. It is part of the revenue cycle management (RCM), which covers everything from patient registration to final payment. The money the practice is expected to receive comes from either insurance companies, patients, or other responsible parties. The balance remains in AR until the practice receives the money or resolves the amount owed.
The claim becomes part of the practice’s accounts receivable when it is billed. Once the insurer processes it, the balance is divided into three parts: what is owed by insurance payment, any contractual adjustment, and what the patient owes. What insurance owes us is called Insurance AR, while what the patient is expected to contribute is called Patient AR.
For example, a practice submits a claim of $300. Under the payer’s contract, the allowed amount is $200. The insurer pays $160, and the remaining amount becomes the patient’s responsibility. Let’s say that if we remove the $100 contractual adjustment from the collectible balance and the insurer pays its part, then $40 becomes the patient’s AR. Once the patient pays it, the account has no outstanding balance.
Why AR Days Increase?
AR days usually increase because claims aren’t moving through the payment process as expected. Sometimes the problem can start way before the patient sees the doctor. It can be an incorrect insurance ID, outdated coverage information, or missing authorization that leads to a denial later.
Other delays take place after submission. For instance, if a payer requested medical records but didn’t get them, or a denial entered the system without an assigned owner. Or a patient receives a confusing statement and puts it aside. All these unsettled issues can add to outstanding AR.
How to Read an AR Aging Report
An AR aging report is a statement that summarizes all the unpaid customer invoices and groups them by how long they have been outstanding. It helps the medical billing team decide which accounts need attention first and which accounts can be dealt with later.
Most practice management systems divide receivables into five aging buckets.
| Aging bucket | What it indicates | Action items |
| 0-30 days | It falls within the normal time range. It indicates recently billed claims. | Check acceptance and monitor claim status |
| 31-60 days | Claim with a little delay in processing | Contact payer and investigate |
| 61-90 days | It can indicate denial, underpayments | Escalate unresolved claim and correct the payment issue |
| 91-120 days | Balance with greater collection risk | Must be prioritized, appeal, documentation request, and high-value account |
| 120+ days | Long-outstanding claims | Review each account for recovery options and valid adjustments. |
A healthy aging report shows more receivables in the younger buckets and little money outstanding beyond 90 days. However, the distribution matters more than any single bucket. A practice can report acceptable overall AR days while still having a lot of old, difficult-to-collect debt.
In its 2023 revenue cycle KPI white paper, Medical Group Management Association (MGMA) lists less than 10% of AR over 90 days as an optimal benchmark. Practices can compare their performance with relevant specialty and payer benchmarks as well.
The Three Clocks on Every Claim
Other than the aging bucket, billing teams should keep track of three separate timelines when prioritizing the claims:
- Payer payment timeline: This means the time an insurer takes to process and pay a proper claim. The requirements can vary by payer, contract, and applicable law.
- Timely filing deadline: You should also consider the last date a claim can generally be submitted. Check with your insurer to know the specific schedule.
- Appeal deadline: The time frame within which an unfavorable decision can be challenged. For example, the Medicare fee-for-service redetermination date is typically 120 days after receipt of the initial determination.
How to Calculate AR Days in Medical Billing
Calculating your practice’s AR days can help you understand how many days’ worth of revenue is tied up in the accounts receivable.
The basic calculation is simple: AR days = Total accounts receivable ÷ Average daily revenue.
However, the result can vary as practices usually define their receivables and revenue differently. Two practices can use the same formula and report different numbers simply because they calculate the inputs differently.
Three Choices That Can Change Your Number
- Revenue base
AR calculations are revenue-based, which is calculated either on charges or net revenue. A charge-based calculation is more common in physician-practice reporting. It uses daily average charges, with credits handled according to the chosen methodology.
A net-based AR days calculation uses net receivables and average daily net patient service revenue.
A report should clearly identify how its figures were calculated. Charge-based and net-revenue results should not be compared directly without accounting for differences in their calculation methods, even if the reported figures are the same.
- Lookback period
A lookback period is how far back you go to calculate daily revenue, as it changes the denominator, which can affect AR days calculations.
- 90 days: Uses the last three months and can be used to examine recent performance. It also helps balance immediate fluctuations.
- 365 days: Uses the past year’s revenue and gives a more stable picture, especially for practices with seasonal changes.
So, choose the period that fits your reporting method, then apply it consistently.
- Gross AR or net AR
Gross accounts receivable represent the standing billed charges before any adjustments, while Net AR reflects the balance after applicable adjustments are applied. For example, contractual allowances, credit balances, and adjustments can change the reported amount. You can keep the AR numerator and revenue denominator aligned with the same accounting definitions.
For example, a medical practice reports total accounts receivable of $480,000, charges over the past 90 days of $1,350,000, and a reporting period of 90 days.
First, calculate average daily charges by dividing charges over the past 90 days by the reporting period. So, $1,350,000 ÷ 90 = $15,000
Next, divide the outstanding receivables by average daily charges:
$480,000 ÷ $15,000 = 32 AR days
The result means the practice has receivables equal to approximately 32 days of average charges. You can get the receivable balance from your AR aging report and the denominator from its charges report.
Calculate AR Days by Payer
You should also calculate AR days by payer, as it helps you get an idea of how long payments remain outstanding for them. For example, if your practice has 32 AR days, payer A has 70 AR days, and other payers you are dealing with have an average of 27.8 AR days, it means claims at payer A might be taking longer to resolve.
It means your practice’s overall AR days number looks good. Yet Payer A has a much higher amount of outstanding receivables relative to its average daily charges.
This could indicate issues such as missing documentation, claim denials, or lags in processing corrected claims. By calculating AR days for each payer, your billing team can identify which payers need closer attention and investigate the reasons behind.
AR Calculation: Common Mistakes
Here are a few mistakes that can impact your overall AR calculations:
- Unapplied payments: Receiving money but not posting it to the correct accounts.
- Credit balances: Having unresolved credits can impact the reported receivable balance.
- Inconsistent patient AR: For instance, including patient balances in one report and excluding them in another makes comparisons unreliable.
- Mixed reporting periods: Using 90-day charges one month and annual charges the next changes the measurement.
- Unrecorded adjustments: Contractual adjustments that have not been posted can overstate collectible AR.
What Is a Good AR Days Number?
According to the American Academy of Family Physicians (AAFP), 30–40 AR days is a commonly recommended target. It further advises practices to keep the figure below 50 days, as a number approaching or exceeding 50 days deserves closer investigation.
How to Reduce AR Days
Reducing AR days takes two kinds of work. The first is recovering payments already overdue, and the second is fixing the problems that keep creating new delays.
If a practice only focuses on old claims, the backlog eventually returns. If it focuses only on new claims, money already sitting in AR remains untouched. So a practical approach should be adopted that can tackle both.
What to Do in the First 30 Days
There are some things that you can do in the first 30 days to reduce AR in medical billing:
- Prioritize claims
You need to arrange your claims based on value and deadline, as every unpaid claim can be placed in the same position in the queue. Start with big claims that have an approaching filing or appeal deadline. For example, a $4,000 claim with 10 days left to appeal deserves attention before a routine $150 claim that’s still within the payer’s normal processing period.
The team should also check smaller claims if the same issue is affecting multiple accounts.
- Timely Follow-up
You should also set internal claim-status checkpoints for selected claims based on payer processing patterns.
- Work the largest recoverable sums over 90 days
Simply, select the 90-day-plus aging report and sort it by balance, payer, denial reason, and deadline. After that, you can assign a definite next action to each priority account. Some assertions require correct information; others require an appeal, missing records, or confirmation.
Document the outcome of each follow-up attempt. A call without a recorded next step frequently results in a repeat of the same job.
What to Change in Next 60–90 Days
Once the urgent backlog is under control, look at why claims keep aging. Common required improvements are:
| improvement | What to do | Responsible team |
| Eligibility checks | Verify active coverage and patient details before visits | Front desk |
| Prior authorizations | Confirm authorization requirements before covered services | Authorization team |
| Claim scrubbing | Check claim data and coding before submission | billers/ coders |
| Denial reviews | Identify recurring denial reasons and correct their source | Denial specialists |
| Payer-specific queue | Assign high-delay payers dedicated follow-up workflows | AR specialists |
| Patient collections | Explain estimated responsibility and offer appropriate payment options | Front desk |
| Payment posting | Reconcile payments, credits, and adjustments promptly | Payment posting |
These improvements can affect different parts of your AR calculations.
A Practical 30-60-90 Day AR Reduction Plan
A practice doesn’t have to change its entire billing operation at once. But here is a 30- to 90-day plan that can help you make big changes in your operations.
Days 1–30: Find the money that’s already stuck
Firstly, review your current AR aging reports and identify the largest overdue balances. After that, separate the insurance AR from the Patient AR and highlight claims that are reaching their filing or appeal deadlines. After this, you can assign follow-ups to your team and track collections every week.
Days 31–60: Fix recurring problems
After the first 30 days, you will identify frequent denial reasons. It could be at your end or a high payer AR days value. Identify the issues and correct them, for instance, correcting existing data such as registration, coding, and authorization problems. Next, establish a follow-up schedule for each major payer and reconcile unapplied payments and old credits.
Days 61–90: Measure whether the changes worked
This is the part where you will see whether your practices worked or not. Recalculate your AR days using the standard method and compare the percentage of AR over 90 and 120 days. Next, review cash collections and net collection rates and check whether denial rates have improved. If improved, keep the workflows that produce measurable results and revise those that don’t.
When Should a Practice Outsource AR Follow-Up?
You might need to outsource AR follow-up if your unpaid claims are growing faster than the internal team can resolve them.
Common warning signs include:
- A steadily increasing 90+ day AR bucket
- Constant delays from major payers
- Numbers of claims without proper follow-up
- Unworked denials and missed appeal deadlines
An outside billing partner like Zee Medical Billing can help you manage follow-up queues, investigate denials, and recover eligible balances.
Sums Up
High AR can point to payment delays and deserves to be looked at closely. Accurate reports, timely follow-up, and fewer repeat denials can help practices recover outstanding revenue.
Want to know what’s holding up your payments? Contact Zee Medical Billing to request a free AR review and discuss opportunities to improve collections.
