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Days in AR

Days in Accounts Receivable = Accounts Receivable/Annual Revenue X 365 or Period Days/AR Turnover Rate which is Net Patient Revenue divided by Patient Accounts Receivable.

This is a measure that most managers and leaders should be at least familiar with. It provides the average number of days it takes to collect a bill.

Measurement Average Acceptable Excellent
Days in Accounts Receivable 46 45

Most of us who have been around for a while have probably been guilty of taking our attention away from cash as it relates to Accounts Receivable. I know that I have been asleep at the wheel a few times in my career as I sat on various boards. We are such good-hearted people who want to believe for the best. We notice that AR is increasing. The financial person assures us that they have a few issues that are being dealt with. The next month, they inform you that the situation is coming under control -- it was just more difficult than expected. The third month, AR keeps rising and you realize that the situation is NOT being rectified. Now you are in your fourth month and you are putting heat on the collection people. They are stressed. You worry what the organization will do if they quit. Can they be replaced and trained quickly? If they do walk, you could be six months behind. Now you have to take money from reserves. Then you find out that you have to do Sequential Billing. Yes, you'll come out of it, but it's not pleasant. So, as a leader or a board member, keep your eye on AR. Keep the number of Days in AR less than 65. Many Hospices are keeping it in the 50s, even 40s. Once you see it go above this number, you need to address it. If your Hospice is running the MVI Benchmarking & Analysis System, you will find it in the financial ratio area on the Balance Sheet Analysis Report.

While we are talking about Accounts Receivable, let's talk about how it relates to your MAC...Medicare Administrative Contractor. Let's talk about how the "Big R" applies. The Big R is the relationship factor. I watched one Medicare Administrative Contractor with an "attitude" literally drive a Hospice out of business. There was a person at a branch office of the Medicare Administrative Contractor who decided they didn't like the Hospice. Along came ADRs, FMRs and Focused Reviews, and pretty soon with all of their receivables tied up and only a trickle of money coming in, they couldn't make payroll and they hadn't taken my advice to get a line of credit the previous year. In desperation, they sold to a major Hospice chain, who quickly failed to deliver on its promises (as we have seen from other Hospice purchase situations). The point here is to get to know the people at your Medicare Administrative Contractor. One large Hospice was under severe FMR with a huge hunk of their AR tied up in review with little hope of the review being lifted. They called and I told them to load up their billing people in a plane and go out to Iowa and ask for their help. "We're stupid, show us the way!" Well, within two weeks they were off Focused Review.

One time, when I was working at my first Hospice, I made a mistake inputting billing rates into the billing system. Of course, no one noticed until months later. We were billing net and not gross at the time. Well, Medicare has a rule that says that they will only pay the lesser of your established rate or what you bill. Since I billed less than the rate they established, our Hospice was only entitled to what we had billed. The amount had accumulated to about $50,000. So I called the person at our Medicare Administrative Contractor and said, "Mary, if I don't get paid for this, I will lose my job and I have kids to support." Well, guess what? Because of the relationship I had built with the people at the Medicare Administrative Contractor, they or she overlooked the rule about paying the lesser of billed charges or the set rate. That's what the "Big R" can do for you.

Another consideration regarding AR is Medicaid Room & Board. This Pass-Through in some states can bleed a Hospice dry. I know we encourage Hospices to serve nursing homes with specialized teams so that they can be great at it and build census while creating a barrier of entry for competitors. But if your state Medicaid is paying its bills 220 days after you provide services, this is NOT the business you need unless you have large reserves. The more you grow your nursing home ADC, the more cash-poor you are going to be. In this case, get out of the nursing homes. You can't do it. Yes, they need us, but you have to keep in business. Perhaps your state will get its situation in order in the future and you can re-enter the market.

Multi-Pedia

ADC Average Length of Stay Benefits Percent Caseload Expectations Computed Caseloads Crisis Care Percent Served Days Cash on Hand Days in AP Days in AR Debt to Equity Development to Return Ratio Development Signature Programs Direct Labor % of All Labor Direct Labor NPR Direct Labor PD Direct Patient Related Expenses NPR Direct Patient Related Expenses PD Facility Mix Percentage Facility Related Facility Team Patient Days Percent Indirect Labor Marketing Incentive Median Length of Stay Mileage Rate Net Operational Income Net Revenue PD Operational Costs Organizational Net Income % of Hospice Homecare Net Revenue Revenue to Payroll Dollar Segment Indirect Percent Net Revenue Segment Net Income The Role of Financial Reserves Total Indirect Volunteer Level of Activity What is Net Patient Revenue What is The Model