The Reality of Tackling Aged Accounts Receivable: Efficiency, Effectiveness, and Efficacy in RCM – (A pseudo case study excerpt)

By: Yvette Crowell

Have you ever been in a position—whether as a contributor, supervisor, manager, or director—where you were asked to produce better results in reducing Accounts Receivable (A/R)? And despite your best efforts to explain the intricacies of the process, leadership just doesn’t get it? They keep pushing for more, with unrealistic timelines that make you scratch your head in frustration. You’ve probably said to yourself, “If only they understood how this works.” But sometimes, even the best explanations fall on deaf ears.

A common scenario in revenue cycle management (RCM) is when leadership demands a quick turnaround on clearing years of A/R. Yet, the reality is that it can take years to reconcile A/R accounts, especially when they’ve been unresolved for three to four years. So, let’s take a closer look at the challenges, break down the equations behind the numbers, and discuss how working efficiently, effectively, and with efficacy can make all the difference.

Understanding the Mechanics of Aged Accounts Receivable

Let’s assume you are managing a $33 million A/R balance with over 40,000 encounters. Now, here’s the breakdown of the A/R buckets:

• 59% of A/R is in the 0-30 day bucket (current A/R): These are accounts that are within their normal payment window. However, about 7-10% of these claims will need to be worked due to submission failures or rejections.
• 16% of A/R is between 31-59 days: This represents more recent claims that are still relatively current, but require attention for various reasons.
• 25% of A/R is aged (90 days to 1,460 days): These are the most challenging accounts, often requiring significant effort to resolve.

But there’s a new twist—$560,000 is billed every day, and money or encounters constantly move from one bucket to another. This means that your team doesn’t just deal with static numbers; they are working on an ever-evolving pool of A/R data that moves across different age buckets as the days pass. Each day brings fresh claims, and those claims continue to age, impacting the A/R buckets in real-time.

Additionally, 100 rejections come in daily, and with a denial rate of about 11%, the total impact is not negligible. These rejections require immediate attention as they affect the daily cash flow and will move from the 0-30 day bucket to either the 31-59 day bucket or further into aged A/R. Each day’s posts and rejections add complexity and require rework, keeping the team’s workload in constant flux.

But here’s where things get even more complicated: the more the accounts are worked and not resolved by the payers, the more those claims can get routed back through the process. In other words, even if claim consideration doesn’t result in a resolution, the claim can be sent back through the system for further review, continuing the cycle of work and delay. This means that A/R isn’t a one-time process; claims often have to be worked multiple times before a resolution is reached, consuming more time and resources.

How Many Accounts Need to Be Worked?

Let’s calculate how long it will take the team to address each bucket of Aged A/R. We’ll break it down by 59%, 16%, and 25% of the total A/R.

1. Addressing the 0-30 Day Bucket (59%)

The 0-30 day bucket accounts for 59% of the total A/R, which is $33 million * 59% = $19.47 million.

Let’s assume there are 23,600 encounters in this bucket (59% of 40,000 encounters). As we mentioned, around 7-10% of these claims will need additional work due to submission failures or rejections.

• Let’s use 8% of the 0-30 day accounts for rework due to submission failures, which is approximately 1,888 encounters.
• With 100 rejections daily, this means about 100 claims will need to be added to the workload of this team each day.

The team works 300 claims per day (6 specialists working 50 claims each), and 100 rejections will require additional time. To clear 1,888 encounters from the 0-30 day bucket:

• 1,888 claims ÷ 1,500 claims/week = approximately 1.26 weeks to clear the claims that need rework.

However, because the 100 rejections come in daily and require rework, this will continuously impact the team’s capacity. If we assume the team spends approximately 1 hour per rejected claim to resolve it (calling payers, verifying eligibility, or correcting coding), that’s an additional 100 hours per day dedicated solely to handling rejections.

2. Addressing the 31-59 Day Bucket (16%)

The 31-59 day bucket represents 16% of the total A/R, or $33 million * 16% = $5.28 million.

• Let’s assume there are 6,400 encounters in this bucket (16% of 40,000 encounters).
• The team continues working 300 claims per day, handling 1,500 claims per week.
• To clear 6,400 encounters from the 31-59 day bucket:
  • 6,400 claims ÷ 1,500 claims/week = approximately 4.27 weeks to clear this bucket.

3. Addressing the Aged A/R (25%)

The aged A/R bucket accounts for 25% of the total A/R, or $33 million * 25% = $8.25 million.

• There are approximately 10,000 encounters in the aged A/R bucket (25% of 40,000 encounters).

The Challenge of Aged A/R: Time per Claim

Aged accounts (those 90 days to 4 years old) are not just claims that are sitting around—they require a significant amount of time to resolve. Why? Because these claims have a complex history. Working on aged A/R is not just a matter of reviewing a claim; it often involves:

• Reviewing claim history: To see what has been submitted, which payers have responded, and why payments haven’t been made.
• Checking coding and billing: If the initial coding was incorrect, rework is needed.
• Dealing with denials: If there are denials, these often need to be appealed.
• Calling payers: To discuss the claim and request payment or clarification.
• Engaging the authorization and eligibility teams: To ensure that the claim is valid and properly authorized.
• Clinical inquiries: Sometimes clinical input is required to clarify documentation or treatment.

Given all of this, working on aged accounts can take anywhere from an hour to a few hours per claim. Let’s assume that on average, resolving an aged claim takes 2 hours.

• The team works 300 claims per day, but let’s estimate that they can only clear 25% of that time on aged claims, meaning about 75 claims per week.
• Therefore, to resolve 10,000 aged encounters that require 2 hours per claim:
  • 10,000 claims * 2 hours/claim = 20,000 hours to resolve the aged claims.
  • The team works 1,500 claims per week, but at a rate of 75 claims per week for aged claims:
  • 10,000 claims ÷ 75 claims/week = approximately 133 weeks.

This equates to roughly 2.5 years to fully resolve the aged A/R, if the team works only on those accounts and spends a few hours per claim.

The Moving Target: Daily Changes to A/R

Because $560,000 is billed every day, this creates a constantly changing A/R landscape. Claims are continuously added to the buckets, and existing claims move between the 0-30 day, 31-59 day, and aged buckets based on their submission date. So, it’s important to remember that these numbers aren’t static. The challenge lies not only in addressing the existing backlog but also in staying on top of new claims coming in every day.

For example:

• On Day 1, if the team clears 1,888 claims from the 0-30 day bucket due to rework, new claims are billed and immediately enter the pipeline. This daily movement needs to be accounted for in your overall strategy.
• On Day 2, you may have new claims entering the 0-30 day bucket while the existing claims move into the 31-59 day bucket.
• The daily $560,000 in billed charges ensures that new challenges arise, keeping the team on their toes.

The Unreasonable Expectations of Leadership

Now, imagine that leadership is demanding that all of these accounts—both aged and current—be cleared in just a few weeks or even months. Let’s put this into perspective:

• It would take the team about 133 weeks (or more than 2.5 years) to clear the aged A/R claims, given the complexity and the time required for each claim.

Even if leadership expects these accounts to be cleared in a few weeks or by the end of the month, that’s simply an unrealistic timeline based on the numbers above. Even at full efficiency, it would take several years to resolve these claims.

The Leadership Dilemma: Who’s Really at Fault?

Sometimes, leaders who allowed the A/R to grow in the first place demand quick fixes, without taking into account how long it took for the problem to reach its current state. Instead of understanding the time and effort required to clear these accounts, they impose unrealistic demands, expecting instant results.

The real question is: Why weren’t these issues addressed earlier? If you are the one asked to produce results with unrealistic timelines, shouldn’t those who allowed the A/R to grow without intervention also bear responsibility? Leadership should be examining their past decisions and processes, rather than pointing fingers at staff for the delayed collections.

Mitigating Risk and Improving Efficiency

To address these challenges effectively, it’s crucial for practice owners, administrators, and managers to adopt strategies that ensure long-term efficiency, rather than quick fixes:

1. Realistic KPIs: Establish realistic goals based on historical data, understanding the time required to resolve accounts. KPIs like Days in A/R and Net Collection Rate should be monitored consistently to track progress.
   
   
2. Invest in Automation and AI: Implementing automated tools can speed up the billing and collections process. For example, AI can help identify the most common reasons for denials, helping your team focus on high-priority issues first.
   
   
3. Regular Training: Ensuring that your A/R specialists are trained and up-to-date with coding, payer requirements, and best practices is essential. This helps improve efficiency and accuracy.
   
   
4. Clear Communication with Leadership: It’s vital that you, as a manager or director, communicate the complexities of A/R and educate your leadership team on what’s realistic. Present the data, show them the numbers, and explain why quick fixes are simply not feasible.
   
   
5. Root Cause Analysis: Instead of just focusing on clearing the A/R quickly, take time to perform root cause analysis to identify why certain accounts are aging and address those issues at the source.
   
   
6. Prioritize Aged Accounts: Develop a strategy for focusing on the oldest, most difficult accounts first, while simultaneously working on newer ones. This approach ensures that the aged accounts don’t continue to sit unresolved.
   
   

Conclusion

In revenue cycle management, the equation is simple: more time, more effort = better results. If you’re faced with unrealistic expectations, it’s important to educate your leadership team on the mechanics behind A/R. Don’t let them place unreasonable blame on staff when they haven’t done their part to prevent the buildup in the first place.

With efficiency, effectiveness, and a clear strategy, the road to cleaning up A/R can be smoother. But it all starts with realistic expectations and a commitment to understanding the time and effort involved. After all, miracles take time—but with the right tools, strategy, and collaboration, progress can be made one step at a time.