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Note on Statement 16: Classifying, Valuing, and Analyzing Accounts Receivable Related to Patient Services
This Principles and Practices Board project was undertaken in response to the frequent requests from HFMA members for a standard calculation of "days of revenue in receivables." The board's work on this project indicated that every element of the calculation required standards, which is what this statement provides. Since there have been few standards for accounts receivables related to patient services, the industry follows a variety of practices, which often differ from each other. This statement is intended to provide a framework for enhanced external comparison of accounts receivable related to this very important asset. Thus, the standards decried in this statement represent long-term goals for gradual transition of recordkeeping practices and not a sudden or revolutionary change. The standards described in this statement will provide the necessary framework for the meaningful external comparisons. Furthermore, management's understanding of deviations from these standards will immediately assist in analysis of differences in data between providers.
The provisions of this statement need not be applied to immaterial items.
1.1 Accounts receivable related to patient services are one of the largest assets of any institutional healthcare provider.1 There are a number of characteristics of these receivables that are unique to healthcare organizations, and there are significant variations in the way the unique attributes of receivables are handled by different provider organizations. The lack of consistency makes comparisons between organizations less meaningful and, thereby, diminishes the ability to evaluate the effectiveness of the management of this very important asset.
1.2 The lack of clear definitions and consistent handling of various aspects of accounts receivable related to patient services was apparent when, in 1986, the Healthcare Financial Management Association (HFMA) undertook a regular survey of Medicare accounts receivable trends. The objective of this survey was to identify the effect of changes in Medicare payment practices. While the survey yielded useful information, there were difficulties resulting from the lack of common classification and valuation procedures.
1.3 The survey heightened industry interest in sharing receivables information as a means of evaluating collection effectiveness and differences in payment practices among payers. Accordingly, in 1988, HFMA began offering a Receivables Analysis Service, which allows subscribers to submit information about their receivables and receive reports comparing their experience with that of other organizations. Considerable attention is given to clear definitions to enhance consistency among subscribers. This Principles and Practices Board (P&P Board) project builds on and enhances the definitions used in the Receivables Analysis Service.
1.4 Other P&P Board statements have also dealt with attributes of patient service revenue and receivables related to patient services. P&P Board Statement No. 15, Valuation and Financial Statement Presentation of Charity Service and Bad Debts by Institutional Healthcare Providers, discusses the differentiation between charity service and bad debts, valuing and reporting charity service and bad debts, and disclosing information about these amounts in general purpose external financial statements.
1.5 In 1985, P&P Board Statement No. 7,2The Presentation of Patient Service Revenue and Related Issues, was released. Statement No. 7 introduced the ideas that patient service revenue should be reported at the amount a payer has an obligation to pay and that bad debts should be recognized as expenses. These concepts are now generally accepted in the healthcare industry.
1.6 This statement benefits from the previous projects of HFMA and the P&P Board and is intended to provide a basis for meaningful and consistent comparison of accounts receivable related to patient services through clear guidelines for classification, valuation, and analysis. While this statement uses an illustrative chart of accounts to help describe the organization of information discussed in the statement, it is not intended to require adoption of this chart of accounts for internal recordkeeping. The principal purpose of this statement is to provide a framework that will enhance comparability of general purpose, external financial statements and usefulness of inter-institutional comparison reports.
2.1 For internal recordkeeping, each service or episode of care for each patient results in both revenue and receivables. Because analysis often focuses on the relationship between revenue and receivables over a period of time, it is essential that both sides of the equation be valued in the same way. If receivables are stated at the amount of charges for services, it is important that any analysis compares receivables with services valued on the basis of charges. Similarly, if receivables are valued at the amount which a payer has an obligation to pay, revenue should be valued in the same way. Furthermore, the adjustment from charges to revenue must be the same, and both revenue and receivables should be adjusted at the same time.
2.2 In its Statement No. 14,3 the P&P Board concludes that it is most meaningful to value both revenue and receivables at the amount that a payer has an obligation to pay. Therefore, for general purpose, external financial statements including inter-institutional comparison reports, both revenue and receivables should be valued on the basis of the amount that a payer has an obligation to pay (i.e., the revenue amount). Adherence to this basic guideline will greatly enhance the consistency of reporting over time and the comparability of reports among organizations.
2.3 Consistency of both valuation and classification will be enhanced if services and receivables amounts are adjusted from the charges to the revenue amounts when first classified. Prior to classification, amounts are stated at charges; subsequent to classification, revenue amounts are used. Paragraphs 3.10 and 5.9 discuss transfers of amounts after initial classification.
3.1 It is customary and meaningful to differentiate revenue between inpatient and outpatient services for both analysis and reporting. (Using the illustrative chart of accounts in Section 6, inpatient revenue is recorded in accounts RV 1xxxx, and outpatient revenue is recorded in accounts RV 2xxxx.)
3.2 A key aide to analysis is to differentiate both revenue and receivables between amounts that are patient-specific and amounts that are not related to specific patients (nonpatient-specific). Patient-specific amounts are defined and discussed in Paragraphs 3.3 through 3.13 of this statement and nonpatient-specific amounts are defined and discussed in Paragraphs 3.14 through 3.17. Differentiation between patient-specific and nonpatient-specific amounts is helpful for inter-institutional comparison reports; the amounts are combined for general purpose, external financial statements. (Using the illustrative chart of accounts in Section 6, patient-specific receivables are recorded in accounts AR 01xxx, patient-specific revenue is recorded in accounts RV x1xxx, nonpatient-specific receivables are recorded in accounts AR 02xxx, and nonpatient-specific revenue is recorded in accounts RV x2xxx.)
3.3 Patient-specific revenue and receivables result from providing services to individual patients in exchange for a promise of payment either from the patient, a guarantor, or another party acting on the patient's behalf. The payment by or on behalf of the patient is directly related to the services to that patient.
3.4 Patient-specific amounts are also classified by payer. Amounts can be transferred between payer categories and between patient-specific and nonpatient-specific as described in Paragraph 3.17.
3.5 The patient-specific expected payment amount should be identified by payer using the best information available at the time the amount is classified. The time when this classification is made is discussed in Paragraphs 3.11 through 3.13 of this statement.
3.6 At the minimum, the following payer categories should be used for inter-institutional comparison reports. This degree of detail is not necessary for general purpose, external financial statements; however, footnote disclosure of information about payers is discussed in P&P Board Statement No. 14. (The receivables account number from the illustrative chart of accounts in Section 6 is shown in parenthesis after each payer; the revenue accounts are the same, except they are preceded by RV rather than AR):
3.7 Providers may find that additional classifications of revenue and receivables are beneficial for internal analysis. The additional classifications might include the organizational operating unit (such as a psychiatric care unit of an acute care hospital), a product line (such as obstetric service), or some combination of these classifications. Payer categories may also be subdivided. For example, it may be desirable to identify the revenue and receivables amounts related to each major risk contract.
3.8 There may be a tendency to minimize the number of classification categories in order to avoid complexity or conflicting criteria. However, recording detailed information initially provides greater opportunity for subsequent analysis. The extent of the classification scheme should consider the implications of avoiding misclassifications, provisions for correcting misclassifications that occur, and analysis that recognizes that misclassifications may exist.
3.9 An organization may find it convenient to maintain various tallies and records to supplement the principal classification scheme. For example, almost any amount, regardless of classification, may result in a time payment arrangement. A supplementary record of amounts being paid in accord with such arrangements may be needed for control purposes. When such tallies and supplementary records are maintained, care should be taken that reports of such amounts clearly indicate that the amounts are included in, and not in addition to, the primary classifications.
3.10 Once a payer has been properly identified, the P&P Board does not believe transfer of the receivables to reflect secondary payers or changes in financial responsibility is essential. Recordkeeping procedures related to identifying changes in payer responsibility are discussed in Paragraph 5.9.
3.11 The classification should be determined as soon as the payer responsibility can be determined with reasonable accuracy, if possible at the time a patient is registered. The best information for classifying an amount may be available at the time of billing, but it is not necessary to defer classification until the time of billing if adequate information to identify the amount of the payers' financial responsibility is available sooner. The advantages of early classification must be weighed against the practical consideration of inaccurate information about payer responsibility in revenue and receivables.
3.12 In some cases, it is necessary to initially record patient-specific receivables and related revenue that is not classified. For example, payer responsibility may not be clear for inpatients who are not discharged, for inpatients who have been discharged but whose bills to payers have not been processed, for outpatients who are still actively engaged in a treatment program, or for outpatient services for which bills have not been processed. (Using the illustrative chart of accounts in Section 6, receivables not classified are recorded in accounts AR 011xx, and revenue not classified is recorded in accounts RV x11xx.)
3.13 If revenue and receivables are recorded before an amount is classified, the unclassified receivables and related revenue should be transferred to the proper classification as soon as necessary information is available, generally at the time payer responsibility is determined. Methods of estimating the classification of unclassified revenue and receivables and the value of these amounts are discussed in Paragraphs 5.11 and 5.12. Recordkeeping related to the adjustment in value of revenue and receivables at the time of classification is discussed in Paragraph 4.3 (Using the illustrative chart of accounts in Section 6, receivables are transferred from AR 011xx to AR 012xx and revenue from RV x11xx to RV x12xx.)
3.14 Certain third party payments are for services to patients, but do not relate to specific patients. For example, Medicare makes a separate payment for direct medical education. The amount paid relates to cost incurred by the organization and the ratio of Medicare patient services to services provided to all patients. While calculations can be made that relate these payments to individual patients, the analysis of revenue and receivables is not enhanced by such calculations, and they can add significant additional recordkeeping complexity. It is more meaningful, especially for inter-institutional comparison reports, to classify such nonpatient-specific revenue and receivables separate from patient-specific amounts.
3.15 Also, risk6 contracts, such as a contract with a health maintenance organization, may include provisions that relate payment to aggregate services to a group of patients rather than to the service for an individual patient. For example, a risk contract may make payment on a capitation basis rather than for specific services rendered. Therefore, the payment amount does not relate to the services rendered to an individual patient, but rather to the aggregate effect of all individuals covered by the terms of the risk contract. Therefore, it is appropriate to classify these amounts separate from patient-specific revenue and receivables. (In the illustrative chart of accounts in Section 6, nonpatient-specific receivables are recorded in AR 02xxx and nonpatient-specific revenue is recorded in RV x2xxx.)
3.16 Nonpatient-specific revenue and receivables are accrued as earned, such as the Medicare payment for direct medical education.
3.17 Some payment arrangements call for a retrospective settlement for all services provided during the year. For example, in many cases the patient-specific account is merely a vehicle for recording interim payments. Any difference between an interim payment amount and the final settlement amount is transferred from the patient-specific category to the nonpatient-specific category and aggregated for final settlement. (Using the illustrative chart of accounts in Section 6, an amount due from Medicare that was originally classified as patient-specific but which is determined to be nonpatient-specific is transferred from AR 01210 to AR 02120, and a like amount of revenue is transferred from RV x1210 to RV 12120.)
3.18 Some amounts may not be collectible within a year and, therefore, no longer qualify as a current asset. Amounts being paid according to a time payment plan as described in Paragraph 3.9 are an example. If a material portion of receivables is not properly classified as a current asset on a balance sheet date, the amount should be reclassified for general purpose, external financial statements and inter-institutional comparison reports, but this reclassification does not change the recordkeeping or management of the receivables.
4.1 Valuing accounts receivable related to patient services in accordance with the following paragraphs will enhance inter-institutional comparison reports. In some cases, as noted in specific paragraphs, the valuation described is required for general purpose, external financial statements.
4.2 For general purpose, external financial statements, revenue and receivables must be valued at the expected payment amount. (This requirement is discussed in Paragraph 2.2 of this statement.) It is customary for services and receivables to be initially recorded at the charge amount. The charge amount can be adjusted to the expected payment amount (revenue) at the time of classification as described in Paragraph 4.3, or an estimate can be made for general purpose, external financial statement purposes as described in Paragraph 4.5.
4.3 At the time amounts are classified, generally when the payer is identified and the expected payment amount can be determined with reasonable accuracy (see Paragraph 3.11), the receivables amount is restated from charges to the amount for which a payer has a payment obligation (revenue). This entry is also recorded as a charge adjustment (revenue offset). Charges are reduced by the charge adjustment amount for general purpose, external financial statements. (In the illustrative chart of accounts in Section 6, the charge adjustment account for Medicare inpatient revenue is RV 11219.)
4.4 Historical experience or current analysis may show that the expected payment amount may have changed since it was recorded, and it is probable that a different amount will be collected. For example, collection efforts after classification may disclose that coverage was different or the financial status of the patient was different. Therefore, a general adjustment to increase or decrease patient-specific revenue and receivables may be required and is the basis of general purpose, external financial statement amounts. (In the illustrative chart of accounts in Section 6, a general adjustment of this sort involving Medicare would be recorded in accounts AR 01210 and RV x1219.)
4.5 Prior to classification, services and receivables amounts are valued at charges. For general purpose, external financial statements, these charge amounts must be restated to the expected payment amount. This restatement is based on past experience and current analysis. Factors to consider in restating the value of receivables from charges to revenue include the terms of the payment agreement, changes in diagnosis, and so on. A receivables contra account should be used to restate the unclassified patient-specific amount total from charges to revenue with the same amount reflected as a revenue contra amount. (Using accounts in the illustrative chart of accounts in Section 6, this adjustment would involve accounts AR 01109 and RV x1109.)
4.6 Nonpatient-specific amounts are valued at the time of preparing general purpose, external financial statements using the best information available. For example, expected Medicare payments for direct medical education are estimated based upon current law and regulations and such factors as the number of residents in training, cost incurred, and the proportion of Medicare patients served during the period for which payment is determined.
4.7 Receivables related to groups of accounts awaiting final settlement should be adjusted to the amount of settlement that is expected. Revenue and receivables related to managed care contracts for which the payment amount is determined on a group basis should be based on the terms of the contract (such as payment rates and promptness of payment and risk pool arrangements) and the volume of services rendered or expected to be rendered during the period that will influence the payment amount. For example, a contract may pay for services at one rate up to a threshold volume and a different rate for services in excess of that volume. The amount of revenue, therefore, depends on the total expected volume and the rates of payment specified in the contract. Revenue and receivables amounts determined in accordance with the payment agreement rather than the provider's charges are the amounts that should be included in general purpose, external financial statements.
4.8 Probable recoveries on risk contracts from stop-loss settlements should be included in receivables and should reduce stop-loss insurance expense in accord with provisions of P&P Board Statement No. 11. This is the proper basis for general purpose, external financial statements.
4.9 When all collection efforts have been completed, including work by an independent collection agency, uncollectible receivables are written off against the allowance for bad debts. (Using accounts in the illustrative chart of accounts in Section 6, an unpaid self-pay balance that is determined to be a bad debt would be recorded by reducing AR 01260 and charging AR 03200.) If a determination about eligibility for charity service has not been made and the collection process provides information indicating that the amount qualifies as charity service, the amount is removed from the receivables account with an entry to the allowance for charity service.7 Also, the bad debt expense provision should reflect the write-off and recovery experience. (Using the illustrative chart of accounts in Section 6, bad debt recoveries would be recorded in AR 03300.)
4.10 Patient advance payments should be offset against the patient-specific receivable at the time of billing for general purpose, external financial statements. Advance payments for services rendered but not billed should also be offset against the patient-specific receivable amount. Unapplied advances are properly reported as a liability, should include only amounts related to future services, and should not include any amounts for services that have already been rendered. (In the illustrative chart of accounts in Section 6, unapplied patient advance payments are included in account LB 01000.)
4.11 Some payers provide an advance in lieu of prompt payment. These advance amounts are adjusted from time to time to reflect the amount of unpaid claims against the specific payer. For general purpose, external financial statements, advances that are subject to offset should reduce the receivables balance, as discussed in Paragraph 4.14. If the advance exceeds the related receivables balance, the excess should be classified as a liability as discussed in Paragraph 4.10.
4.12 General purpose, external financial statements should also report receivables net of any interim payments. Interim payments should be applied to specific patient receivables, if possible, or may be offset against the nonpatient-specific receivables, such as Medicare's interim payments for direct medical education. (In the illustrative chart of accounts in Section 6, unapplied interim or advance payments of nonpatient-specific receivables are included in accounts AR 02180.) If interim payments will apply to specific patient accounts, but inadequate information is available to make specific application, the amount of the unapplied interim payments should be offset against patient-specific receivables for general purpose, external financial statements, including inter-institutional comparison reports. (In the illustrative chart of accounts in Section 6, unapplied payments of patient-specific receivables are included in accounts AR 012x9.)
4.13 Charity service should not be included in general purpose, external financial statements as revenue or receivables. However, it may not always be practical or possible to determine that an amount will qualify as charity when service is rendered. The elimination of charity service from revenue and receivables is a reporting, not a recordkeeping, consideration.8 Accordingly, at the time of service, internal records necessarily include revenue and receivables for all service rendered. When it is determined that an amount qualifies as charity service, the amount is removed from receivables and revenue. (Using the accounts in the illustrative chart of accounts in Section 6, an amount in AR 01100 would be offset by an entry to account AR 04200.) For general purpose, external financial statements and for inter-institutional comparison reports, an estimate of unrecorded charity service included in receivables should be recognized by reducing receivables by the allowance for charity service. Revenue is reduced for the estimated amount of charity service in a manner similar to establishing a bad debt allowance, but as a revenue offset rather than an expense. This adjustment to recognize unrecorded charity service does not change the recordkeeping or management of the receivables. (Using the illustrative chart of accounts in Section 6, revenue is adjusted for the estimated amount of charity service by an entry to account RV 11289 with an offsetting adjustment of receivables by an entry in account AR 04100.)
4.14 When there is an overpayment on a patient's account, possibly resulting from receipt of payment from more than one payer, the resulting credit balance should be refunded as soon as the appropriate party to receive the refund can be identified. For general purpose, external financial statements, credit balances not refunded may appropriately be offset against amounts due from the same entity only if a legal right of offset exists.9 Credit balances not refunded on a balance sheet date that are not properly offset against the receivables should be reclassified as a liability for general purpose, external financial statement purposes. This reclassification does not change the recordkeeping or management of the receivables. It is most desirable to retain accounts receivable credit balances in the detailed receivables records where they can most easily be related to information about payer responsibility, and the appropriate party to receive a refund can best be determined.
5.1 In general, revenue and receivables can be analyzed in terms of outcome or process. The objective in management of accounts receivable related to patient services is to maximize collections at the least possible cost. (The costs related to receivables are discussed in Paragraph 5.3).
5.2 Outcome measures include:
a. Turnover, otherwise known as days of revenue in receivables;
b. Collectibility, or the percentage of revenue actually collected; and
c. Productivity, or the cost incurred for the collections obtained.
a. Turnover, otherwise known as days of revenue in receivables;
b. Collectibility, or the percentage of revenue actually collected; and
c. Productivity, or the cost incurred for the collections obtained.
5.3 While there is a general understanding of the asset value of receivables, there are also costs associated with receivables of institutional healthcare providers including:
a. Opportunity cost, that is, the investment income foregone as a result of having funds tied up in receivables;
b. Administrative cost of managing the receivables records and the collection process;10 and
c. Bad debt expense.
a. Opportunity cost, that is, the investment income foregone as a result of having funds tied up in receivables;
b. Administrative cost of managing the receivables records and the collection process;10 and
c. Bad debt expense.
Each of these costs can be quantified, such as defining opportunity cost to equal the yield on an equivalent amount of U.S. Treasury Bills. The total cost of receivables is derived by adding opportunity cost, administrative expense, and bad debt expense. Clear recognition of these costs related to receivables will help managers focus attention on those alternatives that will maximize collections for the least possible cost. Alternatives can be better evaluated when the relationships are clearly understood. For example, a reduction in collection effort may save more administrative cost than the higher bad debt expense. It may initially look like a net cost savings is achieved, but when the opportunity cost of the higher uncollected receivables balances is also considered, a different conclusion may be apparent.
5.4 Process measures provide information about the collection process that will eventually be reflected in outcome measures.
5.5 Both outcome and process analysis can consider the experience of other providers (peer comparison), the organization's historic experience (trend analysis), or other internal or external standards.
5.6 The outcome analysis used most frequently for both internal and external evaluation is turnover, or days of revenue in receivables. Both peer comparisons and trend analysis are more meaningful if a standard method of calculation is used. The following standard method of calculation is recommended. (If a different calculation method is used, it should be clearly described in reports prepared for inter-institutional comparison.)
Accounts Receivable Turnover = Accounts Receivable11 divided by Average Daily12 Revenue13
5.7 The daily revenue amount used in the turnover calculation should be the average during the most recent three-month period. The most recent three months is selected as the calculation standard to highlight long-term trends and avoid the distortions of short-term fluctuations. By using average daily revenue for the most recent three months, receivables are also evaluated in terms of the revenue earned during the period the receivables represent.
5.8 Another important outcome measure is collectibility, which is calculated by dividing bad debt expense for any specified period of time by revenue during the same period of time. Dividing bad debt expense for the most recent year by revenue for the same period is recommended as a standard for inter-institutional comparison reports. Using bad debt expense for a year is recommended because the adequacy of the allowance for bad debts should be evaluated prior to making this calculation to ensure that the amount recorded as bad debt expense represents current experience and this evaluation is most thoroughly done annually.
5.9 If analysis involves only a component of revenue or receivables, such as amounts related to a specific payer, to a product line, or to an operating unit, it is essential that the classification of both revenue and receivables for the component, such as the payer, be consistent. Current recordkeeping systems often transfer receivables from one payer category to another to reflect the payer with the primary remaining financial responsibility. For example, once Medicare has paid its share of a patient's bill, the remaining receivables balance may be transferred from Medicare to another third party or the self-pay classification. Currently, it is unusual for recordkeeping systems to transfer revenue when receivables are transferred. Therefore, many types of analysis that relate revenue and receivables of specific payers are distorted by the differences in classification of the two amounts. This statement provides guidelines for approximating a consistent classification of revenue and receivables if the recordkeeping system does not transfer revenue when receivables are transferred.
5.10 If current recordkeeping practices do not result in consistent classification of revenue and receivables, adjustments for analytic reports based on a closed account analysis or current cash receipts analysis should be made. A closed account analysis is discussed in Paragraph 5.11 and is illustrated in the appendix of this statement. A current cash receipts analysis is discussed in Paragraph 5.12.
5.11 In order to aid in the analysis of components of revenue or receivables, a regular process of closed account analysis is suggested. A closed account analysis identifies, for each account or a representative sample of accounts, the payer identified at the time the revenue amount is first classified, the amount of charges and the nature of all charge adjustments, and the source of actual payments received for the account. Such analysis may disclose, for example, that 20 percent of amounts classified as Medicare are received from the patient as payment for deductibles and coinsurance. The closed account analysis results can be used to adjust the classification of revenue that has not been transferred to mAudio Webcasth changing payer responsibility. For example, using the previous example, 20 percent of revenue classified as Medicare would be adjusted to self-pay for purposes of analysis of days of Medicare revenue in Medicare receivables. Also, the closed account analysis results can be used to make interim classifications of unclassified revenue and receivables for general purpose, external financial statement purposes as discussed in Paragraphs 3.12 and 3.13 or estimate the settlement of uncollected amounts. An illustration of a closed account analysis and description of its use is included in the appendix.
5.12 Another method of estimating the effect of changing payer responsibility, for the purposes described in Paragraph 5.11, is the current cash receipts analysis. A current cash receipts analysis identifies the actual payer of amounts during a sample time period and compares the actual payer with the payer identified at the time of classification. This analysis may show, for example, that 20 percent of payments of amounts classified as Medicare are received from the patient as payment for deductibles and coinsurance. The results of a current cash receipts analysis can be summarized in a format similar to that illustrated in the appendix, and the results of the analysis are used in the same way as described in Paragraph 5.11.
5.13 Process analysis includes such measures as the number of days between service and billing, the dollar value of amounts in various collection steps, the number of billing and collection activities accomplished, the number of successful collection efforts, the number and dollar value of payments processed, and the number and dollar value of accounts processed.
6.1 The accounts that are necessary to record revenue and receivables as described in this statement are listed below. This is only an illustrative chart of accounts, and necessary accounts can be incorporated in each organization's chart of accounts in a manner that best meets the organization's recordkeeping and reporting needs. It is not intended to require adoption of this chart of accounts for internal recordkeeping. An x in one of the following account numbers indicates that more than one number can be used in that position. For example, account AR 01xxx introduces a series of accounts, all starting with the same number and all relating to patient-specific receivables. Similarly, RV112x9 indicates that there are several charge adjustment accounts and the next to the last number changes to indicate the type of adjustment.
6.2 Essential accounts have BOLD account numbers. There are many possible optional additional accounts. A few are shown below and are not in bold.
AR 01xxx Patient-specific receivables
AR 01100 Not classified, valued at charges
AR 01101 Patient advance payments related to services included in AR 01100
AR 01109 Allowance for charge reductions, amounts not classified
AR 012xx Classified by payer, valued at payment obligation
AR 01210 Medicare standard arrangement
AR 01219 Unapplied interim payments
AR 01220 Public Aid programs (Medicaid, and so on)
AR 01229 Unapplied interim payments
AR 01230 Charge-based payments by third parties (commercial insurance, and so on)
AR 01239 Unapplied interim payments
AR 01240 Risk arrangements with third parties (HMO, CMP, and so on)
AR 01249 Unapplied interim payments
AR 01250 Other third parties (PPO, CHAMPUS, and so on)
AR 01259 Unapplied interim payments
AR 01260 Self-pay
AR 01290 Allowance for nonpayer-specific payment adjustments
AR 02xxx Nonpatient-specific receivables
AR 02100 Medicare
AR 02110 Direct medical education
AR 02120 Final settlement for 19xx
AR 02130 Bad debts
AR 02180 Unapplied interim or advance payments
AR 02190 Allowance for dispute resolution
AR 02200 Non-Medicare
AR 02210 Stop loss insurance recoveries
AR 02280 Unapplied interim or advance payments
AR 02290 Allowance for dispute resolution
AR 03000 Allowance for bad debts
AR 03100 Additions to allowance
AR 03200 Specific amounts written off
AR 03300 Recoveries of amounts previously written off
AR 04000 Allowance for charity service
AR 04100 Additions to allowance
AR 04200 Specific amounts reducing receivables
LB 01000 Unapplied patient advance payments
RV 1xxxx Inpatient
RV 11xxx Patient-specific
RV 11100 Not classified, valued at charges
RV 11110 Not discharged
RV 11120 Discharged, not billed
RV 11109 Provision for charge reductions, amounts not classified
RV 112xx Classified by payer, valued at charges
RV 11210 Medicare standard arrangement
RV 11220 Public Aid programs (Medicaid and so on)
RV 11230 Charge-based payments by third parties (commercial insurance, and so on)
RV 11240 Risk arrangements with third parties (HMO, CMP, and so on)
RV 11250 Other third party payments (PPO, CHAMPUS, and so on)
RV 11260 Self-pay
RV 112x9 Charge adjustments
RV 11219 Medicare standard arrangement
RV 11229 Public Aid programs (Medicaid and so on)
RV 11239 Charge-based payments by third parties (commercial insurance, and so on)
RV 11249 Risk arrangements with third parties (HMO, CMP, and so on)
RV 11259 Other third party payments (PPO, CHAMPUS, and so on)
RV 11289 Provision for charity service
RV 11299 Nonpayer specific adjustment
RV 12xxx Nonpatient-specific
RV 12100 Medicare
RV 12110 Direct medical education
RV 12120 Final settlement for 19xx
RV 12190 Provision for dispute resolution
RV 12200 Non-Medicare
RV 12290 Provision for dispute resolution
RV 2xxxx Outpatient
RV 21xxx Patient-specific
RV 21100 Not classified, valued at charges
RV 21110 In treatment
RV 21120 Treatment complete, not billed
RV 21109 Allowance for charge reductions, amounts not classified
RV 212xx Classified by payer, valued at charges
RV 21210 Medicare standard arrangement
RV 21220 Public Aid programs (Medicaid, and so on)
RV 21230 Charge-based payments by third parties (commercial insurance, and so on)
RV 21240 Risk arrangements with third parties (HMO, CMP, and so on)
RV 21250 Other third party payments (PPO, CHAMPUS, and so on)
RV 21260 Self-pay
RV 212x9 Charge adjustments
RV 21219 Medicare standard arrangement
RV 21229 Public Aid programs (Medicaid, and so on)
RV 21239 Charge-based payments by third parties (commercial insurance, and so on)
RV 21249 Risk arrangements with third parties (HMO, CMP, and so on)
RV 21259 Other third party payments (PPO, CHAMPUS, and so on)
RV 21289 Charity service
RV 21299 Nonpayer-specific reductions
RV 22xxx Nonpatient-specific
RV 22100 Medicare
RV 22110 Direct medical education
RV 22120 Final settlement for 19xx
RV 22190 Provision for dispute resolution
RV 22200 Non-Medicare
RV 22290 Provision for dispute resolution
EX 10090 Provision for bad debts, inpatient services
EX 20090 Provision for bad debts, outpatient services
EX 30000 Stop-loss insurance expense
EX 30090 Stop-loss insurance recoveries
In order to improve the data available for classification of accounts receivable, and to aid in the analysis of accounts receivable, a regular process of closed account analysis is suggested. A closed account analysis identifies, for each account or a representative sample of accounts, the payer identified at the time the revenue amount is classified, the amount of charges and the nature of all charge adjustments, and the source of actual payments received for the account.
A closed account analysis of a single account might take the following form:
Payer initially identified __________________________
Amount paid by each payer:
Medicare standard arrangement ___________
Public Aid programs ___________
Charge-based payments ___________
Risk arrangements ___________
Other third parties ___________
Total of all payments ___________
Adjustments to charges: ___________
Required by Medicare ___________
Required by Public Aid ___________
Risk arrangement ___________
Total of all charge adjustments ___________
Reductions for charity ___________
Amounts written off to allowance for bad debts ___________
Total of above equals the original charge amount ___________
A matrix summary of individual closed account analysis by payer could take the following form. The amount in each box is the total dollar amount and also the percent of the column total.
This type analysis may disclose, for example, that 20 percent of amounts identified as Medicare are received from the patient as payment for deductibles and coinsurance.
The percentage of payment, adjustment, and write off for each payer shown in the matrix can be used to estimate the settlement of uncollected amounts that are classified by payer or of amounts that have not yet be classified.
Edmund R. Abel, FHFMA, CMPA, CPA
Paul R. DeMuro, FHFMA, CMPA, CPA
John R. Doidge, FHFMA, CMPA
Richard J. Donoghue, CPA
Terry E. Duis, FHFMA, CPA
Thomas H. Kohl, FHFMA, CMPA, CPA
Richard L. Marrapese, CPA
Thomas F. McNulty, CMPA
David B. Petrie, FHFMA, CMPA
Suzanne M. Petru, FHFMA, CPA
L. Vann Seawell, DBA, CPA
James G. Sullivan, CPA
Ronald R. Kovener, FHFMA, CAE
1. Examples of institutional healthcare providers are hospitals, continuing care retirement communities, skilled nursing facilities, subacute care facilities, multispecialty clinics, and freestanding ambulatory centers.
2. P&P Board Statement No. 7, The Presentation of Patient Service Revenue and Related Issues, has been replaced by P&P Board Statement No. 14 with the same conclusions regarding the basis of valuing revenue reported in general purpose, external financial statements and classifying the provision for bad debts as an expense. P&P Board Statement No. 14 conforms the reporting of charity service to AICPA's Audit and Accounting Guide "Audits of Providers of Health Care Services," concluding that charity service is not a receivable and is not revenue or expense.
3. Traditionally, institutional healthcare provider financial statements have included references to the terms "gross revenue" and "net revenue." In accordance with the definition of revenue included in Principles & Practices Board Statement No. 14, The Presentation of Patient Service Revenue and Related Issues and the AICPA healthcare audit guide, this statement uses the term "revenue" to mean the amount that a payer has a responsibility to pay is analogous to the traditional meaning of "net revenue." In this statement, the term "charges" is analogous to the traditional meaning of "gross revenue."
4. In this statement, the term "classification" includes identification of revenue and receivable amounts as inpatient or outpatient, as patient-specific or nonpatient-specific, by payer, by location in the financial statement (i.e. current asset, liability), and by other criteria.
5. Including payment arrangements based on fee schedules unrelated to the provider's charges.
6. P&P Board Statement No. 11, Accounting and Reporting by Institutional Healthcare Providers for Risk Contracts, discusses types of risk contracts, the time when revenues are recognized in relation to these contracts, and other matters related to risk contracts.
7. P&P Board Statement No. 15, Valuation and Financial Statement Presentation of Charity Service and Bad Debts by Institutional Healthcare Providers, describes criteria for classifying amounts as charity service, the timing of that determination, and accounting procedures related to both charity service and bad debts.
8. P&P Board Statement No. 15 discusses the accounting and financial reporting of charity service.
9. Principles & Practices Board Statement No. 6, How to Measure Working Capital: Classification and Definition Issues, discusses the offsetting of a simultaneous due-to and due-from amounts for a single entity. FASB Technical Bulletin No. 88-2 also discusses the conditions that must be met to offset due-to and due-from amounts.
10. Administrative costs include personnel and related direct expenses of recording charges, payments, and allowances; related data entry, software, and hardware; processing bills and refunds; and collection including related fees by collection agencies and attorneys.
11. Accounts receivable should include patient-specific amounts less all applied and unapplied interim or advance payments, credit balances, and all allowances including amounts for dispute resolution, for bad debts, and for charity service. Advance payments or credit balances that are appropriately classified as a liability are not part of this calculation. While accounts receivable is reduced by the allowance for bad debts, and revenue is not reduced by the provision for bad debts, this treatment is consistent with the practices of other businesses. Consistency in the calculation for internal trend comparison and for inter-institutional comparison is more important than the specific data elements included in the calculation.
12. The average daily amount is determined by dividing revenue for the three-month period ending on the date of the calculation by the number of days in the three-month period.
13. Revenue includes patient-specific amounts whether or not classified. The charge amount is reduced by all actual and estimated adjustments to state revenue at the amount that a payer has an obligation to pay. Revenue is not reduced by the provision for bad debts, an expense account.
Publication Date: Saturday, May 01, 1993
In this Business Profile, Bruce Haupt, president and CEO of ClearBalance, discusses how a patient loan program can increase patient collections, reduce bad debt, and speed cash flow.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
In this Business Profile, Jerry Bruno, principal with Deloitte Consulting LLP, discusses the importance of choosing revenue cycle solutions that help an organization meet the challenges of a quickly evolving healthcare environment.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
In this business profile, Lane Jackson, a partner in the Grant Thornton LLP Health Care Advisory Services practice, with extensive experience in overseeing system implementations and revenue cycle reorganizations, discusses best practices for elevating revenue cycle performance during an EMR implementation. Grant Thornton LLP is a sponsor of the Large System Controllers Council Affinity Group.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
In this business profile, Amy Gross, senior vice president of Key Government Finance, discusses the benefits of private placement transactions to support large-scale financing projects.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
In this business profile, Doug Polasky, executive vice president at Xtend Healthcare, explains the importance of having sound workflow processes in a consolidated business office to ensure optimal performance and reduce costs.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
In this business profile, sponsored by SSI, Jay Colfer, vice president of sales and marketing, shares how patient access solutions are reversing the trend toward increased bad debt resulting from the rise in high-deductible consumer health plans.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
In this business profile of Deloitte Consulting, Matthew Hitch and David Betts explore the potential benefits of elevating the customer experience and outline strategies to change service delivery.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
Financial services staff are always looking for ways to improve the verification, billing and collections processes, and Munson Healthcare is no different. Read about how they streamlined the billing process to produce cleaner bills on the front end and helped financial services staff collect more than $1 million in additional upfront annual revenue in one year.
Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
Announcements from several commercial payers and the Centers for Medicare and Medicaid Services (CMS) early in 2015 around increased efforts to form value-based contracts with providers seemed to point to an impending rise in risk-based contracting. Rather than wait for disruption from the outside in, health care providers are now making inroads on collaborating with payers on various risk-based contracting models to increase the value of health care from within.
Yuma Regional Medical Center (YRMC) is a not-for-profit hospital serving a population of roughly 200,000 in Yuma and the surrounding communities.
Before becoming a ZirMed client, Yuma was attempting to manually monitor hundreds of thousands of charges which led to significant charge capture leakage. Learn how Yuma & ZirMed worked together to address underlying collections issues at the front end, thus increasing Yuma’s overall bottom line.
Kindred Hospital Rehabilitation Services works with partners to audit the market and the facility’s role in that market to identify opportunities for improvement. This approach leads to successes; Kindred’s clinical rehab and management expertise complements our partners’ strengths. Every facility and challenge is unique, and requires a full objective analysis.
As the critical link between patient care and reimbursement, health information enables more complete and accurate revenue capture. This 5-Minute White Paper Briefing shares how to achieve cost-effective revenue integrity by your optimizing HIM systems.
Speedier cash flow starts with better CDI and coding. This 5-Minute White Paper Briefing explains how providers can improve vital measures of technical and business performance to accelerate cash flow.
Qualified coders are getting harder to come by, and even the most seasoned professional can struggle with the complexity of ICD-10. This 5-Minute White Paper Briefing explains how partnerships can help improve coding and other key RCM operations potentially at a cost savings.
The point of managing your revenue cycle isn’t just to improve revenue and cash flow. It’s to do those things effectively by consistently following best practices— while spending as little time, money, and energy on them as possible.
How Lucile Packard Children’s Hospital Stanford increased payments received within 45 days by 20% and reduced paper submission claims by 70% by using ZirMed solutions.
The reasons claims are denied are so varied that managing denials can feel like chasing a thousand different tails. This situation is not surprising given that a hypothetical denial rate of just 5 percent translates to tens of thousands of denied claims per year for large hospitals—where real‐world denial rates often range from 12 to 22 percent. Read about how predictive modeling can detect meaningful correlations across claims denials data.
Emergency Mobile Health Care (EMHC) was founded to be and remains an exclusively locally owned and operated emergency medical service organization; today EMHC serves a population of more than a million people in and around Memphis, answering 75,000 calls each year.
Since the Physician Quality Reporting Initiative (PQRI) introduction, CMS has paid more than $100 million in bonus payments to participants. However, these bonuses ended in 2015; providers who successfully meet the reporting requirements in 2016 will avoid the 2% negative payment adjustment in 2018, so now is the time to act! Included in this whitepaper are implications of increasing patient responsibility, collections best practices, and collections and internal control solutions.
Getting paid what your physician deserves—that’s the goal of every biller. Yet even for the best billers, achieving that success can be elusive when denials stand in the way of success, presenting challenges at every turn. Denials aren’t going away, but you can learn techniques to manage and even prevent them.Join practice management expert Elizabeth W. Woodcock, MBA, FACMPE, CPC, to: Discover methods to translate denial data into business intelligence to improve your bottom line, determine staff productivity benchmarks for billers, and recognize common mistakes in denial management.
Physician practices must improve organizational efficiency to compete in this era of reduced reimbursement and escalating administrative costs.
Many healthcare organizations are pursuing next-generation health information systems solutions. Learn more about Navigant's work with University of Michigan Health System.
The proper implementation of healthcare information technology systems is crucial to an organization’s financial health.
HFMA's print, email, online, and mobile opportunities provide you maximum reach and impact. We will work with you to build a plan that meets your needs. Contact a sales rep.
Stay informed about new directions in healthcare finance. Share tools and strategies for improving performance. Be an active participant in your profession. Together, we’ll reshape the business and practice of healthcare. Join us.
Of all the transformations reshaping American health care, none is more profound than the shift toward value. Access HFMA’s Value Project to discover how healthcare finance leaders are joining this transformation.
Copyright 2016, Healthcare Financial Management Association.
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