Can you please explain this to me?
You are the Revenue Cycle Manager at a local medical office, Underwood Medical Clinic. You received a voice message from your supervisor, Lee Banks, today asking about for the days in Accounts Receivable report. You will need to perform some calculations, develop your response and then return the call. You have your supervisor’s permission to leave a detailed voice mail message.
Mr. Banks’ message: Hi, this is Lee. I need you to run the days in Accounts Receivable calculation for last year please. My gut instinct tells me that accounts are slower than normal in being paid. You can leave a voice message if I am not in the office. Thanks.
Underwood Medical Clinic Revenue Cycle Monitoring Information
Revenue cycle monitoring involves assessing the revenue cycle to ensure financial viability and stability. In other words, are our patients and insurance agencies paying us in a timely fashion? The following metrics are the standards of measurement for a revenue cycle report:
Cash flow: total amount of money transferred into and out of a business; measure of liquidity, which is the amount of capital available for investment and expenditures. (how much money we are collecting and how much we are spending!)
Days in accounts receivable: number of days outstanding money is owed to the organization; measure of how long it usually takes for a service/procedure to be paid by all financially responsible parties, such as third-party payers, government health programs, and patients. (how many days before we get paid!)
Last year, the medical practice’s gross charges for procedures/services totaled $750,000. The current accounts receivables (A/R) are $95,000, and the credit balance (from the previous year) is $9,500.
The formula for calculating days in A/R is =
[Account Receivables – ( Credit Balance)] ÷ [Gross Charges ÷ 365 days] .
According to national standards, days in A/R should average 35 days or less.
Share the calculation and result for days in A/R, making sure to identify each part of the equation.
Provide guidance on whether or not the medical clinic needs to audit its revenue cycle so that the number of days in A/R meet or exceed the national standards.
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