How to Calculate AR Days in Medical Billing?

Managing a successful medical practice goes beyond offering excellent patient care—it also requires strong financial management. One of the most important metrics for evaluating revenue cycle performance is Accounts Receivable (AR) Days. Healthcare providers and billing companies rely on AR Days to measure how quickly they are getting paid for the services rendered.

In this guide, we’ll break down what AR Days means, why it matters, how to calculate AR Days in medical billing, and strategies to reduce it for better cash flow.

What Are AR Days in Medical Billing?

Accounts Receivable (AR) Days, also called Days in Accounts Receivable or DAR, is a financial metric that tells you the average number of days it takes for your medical practice to receive payment after a service has been billed.

• High AR Days: Means payments are delayed, claims may be stuck, or patients are taking too long to pay.
• Low AR Days: Indicates healthy cash flow and faster reimbursement.

Example: If your AR Days are 50, it means on average it takes 50 days to collect payments from insurance companies and patients.

Why AR Days Matter in Revenue Cycle Management (RCM)

AR Days is not just a number it’s a reflection of your revenue cycle’s efficiency. Tracking this metric helps medical practices:

Identify Cash Flow Issues: Delayed payments affect payroll, overheads, and overall growth.

Evaluate Billing Performance: High AR Days may signal inefficiencies in claims submission or follow-ups.

Spot Denials and Errors: If AR Days are consistently high, it could mean too many denials or coding mistakes.

Improve Collections Strategy: Helps practices see if the collection process from patients or payers is effective.

Benchmark Performance: Industry standards suggest AR Days should be 30–40 days for a healthy practice.

What Is a Good Benchmark for AR Days?

• Below 30 Days: Excellent performance, indicates strong RCM.
• 30–40 Days: Acceptable for most practices.
• Above 40 Days: Signals inefficiencies that need immediate attention.
• Above 60 Days: A red flag—claims are stuck, denials are high, or collection practices are weak.

Factors That Increase AR Days

Many practices struggle with high AR Days because of:

1. Claim Denials and Rejections: Incorrect coding, missing documentation, or payer rules.
2. Slow Patient Payments: High deductibles and co-pays left uncollected.
3. Inefficient Billing Process: Delayed charge entry, batching claims instead of submitting daily.
4. Insurance Delays: Payer audits, pre-authorizations, or outdated contracts.
5. Lack of Follow-Up: Failure to track pending claims or appeal denials.

How to Reduce AR Days in Medical Billing

Reducing AR Days is key to maintaining financial stability. Here are proven strategies:

1. Improve Claim Accuracy

• Use certified coders and medical billing experts.
• Conduct pre-billing audits to catch errors before submission.
• Adopt automation tools to minimize human error.

2. Submit Claims Daily

• Avoid holding claims for batch processing.
• Daily claim submission ensures payers process requests faster.

3. Track AR Aging Reports

• Regularly review AR aging buckets (0–30, 31–60, 61–90 days).
• Focus on older claims first, as the chance of recovery decreases with time.

4. Enhance Denial Management

• Analyze denial trends (e.g., coding errors, eligibility issues).
• Train staff on correct documentation and payer-specific rules.
• Use denial prevention software.

5. Strengthen Patient Collections

• Verify insurance eligibility upfront.
• Collect co-pays and deductibles at the time of service.
• Offer multiple payment options (credit card, online portal, payment plans).

6. Leverage Technology

• Implement RCM software for real-time claim tracking.
• Use EHR and practice management integration for seamless workflows.

7. Outsource to Experts

Many practices partner with experienced billing companies like A2Z Billings to reduce AR Days. Outsourcing ensures:

• Faster claims submission.
• Professional denial management.
• Higher clean claim rates.
• Better cash flow and reduced overhead costs.

Common Mistakes in Calculating AR Days

While calculating AR Days is straightforward, some practices make errors:

• Using Gross Charges Instead of Net Charges – Always factor in contractual adjustments.
• Ignoring Patient Balances – Patients are responsible for a growing portion of medical costs.
• Not Considering Seasonal Fluctuations – Volume changes (flu season, elective surgeries, etc.) can skew results.
• Relying Only on AR Days – AR Days should be measured alongside collection rate, denial rate, and first-pass resolution rate.

Additional Metrics to Track Alongside AR Days

For a full picture of your RCM performance, track these:

1. Clean Claim Rate (CCR) – Percentage of claims accepted on first submission.
2. Net Collection Rate (NCR) – Amount collected compared to the amount owed.
3. Denial Rate – Percentage of claims denied by payers.
4. Days to Final Bill Submission – Average time from patient encounter to claim submission.
5. Bad Debt Ratio – Amount written off as uncollectible.

Industry Best Practices for Lowering AR Days

• Keep AR under 35 days as a benchmark.
• Automate insurance eligibility checks.
• Train staff on medical coding (ICD-10, CPT, HCPCS) compliance.
• Use real-time dashboards to track KPIs.
• Outsource to billing companies for faster reimbursements and reduced overhead.

Final Thoughts

Understanding how to calculate AR Days in medical billing is crucial for the financial health of any medical practice. By applying the formula consistently, monitoring AR trends, and implementing best practices, healthcare providers can achieve faster payments, reduced denials, and improved revenue cycle performance.

If your practice is struggling with high AR Days or delayed reimbursements, partnering with a trusted billing partner can make all the difference. At A2Z Billings, we specialize in medical billing, coding, and revenue cycle management solutions that help providers improve collections and reduce AR Days.

FAQs

What does AR Days mean in medical billing?

AR Days (Accounts Receivable Days) represents the average number of days it takes for a healthcare provider to collect payment from patients and insurance companies after services are billed. It reflects how efficiently the revenue cycle is managed.

What is the industry benchmark for AR Days in healthcare?

Most successful practices aim to keep AR Days between 30 and 40 days. Anything above 40 suggests inefficiencies in billing or collections, while below 30 indicates excellent revenue cycle management.

What causes high AR Days in medical billing?

High AR Days can result from:

• Delayed claim submission.
• Frequent claim denials.
• Inefficient follow-up on pending claims.
• Slow patient payments due to high deductibles.
• Lack of proper insurance eligibility checks.

How can I reduce AR Days for my medical practice?

To lower AR Days:

• Submit clean claims daily.
• Track AR aging reports regularly.
• Strengthen denial management processes.
• Collect co-pays and deductibles upfront.
• Outsource billing to an experienced company like A2Z Billings for faster reimbursements.