How do you calculate days in accounts receivable?

How do you calculate days in A/R?

Days in A/R is the A/R balance divided by average daily revenue. HFMA publishes the standard version as Net Days in Accounts Receivable (FM-1): net A/R from the balance sheet, divided by the average daily net patient service revenue from the income statement.

FM-1 uses the most recent three months for the daily average. HFMA's own example is the quarter ending June 30, which counts April (30 days), May (31 days) and June (30 days) for a total of 91 days. Divide the three months of net patient service revenue by those 91 days, then divide the balance by that daily figure.

The KPI guide for CFOs holds the full HFMA wording, and the A/R days and denial rate calculator runs your own figures. This post covers the part those pages do not: where each number comes from and what to do with the answer.

Where does each input come from?

Both inputs come from the finance side, not the practice management system alone. If the two teams use different numbers, the result will not match the CFO's.

HFMA notes that gross patient service revenue does not appear on the audited income statement, so ask finance for the net figure instead of building it from charges. A/R outsourced to a third party but not classified as bad debt stays in net A/R under FM-1.

What does a worked calculation look like?

Read that as about 48 days of net revenue sitting unpaid. The number means little alone. It means something next to last quarter's figure, which is where the comparison step below starts.

What goes wrong when the basis changes?

The result changes with no change in billing work when the numerator, the denominator or the period changes. HFMA gives no target values, so the only fair comparison is one made on a fixed basis.

Both are correct arithmetic and neither is wrong, but they answer different questions. Label every figure net or gross, and keep one basis in every report. Three other changes also distort a trend: dividing a one-month revenue figure by 90 days, adding a payer or a site to one month and not the next, and taking the balance on a day other than the last day of the period.

What should you compare it to?

Compare it to your own earlier periods, calculated the same way. HFMA's definition page gives formulas and no target values, so this post gives no benchmark, and a figure from a source that counts differently is worse than none.

1. Calculate the figure for each of the last twelve month-ends on the same basis, so each uses its own three-month average.
2. Plot the twelve points. A rise over several months is a signal. A single jump usually has a cause you can name, such as a large payment timing difference or a payer change.
3. Put the share of billed A/R in the 91 to 120 and over 120 day buckets next to it. HFMA's AR-1 key reports each bucket, aged from the date of service for outpatient and physician accounts and from discharge for inpatient accounts.
4. Cut both by payer. One payer moving from slow to very slow can lift the total while every other payer is steady.
5. Write the basis, the period and the source of each input next to the result, so next month's figure is comparable.

Days in A/R does not say which balances are old. A few large aged accounts can raise it with no change in how well the team works, which is why the aging view matters more for deciding what to do. How to work aged A/R over 90 days covers that side.

Why will the aging report not match your days in A/R?

They measure different things, so they will not tie out exactly. FM-1 starts from net A/R on the balance sheet, after contractual allowances, allowances for uncollectible accounts and credit balances. AR-1 reports billed A/R in the aging buckets and leaves out credit balances, discharged not final billed accounts and anything not yet billed.

Keep a short bridge from the aged trial balance to the balance sheet figure: billed A/R, less credit balances and allowances, plus or minus the items finance records separately. Finance should own the bridge and update it each month. Without it, every meeting spends time on why two correct reports disagree.

What do you do when the number rises?

Find where the days came from before changing anything. Check the aging buckets for growth in the oldest ones, then the payer view for one payer holding the increase, then the denial queue for a spike in one reason.

If old buckets grew, work the claims by status and deadline. If new claims are slow to pay, check how fast claims leave and whether one payer changed its processing. The denial management playbook covers the first of those, and accounts receivable in medical billing explains the causes of high A/R. For a cost comparison of running this work in-house or outside, see the in-house versus outsourced billing costs guide.

How does Nucleus Align report days in A/R?

We report it by payer and by site with the formula and basis written beside each figure, next to the aging buckets and denial reasons. Claims go out within 24 hours of charge entry and denials are worked within 48 hours. See our A/R recovery service, the internal medicine billing page, the hospital revenue cycle guide, more on the blog, or book a call.