Days in A/R, a 121+ Bucket, and an Agency Contract
The February aging report for a 12-physician group shows total A/R of $1,620,000: 0–30 days $700,000; 31–60 $380,000; 61–90 $260,000; 91–120 $170,000; 121+ $110,000. Net revenue for the last 90 days was $2,700,000; gross charges were $4,950,000. The practice reports 'days in A/R = 31,' computed on gross charges. The 121+ bucket contains 1,900 accounts averaging $57.90, including two balances over $12,000 where the patient is deceased and one Chapter 7 bankruptcy filing. In-house staff cost to work one account is $8.25. A collection agency offers a 32% contingency fee and will not accept accounts under $50. The practice has no written financial assistance policy and no minimum-balance write-off policy.
1. Recompute days in A/R on net revenue and the percentage of A/R over 90 days. What does the gap between your number and the reported 31 days tell you?
Read the worked answer
Days in A/R (net revenue basis):
- Average daily net revenue = $2,700,000 ÷ 90 = $30,000
- Days in A/R = $1,620,000 ÷ $30,000 = 54.0 days
Check the reported figure: gross charges per day = $4,950,000 ÷ 90 = $55,000; $1,620,000 ÷ $55,000 = 29.5 days, which is roughly the reported 31. So the reported metric is a gross-charge calculation.
Percentage over 90 days: ($170,000 + $110,000) ÷ $1,620,000 = $280,000 ÷ $1,620,000 = 17.3%.
What the gap means: gross-charge-based days in A/R is flattered by the charge-to-allowable markup - it will always look better than reality and it moves when the fee schedule changes rather than when collections improve. The true picture is a 54-day cycle with 17.3% of A/R aged past 90 days, which is where recoverability drops steeply. The board is being shown a metric that cannot deteriorate visibly. Recommendation: report both, with net-revenue days as the primary KPI.
2. With the agency terms and the in-house cost given, how should the 121+ bucket be handled? Show the math.
Read the worked answer
In-house, everything: 1,900 accounts × $8.25 = $15,675 of labor against $110,000 face value. Break-even requires a 14.3% recovery rate ($15,675 ÷ $110,000) just to cover labor - and 121+ recovery rates commonly run well below that after so much time has passed.
Agency, everything above $50: no fixed cost, 32% contingency. If the agency recovers 20% ($22,000), the fee is $7,040 and net is $14,960 - roughly the same as the labor cost of touching the accounts in-house, but with no staff time consumed.
Therefore: do not work the bucket uniformly. Segment it.
- Set a documented minimum-balance write-off policy (e.g., balances under $25, or under the cost to collect, written off at 121 days on a consistent schedule). Without a written policy, inconsistent write-offs become an audit and fairness problem.
- Place accounts ≥ $50 with the agency only after a final statement and a 30-day response window.
- Break-even analysis drives the threshold: any account whose expected recovery × (1 − 0.32) is less than the cost to work it should not be worked. At $8.25 labor cost and a 20% expected recovery rate, the floor is roughly $8.25 ÷ (0.20 × 0.68) ≈ $61 - so the agency's $50 cutoff is close to right and the practice should not bother placing the sub-$50 tail itself.
- Screen for financial assistance first. With no written financial assistance policy in place, the practice cannot show that balances sent to collections were screened for charity eligibility - fix the policy before the next placement cycle.
3. What do you do with the two deceased-patient balances over $12,000 and the Chapter 7 filing?
Read the worked answer
Deceased accounts (2 × >$12,000):
- These are estate claims, not consumer collections. Identify the personal representative/executor and confirm the estate is open.
- File a timely claim against the estate; many states provide a small-estate affidavit process, but these balances are too large for that route.
- Watch the statute - creditor claim deadlines in probate are short and unforgiving. Miss it and the balance is uncollectible no matter how good the documentation is.
- Do not pursue surviving family members for the debt unless they are legally obligated (e.g., a spouse in a community-property state, or a signer on the account). Sympathetic calls to adult children are a complaint magnet and may violate state debt-collection rules.
Chapter 7 filing:
- The automatic stay takes effect on filing. Stop all collection activity immediately - statements, calls, and agency placement.
- In a no-asset Chapter 7 there is nothing to pursue; write off upon discharge and document the reason.
- Flag the account so a future billing cycle does not regenerate a statement, which is a stay violation and an actual damages claim.
Process fix: both categories should route to a named owner with a tickler, not sit in a generic aging bucket where the only action available is escalation.