Days in A/R Jump While Cash Is Flat
At the end of Q2, a 180-bed community hospital's CFO reports that days in A/R rose from 38.4 to 52.1 over one quarter, while gross charges increased 6% and cash collections were flat. The revenue cycle director's dashboard shows initial denial rate steady at 5.2%, clean claim rate 96.1%, charge lag 2.1 days, and cost to collect 2.9%. However, A/R aging shows a 64% increase in the 0–30 day bucket and a 9% decrease in the 91–120 day bucket. The payment posting team has two open positions, and 1,842 electronic remittance files were posted manually last month because the clearinghouse interface rejected them. The CFO wants to know whether the hospital has a collection problem or a reporting problem and whether to hire agency collectors.
1. Which additional analyses would distinguish a true A/R deterioration from a posting lag?
Read the worked answer
The director should test whether the A/R is real and collectible or merely unposted cash and unprocessed remittances:
- Reconcile bank deposits to posted cash for each month in the quarter. A growing gap between deposited cash and posted cash points to posting lag.
- Calculate unposted cash and suspense balances by age. Identify remittances received but not loaded, and checks deposited but not applied.
- Recompute days in A/R using net revenue and using gross charges. If gross days rise but net days are stable, contractual allowance posting may be the driver.
- Calculate days in A/R excluding unbilled accounts and separately report unbilled A/R. Charge lag is stable, so unbilled should not explain the jump, but the split confirms it.
- Age the A/R by payer and by financial class, looking at 0–30 and 90+ buckets. A posting backlog inflates the 0–30 bucket; a true collection problem usually grows older buckets.
- Review claim status and follow-up notes for a sample of accounts still open, to see whether they are paid, denied, or never billed.
The combination of flat cash, stable denial rate, and a 0–30 day spike is more consistent with a posting problem than with a sudden collection failure. The analysis must prove that before collections are outsourced.
2. Explain how the aging pattern and flat cash can coexist with rising days in A/R.
Read the worked answer
Days in A/R is a ratio: ending A/R divided by average daily net revenue. If payments are received but not posted, the A/R balance stays artificially high even though cash has been deposited. The 0–30 day bucket grows because those paid-but-unposted accounts remain open. Cash collections look flat because the cash is sitting in the bank or suspense rather than being applied to accounts; the dashboard may only count posted cash.
The 9% decrease in the 91–120 day bucket is a clue. If the hospital had a true collection problem, older A/R would usually grow, not shrink. A decrease in that bucket suggests the team is working older accounts or writing them off, while new paid claims are not being posted promptly. The two open posting positions and 1,842 manually posted remittances support that explanation.
A true collection deterioration would typically show rising 90+ day A/R, declining cash, increasing denials or aging, and stable posting. Here, the denial rate and clean claim rate are stable. The director should still verify that the 91–120 day decrease is not a write-off spike, which would be a different warning sign.
3. What recommendation should the director make about agency collectors and interim reporting?
Read the worked answer
The director should recommend fixing the posting and interface backlog before engaging agency collectors. Sending accounts to collections while remittances are unposted creates duplicate collection activity, patient complaints, and potential compliance problems. It also spends money on a problem that may not exist.
A sequenced recommendation:
- Do not hire agency collectors yet. Set a 30-day cleanup target: eliminate the manual remittance backlog, reconcile the bank-to-posted-cash gap, and clear suspense items.
- Escalate the clearinghouse interface failure and implement a daily file-count and dollar-total reconciliation so rejected 835 files are detected the same day.
- Re-run days in A/R on a net basis after cleanup, and report both gross and net days, unposted cash, and 90+ day A/R.
- Report interim results weekly to the CFO, with a clear statement of what is known versus estimated.
- Reassess agency collectors after cleanup using true 90+ day A/R and collection rates. If older self-pay or denied accounts remain high, target those segments rather than sending all A/R.
This protects the CFO from a costly decision based on a distorted metric and addresses the underlying capacity issue.