Accounts Receivable in Healthcare: An Overview

MHC Team    October 27th, 2021

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A strong accounts receivable (AR) process is crucial for organizations in every industry, and healthcare is certainly no exception. In fact, because healthcare companies face such unique challenges when it comes to their billing operations, properly managing their accounts receivable is absolutely critical for success.

Here, we’ll discuss all of the nuances of medical AR, including common challenges, tried-and-true best practices, and how the right automated solution can significantly improve the management process.

What Is Accounts Receivable?

refers to all of the payments a company is owed for the goods and/or services they’ve already provided to customers. Simply put, AR acts as a line of credit for customers so that they don’t have to provide immediate payment at the time of purchase. A company’s AR is critical for avoiding cash flow issues and ensuring a healthy financial standing.

Overview of the Accounts Receivable Process

Though there are some aspects of medical accounts receivable that are distinct from AR in other industries, the process remains relatively unchanged:

ESTABLISH CREDIT TERMS – First, an organization must decide whether they’ll extend a line of credit to a new client based on credit history. Once approved, the credit officer determines a credit limit for the client and clearly establishes payment terms, including deadlines, interest rates, and more.

COLLECT INFORMATION FOR INVOICES – Next, the business will collect invoicing information—like descriptions of purchased products or services, the cost of these products or services, and the deadline for payment—and generate an invoice for the client.

SEND INVOICES TO CUSTOMERS – The invoice will then be sent to the customer, either in paper form by post or in digital form by email.

TRACK INVOICES AND PAYMENTS – Each invoice and subsequent payment must be properly tracked and confirmed with the customer. This is generally the responsibility of an accounts receivable officer (ARO) and is either completed manually (through printed and mailed spreadsheets, QuickBooks, etc.) or automatically (through robust, automated systems that track and monitor invoices and payments).

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How Is Medical Accounts Receivable Unique?

Accounts receivable in healthcare is the money owed to healthcare providers and medical billing companies for the care provided to patients in a given year. It’s unique to AR in other industries because of the amounts owed, the involvement of insurance companies, and the increased risk of late payments (also referred to as “bad debts”).

As is the case in any industry, accounts receivable in healthcare dramatically lose value over time. The specific danger for medical organizations, though, arises from the growth of high-deductible health plans, which increase financial responsibility on patients rather than their insurance companies. Because of this hefty burden, many healthcare facilities expect to receive payment on only one-fifth of what their patients actually owe.

For medical companies, these outstanding (or partially paid) bills can lead to limited cash flow, an inability to keep up with operating costs, and, in some cases, bankruptcy. Thus, an effective AR process is paramount for healthcare organizations to stay afloat.

How Is Medical Accounts Receivable Unique

Challenges of Accounts Receivable Medical Billing

The distinct demands of accounts receivable in healthcare result in some key challenges, all of which can significantly impact cash flow:

Insurance Claim Denial

Insurance companies frequently and purposely make it difficult to receive payment by denying insurance claims for myriad reasons. Insurance companies run for-profit operations, meaning it financially benefits an insurance organization not to accept a claim. Some common explanations for claim denial are missing information, late filing, lost claims, duplicate submissions, and coding errors.

This is also the main reason for aged accounts receivable in the healthcare space, as an insurance company’s inability or unwillingness to accept a claim often leads to outstanding payments.

Bad Debts

The healthcare landscape is constantly changing, and patients consistently pay more due to higher deductible plans and increasing patient costs. In fact, 74% of medical providers have reported an increased financial burden on patients. And this elevated responsibility

leads to a higher number of bad debts, which are bills that patients never end up paying.

Unwarranted Write-offs

Unwarranted write-offs are considered “forgiveness” of a customer’s debt without payment. But write-offs—even the seemingly inconsequential ones—have a concerning impact on your bottom line, so you should avoid them as much as possible.

Write-offs can especially become a larger issue for companies with a manual collection process, as details tend to fall through the cracks, causing unpaid balances to accumulate.

A Disorganized Collection Process

As is the case for any business, it’s absolutely crucial for medical practices to receive payment in order to continue functioning. While it’s a delicate process, expenses for care should be clearly discussed and disclosed to patients at the time of service, whenever possible. Fortunately, there are some helpful steps for making the collections process a bit easier.

This conversation should be handled with sensitivity and compassion from staff prior to notifying patients, and payment terms should be made as transparent as possible to avoid any issues. But transparency is difficult for many organizations who lack the proper tools for keeping patients abreast of billing, deadline, and payment confirmation details. This can create a negative customer experience, particularly for patients or families who are already dealing with the stress of illness or injury.

It can also cause unnecessary write-offs, which means the provider will have to absorb that debt. Write-offs are often a result of a poor collection process, or one that lacks a structured adjustment approval process.

Restrictive Modes of Payment

It’s important to accept a variety of payment methods in order to better meet the needs of your customers. Failure to do so puts your organization at a severe competitive disadvantage, as patients will likely seek services from a provider who offers more flexibility.

It’s equally crucial to gather patient information, like payment needs, too. This sets both patient interactions and billing transactions up for success moving forward, but can be cumbersome and time-consuming if you’re still using manual processes and systems to do so. And without tools that make it easy to capture this information, you risk claims rejections and denials down the line, which delay bill payment and affect liquidity.

Best Practices for Managing Medical Accounts Receivable

Though overcoming these challenges can seem like a tall order, there are fortunately some proven best practices to help improve your medical AR process:

Inform Them About Financial Responsibilities

1. Nurture Patient Relationships and Inform Them About Financial Responsibilities

A strong business is built on an excellent customer experience—one that’s as transparent and supportive as possible. In fact, more than 50% of consumers claim they would switch healthcare providers for a better customer experience.

By developing positive and open communication with your customers, they’ll feel more comfortable alerting you to any issues or concerns regarding payment. A healthy AR process can make it easier to circumvent and ameliorate issues like insurance claim denials, freeing up time to focus on stronger relationships and better patient care.

2. Collect Payment at the Time of Service

Collecting payment at the time of services is the easiest way to keep your AR department running smoothly and ensure that money’s coming in. It’s important to properly vet your customers to ensure they’ve paid other businesses on time; a key indicator that they’ll likely keep up on medical payments, too. It can be helpful to offer early payment incentives, as well, which encourage early and on-time payments for patients.

Collect Payment
Pull an AR Aging Report

3. Pull an AR Aging Report

Pulling an AR aging report (or a report that breaks down the amount of debts and how long they’ve been outstanding) will clue you in on what accounts are delinquent and for how long. This can help you get ahead of any problems with habitual late-payers and gives you the opportunity to intercede with collections or discontinue providing services to avoid credit risks.

4. Follow-up with Outstanding Accounts

Providing consistent follow-up with outstanding accounts is critical for increasing the likelihood of collecting payment. You should establish a clear collection policy for overdue payments, including periodic courtesy calls, letters of demand, and, potentially, deployment of a collection service. This will arm your AR department with an actionable set of steps should a customer fail to meet deadlines.

Outstanding Accounts

5. Hire Experienced Employees

Medical billing procedures are ever-changing, so it’s helpful to have an experienced AR staff who can stay on top of those updated operations, collection processes, and more. They should be well-versed in how to handle a multitude of both common and unique issues and be able to effectively communicate potential resolutions with customers.

6. Check In with Patients and Insurance Providers

Establishing a strong relationship with both patients and insurance companies—and doing your due-diligence to ensure collection of overdue ARs—will help keep cash flow issues at bay. You’ll need to keep detailed accounts of interactions, payment information, and consistent late-payers to adequately stay on top of everything, so make sure you develop a process that runs like a well-oiled machine.

Check In with Patients and Insurance Providers

7. Collect Patient Information (in an Automated System)

While capturing patient details seems like a common sense practice, it’s a truly vital piece of successful AR management. But manual, outdated collection processes (e.g. spreadsheets, disparate systems and tools, paper forms, etc.) can make it difficult to capture and update customer information.

That’s why many healthcare organizations have started leveraging automated solutions, as they streamline the previously time-consuming, error-prone process of collecting, searching, and updating client details. They also ensure that those details aren’t duplicated or lost in the shuffle of switching between systems or transcribing them from paper copies.

8. Automate Your AR Workflow

Manual AR, such as sending out invoicing and processing payments, is tedious and invites otherwise avoidable errors. Accounts receivable automation increases the efficiency of many AR processes, including invoice delivery and payment updates.

Today, there is specialty software, like MHC NorthStar, that can help automate the end-to-end process, freeing up precious time for your AR department to focus on high-value tasks that affect your bottom line.

Automate Your AR Workflow

The Key to Efficient
Accounts Receivable Management: Automation

Robust AR management requires a strong process backed by powerful tools. Manual methods of the past have made way for automated systems, which offer a more efficient, seamless process for managing AR. Automation improves the end-to-end invoicing process and ensures hands-off, accurate completion of mundane, repetitive tasks.


An automated AR system allows accounts receivable officers to keep track of payments and track bills as they near their due date. This enables AR offices to send out reminders, when necessary, and stay on top of customers who are becoming a potential credit risk.


Automating your end-to-end workflow will significantly reduce errors such as duplicate payments, over-payments, fraudulent payments, and more. What was once a frustrating, labor-intensive, and costly task for already overburdened AR teams can become a valuable part of the process that boosts your competitive edge.


Automation frees up space devoted to physical record storage to improve environments for both patients and staff. The amount of paperwork required in healthcare operations is immense, but going paperless via AR automation saves time, supply expenses (e.g. paper, toner, printers, etc.), and storage space. It also makes organizations more reliable and environmentally friendly, as patient data is stored and updated on the cloud.


With automation, AR reporting is more accurate and robust, and takes significantly less time to generate. It enables you to track real-time payments and activity, so you’re always up-to-date on each customer. Automation can also streamline other revenue cycle workflow practices, like benefit verification, insurance claim submissions, followup, and aging identification. The resulting efficiency empowers teams to be more productive and to easily identify high-value claims.


As you maximize your efficiency and productivity, you’ll find opportunities for growth. But if you don’t have the right system in place to support that growth, your employees will likely be inundated with far more tasks than they can handle. An automated accounts receivable system is scalable and can keep up with your medical practice as it grows without necessarily needing to hire more employees. It allows you to seamlessly accelerate your output for profitable scalability.


Powerful AR automation tools include complex data extraction features that enable medical companies to work with complicated Explanation of Benefit (EOB) forms. They automatically pull data from faxed and scanned documents and upload that data directly into a billing system, which saves time and reduces the risk of human error.

Managing Your Healthcare Accounts Receivable Process and Improving Patient Communications

Managing accounts receivable can be a tricky process for organizations in the healthcare industry, as its many moving parts can threaten your success. Collecting timely payments by maintaining an efficient AR operation is essential for healthcare providers looking to remain competitive and scale their profitability.

Along with an efficient accounts receivable process, healthcare needs to maintain coherent and secure communication with its patients. From patient onboarding to homecare instructions to bills & collections, the ability to provide effective communication within your healthcare organization is crucial. MHC can help you ensure better customer service and excel ROI with intelligent image retrieval, workflow automation, and transaction management.

Team MHC

Team MHC consists of a multitude of roles, functions, and expertise within MHC. With extensive combined experience in accounts payable and customer communication management, Team MHC has a unique insight into how to empower people using solutions that streamline processes while enhancing customer communication. Working alongside field experts in various industries and company sizes, Team MHC has garnered impressive thought leadership knowledge that we are excited to share with our readers. Including Aragon’s 2022 Women in Tech winner Gina Armada, CTO Dan Ward, VPs of Finance and Customer Service, and other talent that runs the spectrum of technology ability, Team MHC offers a mastery of skills to benefit our customers and prospects alike.


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