Table of Contents
How Is Medical Accounts Receivable Unique?
Examples of Accounts Receivable in Healthcare
Challenges of Accounts Receivable Medical Billing
Best Practices for Managing Medical Accounts Receivable
The Key to Efficient Accounts Receivable Management: Automation
Understanding Accounts Receivable in Healthcare
MHC Team 
Last Updated: May 4th, 2026
In an industry as complex and fast-moving as healthcare, a strong accounts receivable (AR) process is crucial. Because healthcare companies face such unique challenges when it comes to their billing operations, properly managing accounts receivable is even more essential than in most industries. Considering that a 2024 report found that 84% of healthcare businesses lost money due to outdated AR practices, this is clearly a message that needs spreading.
Table of Contents
How Is Medical Accounts Receivable Unique?
Examples of Accounts Receivable in Healthcare
Challenges of Accounts Receivable Medical Billing
Best Practices for Managing Medical Accounts Receivable
The Key to Efficient Accounts Receivable Management: Automation
Key Takeaways
- Outdated AR practices have a measurable cost. A 2024 report found that 84% of healthcare businesses lost revenue due to AR processes that haven’t kept pace with today’s billing complexity.
- Healthcare AR is structurally harder than most industries. The rise of high-deductible health plans has shifted more financial burden to patients — which is why providers collect on less than half of payments owed each year.
- Insurance claim denial is the leading driver of aged AR. Insurers frequently deny claims for coding errors, missing information, or late filing, and without a structured denial management process, unpaid claims accumulate quickly.
- Billing and patient experience are directly connected. More than 50% of consumers would switch healthcare providers for a better experience — and clear, timely billing communications are a big part of that equation.
- Manual AR amplifies every risk. Write-offs, compliance gaps, and cash flow shortfalls are all significantly worse in organizations still relying on spreadsheets and disconnected systems.
- Compliance isn’t optional — and it’s getting more complex. Healthcare AR operates under FDCPA, HIPAA, GDPR, and CCPA. Automated systems with built-in audit trails are the most reliable way to stay compliant without overburdening staff.
What Is Accounts Receivable in Healthcare?
Accounts receivable (AR) refers to all of the payments a company is owed for the goods and/or services they’ve already provided to customers. Accounts receivable management in healthcare might entail tracking payments owed to a provider, maintaining regulatory compliance, and generating invoices. 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
As we’ll cover, there are some aspects of medical accounts receivable that are distinct from AR in other businesses. Still, the basic process remains relatively unchanged no matter the industry:
- Establish Credit Terms – First, a medical 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, your healthcare business will collect invoicing information—like descriptions of purchased medical products or care-related 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 or patient, 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 or patient. 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).
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, healthcare providers collect on less than half of payments owed each year.
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. An effective AR process is paramount for healthcare organizations to stay afloat.
Examples of Accounts Receivable in Healthcare
What are accounts receivable in a healthcare organization? As we’ve noted, there are some unique elements of the accounts receivable process in healthcare. Let’s look closer at some specific examples of how to employ AR in medical billing and other healthcare situations.
- Insurance claims – A patient receives treatment for an injury at a hospital. The hospital bills that patient’s insurance provider $2,000 for the treatment. The $2,000 owed is classified as accounts receivable until the insurance company makes its payment.
- Co-pays and deductibles – Insurance plans may cover a $2,000 procedure while also requiring a $100 deductible or co-pay from the patient. Until the $100 is paid, it is classified as accounts receivable.
- Patient self-payments – If a patient is uninsured or opts not to use insurance, the healthcare facility bills them $2,000 directly. Until the $2,000 is paid, it is classified as accounts receivable.
- Medicare and Medicaid reimbursements – A patient who is covered by Medicare or Medicaid receives treatment for an injury at a hospital. The hospital submits a claim for $2,000 to Medicare or Medicaid. The $2,000 owed is classified as accounts receivable until payment is received.
- Third-party liability– An insured patient is injured and another person is at fault, such as in a car accident. The hospital bills $2,000 to the at-fault person’s insurance company. The $2,000 is classified as accounts receivable until payment is received.
- Worker’s compensation – A patient has been injured on the job and receives treatment. The healthcare provider bills their employer’s worker’s compensation insurance $2,000. The $2,000 owed is classified as accounts receivable until payment is received.
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. To avoid payments spending too many days in accounts receivable, healthcare organizations need to keep an eye on these common issues.
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. A recent American Medical Association study saw a 7.5% increase in annual healthcare spending, the highest non-pandemic single-year rise in two decades. 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.
Regulatory Compliance
Managing accounts receivable in U.S. healthcare requires constant awareness of the constantly changing regulatory compliance landscape. Healthcare is one of the most heavily regulated industries there is, and that includes your AR operations.
From data privacy to credit reporting to proper documentation to fraud prevention, medical AR functions are filled with legal and compliance hurdles. Failing to comply with key regulations such as the Fair Debt Collection Practices Act (FDCPA), General Data Protection Regulation (GDPR), or the California Consumer Privacy Act (CCPA) can do serious damage to a healthcare provider’s reputation and bottom line.
Disorganized Collection Process
As is the case for any business, it’s 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. Payment terms should be made as transparent as possible to avoid any issues. Transparency is difficult for 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.
Cash Flow Issues
When insurance companies or patients are delayed in making payments, it can lead to cash flow problems for your AR team. Monitoring payments and cash flow is one of the most important elements of AR management in medical billing.
Invoices that haven’t yet been paid can’t be classified as income, which can create risky gaps in your operations. Unpaid invoices often lead a business to taking on more debt than is prudent. That can mean taking withdrawals from savings, ultimately creating deeper financial difficulties for your healthcare organization.
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. Patients will likely seek services from a provider who offers more flexibility.
Gathering patient information such as payment needs sets up both patient interactions and billing transactions for success moving forward. That can be cumbersome and time-consuming if you’re still using manual processes and systems. 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.
High Cost of Operations
Especially for organizations still relying on manual process or obsolete technology, the cost of accounts receivable operations can be quite high. Operational costs associated with denied claims and following up on payments add up quickly.
Add to that the time and expense of processing invoices manually, routing payment documents for approval, and sending out payment reminders. Clearly, outdated workflows and operations end up costing a healthcare organization more than upgrading to a modern, automated solution.
Integrating New Tech
Keeping up with the latest technology should always be a goal for accounts receivable. In healthcare industry operations, that’s particularly important. Smoothly integrating new tech and training employees on how to use it effectively is vital to keeping payments flowing as they should.
This is another situation where manual processes and out-of-date systems can cause significant problems. An automated AR system with a centralized dashboard is essential to keep all areas of your accounts receivable processes operating on the same page.
Best Practices for Managing Medical Accounts Receivable
Overcoming these challenges can seem like a tall order, but these nine proven best practices will help improve your medical AR process:
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. Communicate Clearly About Payments
Creating consistent, clear communications is the surest way to keep your AR department running smoothly and ensure that money’s coming in. Sending out payment reminders, post-due notices, formal dunning letters, and legal notices is a vital function of your AR team. Maintaining the appropriate language and tone in each of these communications can make a major difference in receiving payments on time.
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. 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.
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.
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. Automation streamlines the previously time-consuming, error-prone process of collecting, searching, and updating client details. It also ensures 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. Specialty software from MHC 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.
9. Provide Interactive Forms
Digital forms are another helpful tool for accounts receivable. In medical billing, anything that makes a patient feel more empowered and in control is a plus. Not only do interactive forms provide a better customer experience (CX) for patients, they also improve the quality of data those patients provide. Higher quality data plays a huge role in providing the best, most individualized care for every patient. By evaluating real-time data with deep visibility, a healthcare organization can also more easily identify potential issues and slowdowns in their system. That helps boost security and operational efficiency across the board.
10. Ensure Regulatory Compliance
In a highly regulated industry such as healthcare, compliance violations can be incredibly damaging. Not only does noncompliance lead to fines, sanctions, and accreditation issues, it also does lasting damage to an organization’s reputation and brand. Automating accounts receivable processes is the surest way to avoid compliance errors involving data privacy, invoicing practices, accounting fraud, and other key areas of concern. Patients need to know that their healthcare provider can be trusted not only with their health, but also their payments and privacy.
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 repetitive tasks. Some key advantages of accounts receivable automation include:
Tracks Payments and Bills That Will Soon Be Overdue
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 potential credit risks.
Eliminates Costly Errors
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.
Allows Companies to Go Paperless
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.
Automates AR Reporting And Other Workflows
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.
Adapts to Increased Volume
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.
Extracts Data From EOB Forms to Support Straight-Through Processing
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.
Automated Generation of AR Documents
Medical organizations generate high volumes of documents involving complex data. Using an automated system driven by rules makes it easy to scale production to meet your changing needs. Complex data is pulled automatically from any source. Documents and content can be easily customized for more effective communications with different audiences, and even individual patients and customers.
Easy Access to Document History
Being able to quickly locate medical documents, patient data, and financial records is essential for a healthcare organization. An automated solution with a robust digital archive offers secure storage for and easy access to exact copies of all accounts receivable documents. That creates an easy-to-find visual record of all of your communications, making it simple to track invoices, conduct audits, and ensure compliance.
Automated Distribution of AR Documents
Whether your patients and customers prefer physical invoices, digital transactions, email attachments, or other forms of communication, an automated system makes sure you stay connected. Omnichannel document delivery lets you tailor all AR documents to the recipient’s preference. That improves customer experience while also reducing the workload for your AR team.
Real-World Examples of AR Automation in Healthcare
The operational and financial gains from AR automation aren’t theoretical — healthcare organizations are realizing them today. Here are two examples of how automation has transformed billing and payment workflows in practice.
This national third-party administrator handles more than one million communications annually, including invoices and collection notices. Legacy processes relied on an outsourced print vendor charging up to $4 per document, with no audit trails and manual payment reconciliation across multiple systems.
By implementing MHC NorthStar CCM and MHC NorthStar AP Payments, the organization brought document composition in-house, automated ACH and check processing, and gave customers self-serve portal access to billing documents — eliminating vendor fees and scaling to 1M+ communications and payments annually.
Optum Home & Community serves more than 12 million members across the U.S., coordinating care for dual-eligible health plan members. Disconnected legacy systems introduced manual errors and delayed time-sensitive patient documents.
After implementing MHC NorthStar CCM, Optum consolidated communications across 100+ templates, automated document approvals, and embedded compliance checks directly into the workflow — directly reducing the lag between service delivery and payment.
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. 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 and invoices, 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.
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Accounts Receivable in Healthcare FAQs
What are accounts receivable in a healthcare organization?
Generally speaking, almost all items considered accounts receivable for a healthcare provider fall into three categories of unpaid invoices: invoices for patients, invoices for insurance companies, and invoices from government agencies.
How to improve accounts receivable in healthcare?
Every healthcare organization faces its own unique challenges, but generally speaking, upgrading to an automated software solution is the surest way to improve accounts receivable processes across the board.
Why is “days in accounts receivable” important in healthcare?
The more days an invoice spends in accounts receivable, the more the organization’s cash flow is impacted. Maintaining timely payments and reducing days in accounts receivable helps ensure the organization’s financial stability.
What is accounts receivable in medical billing?
Accounts receivable in medical billing involves the management of outstanding payments and invoices from patients and customers. AR helps ensure positive cash flow, fewer claim denials, and improved regulatory compliance.
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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.
