Four different numbers for the same visit
A practice bills 400 dollars for a procedure. The insurer's allowed amount is 230. They pay 184 and the patient owes 46. The contractual adjustment of 170 was never collectible and never should have been treated as revenue.
Practices that record gross charges as revenue dramatically overstate it and then carry an ever-growing receivable that will never be collected. The useful figure is net patient service revenue: what you reasonably expect to actually receive.
The revenue cycle, and where cash gets stuck
From service to cash typically runs 30 to 60 days when things work, and considerably longer when they do not. The stages where it stalls are predictable:
- Charge capture. Services delivered but never coded or submitted. This is pure lost revenue and it is more common than most practices believe.
- Claim submission. Delays here push everything downstream, and some payers enforce strict timely filing windows after which the claim is simply dead.
- Denials. A meaningful share of claims are initially denied. The ones that are never reworked become write-offs by neglect rather than by decision.
- Patient responsibility. With higher deductibles, a growing share of revenue now comes from patients rather than insurers, and patient balances collect far more slowly and less completely.
Numbers worth watching monthly
- Days in accounts receivable. Net AR divided by average daily net revenue. Under 40 days is strong for most specialties; over 60 indicates a problem in the cycle.
- Aged AR beyond 90 days. The proportion of receivables older than 90 days is the clearest early warning. Collectability drops sharply past that point.
- Net collection rate. Payments received against what you were contractually entitled to collect. This isolates cycle performance from contract rates.
- Denial rate and rework rate. How many claims are denied, and critically, how many of those are actually pursued.
Accrual, not cash
Many practices keep cash-basis books because it is simpler and matches the tax return. The cost is that you cannot see the revenue cycle at all. Cash basis shows money arriving without showing what it relates to, which month the work was done, or how much work is sitting unpaid.
Accrual books with a contractual allowance account show services delivered, expected collections, and the gap. Keeping accrual books for management and converting for tax is more work, and it is the difference between managing a practice and observing it.
Provider-level profitability
In a multi-provider practice, aggregate numbers hide a great deal. Revenue, payer mix, collections and cost per provider vary more than most partners expect. Allocating overhead on a defensible basis and reporting contribution per provider changes compensation conversations from impressions to evidence.
Practical priorities
If the books are not currently set up this way, the order that produces results fastest is: move to accrual with contractual allowances, build an aged AR report reviewed monthly, measure the denial rate and establish a rework process, separate patient responsibility from insurer receivables, and only then layer on provider-level reporting.
TallyWise provides this as part of our healthcare accounting services. Book a call to talk through your situation.
