How to Improve the Health of Your Practice’s Accounts Receivable
It’s a tough time for healthcare. The American Hospital Association reports that hospital operating margins dropped to -1% in January 2023.1 Over the last 22 years, hospitals provided more than $745 billion in uncompensated patient care.2
Hospitals aren’t the only healthcare businesses facing financial challenges. In a recent industry survey, 90% of medical practices said expenses are outpacing their revenues.3
Why are patient care costs increasing?
Like every other U.S. business, healthcare organizations are feeling the effects of inflation – particularly increasing costs. By 2027, healthcare costs are expected to increase by $370 billion annually.4 Labor, drug and administrative costs are primary contributors to these increases.
- Drug shortages have increased 30% over the last two years.5
While supply chain disruptions have improved for some industries, components of many popular drugs are manufactured in India and China. This not only drives up cost of first-line drugs, but also generics and alternatives. - Clinical labor costs could increase by as much as 10% in the next two years.6
The pandemic hastened the decline in healthcare workers. The number of registered nurses is expected to drop by 200,000 – 450,000 in 2025, and the Association of American Medical Colleges predicts a shortage of 124,000 doctors by 2034.7, 8 Unfortunately, these aren’t the only positions expected to decline. There may be 446,000 fewer home health aides, 98,700 fewer medical and lab technicians, 95,000 fewer nursing assistants, and 29,000 fewer nurse practitioners.9 These gaps are increasing labor costs, as the industry competes for talent. - Administrative costs – 50% wasteful – are 15-30% of healthcare spending.10
Utilities and other overhead to run a medical facility are included in administrative costs. But medical personnel spend hours completing administrative duties, including billing and insurance paperwork – all without compensation. With multiple systems, often manual processes and reduced staff, these tasks are inefficient and costly. They account for 15-30% of healthcare spending.
As patient care becomes more expensive, it’s imperative that providers find ways to reduce costs. But they also must carefully manage the revenue cycle to ensure they can continue to provide the quality care patients need.
Provider costs are increasing at a time when funding program cuts are also expected. These cuts include $27 billion in pandemic aid. Medicare reimbursements will be reduced by 2% in 2023 and at least 1.25% in 2024. And, unless a proposed bill to delay it is signed, Medicaid’s disproportionate share hospital funding is set to drop $8 billion this year with further annual cuts through 2027.
Funding cuts aren’t the only concern for healthcare providers. Many are already facing shrinking revenue and limited cash flow. Last year, 40% of surveyed practice groups weren’t hitting revenue targets, and 56% also faced increased accounts receivable (AR) time.11
Inefficient AR processing and slow payments are clearly two of the leading causes of revenue shortfalls. Seventy-seven percent waited more than a month for payment.12 Seventy-four percent sent more than two bills and another 34% sent more than three statements.13 According to Equifax, flawed billing practices cost $125 billion each year.
Shortening accounts receivable days is key to improving cash flow and liquidity.
The solution to expediting payments is digitalization. Integrated, automated AR solutions accelerate and optimize the entire receivables process, delivering faster collections and fewer follow-up delays. Even businesses with minimal automation have reduced days sales outstanding (DSO) to 55 days, which is 30% lower than those still using manual systems.14 Companies with automation also see an average reduction of 11% in follow-up (on late payments) delays.15
An automated AR suite also provides straight-through processing (STP) across all payment channels, aggregating electronic and check payments regardless of location, type, or channel. This reduces unnecessary deductions, cuts labor costs, and better manages payment relationships. Artificial intelligence capabilities increase STP and quicken the application of cash to the balance sheet. Integrating all payment data into a central repository with a dashboard gives providers visibility into the entire AR lifecycle.
If you’re interested in an accounts receivable management solution that will help better manage your organization’s cash flow and liquidity, complete a short form and a Synovus Treasury & Payment Solutions Consultant will contact you with more details. You can also stop by one of our local branches.
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Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- American Hospital Association, “Report: Hospitals Could Face New Normal as Financial Challenges Linger,” February 28, 2023 Back
- American Hospital Association, “American Hospital Association Uncompensated Hospital Care Cost Fact Sheet,” February 2022 Back
- Medical Group Management Association, “MGMA Poll: An Almost Universal Financial Pinch on Medical Practices as Inflation Rises,” June 23, 2022 Back
- McKinsey, “The Gathering Storm: The Transformative Impact of Inflation on the Healthcare Sector,” September 19, 2022 Back
- U.S. Senate Committee on Homeland Security, “Short Supply: The Health and National Security Risks of Drug Shortages,” March 2023 Back
- McKinsey, “The Gathering Storm: The Transformative Impact of Inflation on the Healthcare Sector,” September 19, 2022 Back
- Ibid Back
- Association of American Medical Colleges, “The Complexities of Physician Supply and Demand: Projections from 2019 to 2034,” June 2021 Back
- Mercer, “U.S. Healthcare Labor Market,” June 2021 Back
- Health Affairs, “The Role of Administrative Waste in Excess US Health Spending,” October 6, 2022 Back
- Medical Group Management Association, “Further Down the Road to Recovery,” December 2022 Back
- InstaMed/JP Morgan Chase, “Operating in the Red: How a Perfect Storm of Challenges Creates Negative Margins for Providers,” 2022 Back
- Ibid Back
- PYMNTS.com, “Widespread Automation Slashes DSO Times by Weeks,” March 22, 2022 Back
- Ibid Back