Accounts receivable (A/R) in medical billing is the money owed to your practice for services already provided but not yet paid, by insurers or by patients.
Every claim enters A/R the moment its charge is posted and leaves it only when it is paid, adjusted or written off. In between, the balance ages. The older it gets, the more effort it takes to collect, and the more likely it is to be lost to a timely filing limit, a missed appeal deadline or a patient who stops responding.
That is why A/R is one of the first numbers a practice administrator, billing manager or outside auditor looks at. On its own, a total A/R balance says very little. Split by age, payer and status, and turned into ratios such as days in A/R, it shows exactly where the revenue cycle is slowing down.
This guide explains what A/R includes, how aging buckets work, how to read an aging report, and the standard formulas published by the AAFP, MGMA and HFMA. If you already know your numbers and want to bring them down, see our companion guide on how to reduce accounts receivable days.
Key Takeaways
- A/R is the unpaid balance on services already billed (and, in some reports, not yet billed), split into insurance A/R and patient A/R.
- Aging buckets (0–30, 31–60, 61–90, 91–120 and over 120 days) are normally counted from the date of service for physician and outpatient claims.
- Days in A/R = A/R balance ÷ average daily charges. Subtract credits first so the result is not flattered.
- The AAFP says days in A/R should stay below 50 at a minimum, with 30 to 40 days preferable, and recommends watching balances over 120 days separately.
- Read the aging report by payer and by status, not just by total, to find the claims that actually need work.
What Counts as Accounts Receivable in a Medical Practice?
In accounting terms, A/R is a balance-sheet asset: revenue you have earned but not yet received. In a practice management system, it is the sum of open balances on patient accounts. Those balances fall into two groups, and each one is worked differently.
Insurance A/R
Insurance A/R is the portion expected from Medicare, Medicaid, commercial plans, Medicare Advantage plans, workers’ compensation and other third parties. It sits open while a claim is being processed, while it waits on a corrected claim, or while it is being appealed. Most of the follow-up work in a billing office is on insurance A/R.
Patient A/R
Patient A/R is what the patient owes after the payer has processed the claim: deductibles, coinsurance, copays not collected at the visit, non-covered services and self-pay balances. It moves into patient A/R only after the remittance shows patient responsibility, usually with group code PR. A contractual write-off coded CO-45 is never patient A/R; the provider absorbs it.
Credit balances
A credit balance is an account where more has been paid than is owed, for example a duplicate payment or a copay collected on a visit the patient never owed. Credit balances reduce your total A/R on paper but represent money you may have to refund. HFMA tracks them separately as net days in credit balance, and Medicare requires an identified overpayment to be reported and returned within 60 days of identification, with only limited time allowed for a good-faith investigation.
| Type | Who owes it | Typical sources | Main work |
|---|---|---|---|
| Insurance A/R | Payer | Claims in process, rejected, denied or underpaid | Claim status checks, corrections, appeals |
| Patient A/R | Patient or guarantor | Deductible, coinsurance, copay, non-covered, self-pay | Statements, payment plans, point-of-service collection |
| Credit balance | Practice owes money back | Overpayments, duplicate payments, posting errors | Research, refund or transfer |
| Unbilled A/R | Not yet billed | Unsigned notes, charges not entered, coding holds | Close the encounter and release the claim |
How A/R Aging Buckets Work
An aging report groups open balances by how long they have been outstanding. HFMA’s MAP Keys, a widely used set of industry definitions, age billed A/R from the date of service for outpatient, ambulatory and physician accounts. The standard buckets are 0–30, 31–60, 61–90, 91–120 and over 120 days. The buckets are mutually exclusive, so the percentages always add up to 100%.
Some systems can also age from the claim date or from the date a balance moved to patient responsibility. Both views are useful, but you need to know which one your report uses before you compare it with anyone else’s numbers.
| Bucket | What it usually means | Typical action |
|---|---|---|
| 0–30 days | Recently billed; most claims are still in normal processing | Confirm clearinghouse and payer acceptance; work rejections |
| 31–60 days | Clean electronic claims should usually be paid or denied by now | Check claim status; work denials and requests for records |
| 61–90 days | Something is stuck: missing information, pending review, unworked denial | Call or use the payer portal; correct and resubmit or appeal |
| 91–120 days | Filing and appeal deadlines are getting closer | Escalate; confirm deadlines for each payer |
| Over 120 days | Hardest to collect; may hide a systemic problem | Final appeals, payer escalation, or write-off under your policy |
Medicare MACs explain that a clean electronic claim cannot be paid before the 14th day after receipt, and a clean paper claim not before the 29th day. A Medicare claim still unpaid in the 31–60 day bucket is therefore worth checking.
How to Read an A/R Aging Report: A Worked Example
The figures below are hypothetical. They show how the same total can look very different once you split it by payer.
| Payer | 0–30 | 31–60 | 61–90 | 91–120 | Over 120 | Total |
|---|---|---|---|---|---|---|
| Medicare | $38,000 | $6,000 | $2,000 | $1,000 | $1,000 | $48,000 |
| Commercial A | $22,000 | $9,000 | $6,000 | $4,000 | $3,000 | $44,000 |
| Medicaid MCO | $9,000 | $7,000 | $6,000 | $5,000 | $8,000 | $35,000 |
| Patient | $6,000 | $5,000 | $4,000 | $3,000 | $5,000 | $23,000 |
| Total | $75,000 | $27,000 | $18,000 | $13,000 | $17,000 | $150,000 |
Overall, 20% of this practice’s A/R ($30,000 of $150,000) is older than 90 days. That sounds like a practice-wide problem, but the payer rows tell a different story:
- Medicare: about 4% is over 90 days. Medicare is paying on time.
- Medicaid MCO: about 37% is over 90 days. This one payer accounts for $13,000 of the $30,000 aged balance, which points to an enrollment, authorization or claim-format issue.
- Patient: about 35% is over 90 days, which suggests statements, payment plans or point-of-service collection need attention.
The AAFP makes the same point: a good overall average can hide one slow payer. Its example shows a practice averaging just under 50 days overall while its Medicaid claims average 75 days.
Read the report in this order
- Check the basis. Confirm whether the report ages from date of service or claim date, and whether it includes unbilled charges and credit balances.
- Look at the over-90 and over-120 totals. These are the balances closest to filing and appeal deadlines.
- Split by payer. Compare each payer’s aging mix with your overall mix. The outliers are where to start.
- Split by status. Separate claims that are denied, pending, never acknowledged, or waiting on the patient. Each needs a different action.
- Trend it monthly. One month is a snapshot. Three to six months show whether a bucket is growing.
The Core A/R Formulas
Days in A/R
Days in A/R estimates how many days of charges are sitting uncollected. The AAFP method is:
Average daily charges = (charges for the period − credits) ÷ days in the period. Use 3, 6 or 12 months of charges.
Days in A/R = total A/R ÷ average daily charges.
The AAFP’s own worked example uses $70,000 in receivables, a $5,000 credit balance and $600,000 in gross charges for the year: ($70,000 − $5,000) ÷ ($600,000 ÷ 365) = about 39.5 days.
Percentage of A/R over 90 or 120 days
A/R over 120 days (%) = A/R older than 120 days ÷ total A/R × 100. Use the same formula for the over-90 bucket, overall and for each payer.
Adjusted (net) collection rate
Adjusted collection rate = payments (net of credits) ÷ charges (net of contractual adjustments) × 100. The AAFP recommends calculating it over 12 months. It measures how much of the money you were actually entitled to you collected.
How AAFP, MGMA and HFMA versions differ
| Source | Days in A/R formula | Best used for |
|---|---|---|
| AAFP | Total A/R ÷ average daily charges, with credits subtracted | Simple monthly tracking in a physician practice |
| MGMA | Total A/R ÷ (gross fee-for-service charges × 1/365) | Comparing with MGMA DataDive peer data |
| HFMA MAP Key FM-1 | Net A/R ÷ average daily net patient service revenue (last three months) | Finance reporting on a net, balance-sheet basis |
Because gross charges are much larger than net revenue, the same practice will show fewer days under the gross-charge method than under the net method. Pick one formula, use it every month, and compare only with benchmarks built the same way.
Do not compare your days in A/R with a published benchmark until you confirm it uses the same formula, the same period and the same treatment of credit balances and collection-agency accounts.
What Is a Good Days in A/R Number?
The AAFP advises that days in A/R should stay below 50 at a minimum, and that 30 to 40 days is preferable. For the adjusted collection rate, the AAFP gives a target of at least 95%, and for denial rate it suggests that below 5% is desirable. To see how these KPIs translate into margin, read how revenue cycle management improves practice profitability.
Specialty, payer mix and location all move these numbers. A practice with a large Medicaid managed care or workers’ compensation book can run longer than one paid mostly by Medicare. MGMA publishes peer data by specialty for members, which is the better comparison when you have access to it.
The AAFP also suggests calculating days in A/R with and without accounts at a collection agency, and tracking patients on payment plans as their own “payer” so they do not distort the figure.
A/R and Related Terms
| Term | What it means | How it relates to A/R |
|---|---|---|
| Charges | Your full fee for services billed | Create A/R when posted |
| Contractual adjustment | Difference between your fee and the payer’s allowed amount | Reduces A/R; not collectible from anyone |
| Collections | Cash received from payers and patients | Reduces A/R |
| Bad debt | Patient balance written off as uncollectible | Removes A/R; tracked separately from contractual write-offs |
| Denial write-off | Balance written off after an unrecovered denial | Removes A/R; signals preventable loss |
| Credit balance | Overpayment on an account | Lowers net A/R but may need a refund |
Posting matters as much as collecting. If adjustments are posted to the wrong code, or a payment lands on the wrong account, the aging report stops being accurate. Our article on how inaccurate payment posting warps practice financials shows how this happens. For the difference between a normal write-off and a lost-revenue write-off, see contractual adjustments in medical billing.
Why A/R Grows
A/R grows when claims are slow to leave the office, slow to be accepted, or slow to be resolved after a denial. The usual causes are:
- Charge lag: notes not signed or charges not entered promptly after the visit.
- Front-end errors: wrong subscriber ID, inactive coverage or missing authorization. See our guide to preventing insurance verification errors.
- Rejections that never became valid claims. Learn the difference in denied vs rejected claims.
- Denials that were never worked or appealed. Our medical claim appeal process guide covers deadlines and appeal levels.
- Patient balances without a clear statement cycle or payment plan policy.
The tactics for fixing each of these, and a weekly A/R workflow, are covered in our guide to reducing days in A/R.
Not sure what is hiding in your over-90 bucket? Steady Medical Billing’s accounts receivable team reviews your aging report by payer and status, then works the claims that can still be recovered.
Frequently Asked Questions
What does A/R mean in medical billing?
A/R, or accounts receivable, is the money owed to a practice for services already provided but not yet paid. It includes balances owed by insurance payers and by patients, and it stays open until each balance is paid, adjusted or written off.
What are A/R aging buckets?
Aging buckets group open balances by how long they have been outstanding, usually 0 to 30, 31 to 60, 61 to 90, 91 to 120 and over 120 days. For physician claims, HFMA definitions age balances from the date of service.
How do you calculate days in A/R?
Subtract credits from your charges for a period, divide by the number of days in that period to get average daily charges, then divide total A/R by average daily charges. Use the same method every month.
What is a good days in A/R for a medical practice?
The AAFP says days in A/R should stay below 50 at a minimum, and that 30 to 40 days is preferable. Payer mix and specialty affect the number, so compare each payer separately and watch balances over 120 days.
What is the difference between insurance A/R and patient A/R?
Insurance A/R is the amount still expected from payers while claims are processed, corrected or appealed. Patient A/R is what the patient owes after the payer has processed the claim, such as deductibles, coinsurance and non-covered services.
