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Understanding the AR Tax and How to Cut It with Medical Loan Financing

Posted by Haley Clark | Oct 14, 2019, 8:47:00 AM

According to the National Health Expenditure Data, patients in the US spend more than $365 billion annually on health care self-pay. Meanwhile, studies show that Americans consider their medical bills a low priority.

As patient responsibilities rise, the importance of a good accounts receivable (AR) management strategy does, too. That’s because your practice must work extra hard to collect patient balances, which contributes to the so-called AR tax.

The AR tax is just the sum of the cost factors associated with holding an AR balance for 30 days or longer. These include hidden expenses like interest and inflation, administrative costs, and bad debt write-offs.

While interest and inflation won’t affect your bottom line today, administrative costs and bad debt expenses will. Here’s what you need to know about these two cost factors of the AR tax and how to reduce them with a medical loan financing program.

Administrative Costs

The most obvious cost factor that contributes to the AR tax is the cost of AR-related administrative duties. Because the longer a balance sits in AR, the more work you have to do to collect it. Administrative costs include:

  • The cost to pay your staff to send patient statements and deal with rejected claims
  • The cost to pay your staff to follow up with patients who haven’t paid
  • The cost of postage, envelopes, and all other AR-related expenses

If you want to eliminate at least part of your AR-related administrative costs, many practices have found success switching to a fully digital collections strategy.

Bad Debt Expenses

As a bad debt sits in receivables, the probability of collecting it decreases with time. For instance, research shows that practices only collect 73% of accounts receivables older than 90 days. That’s compared to the 93% of debts collected within 30 days and 85% of accounts collected after 60 days.

To make sure you aren’t accumulating these bad debt expenses, experts suggest shooting for a goal of a maximum of 29 AR days.

Medical Loan Financing to Reduce the AR Tax

While some of the AR tax’s component cost factors are unavoidable (i.e. the cost to pay your staff), there is something you can do to lower the impact of the AR tax at your practice.

Medical loan financing is a proven strategy for providers to reduce AR days.

Looking for a way to cut down on administrative costs and collect more bad debts faster? Get in touch with Epic River to find out how our patient lending program can help you eliminate the AR tax at your practice.

Topics: Medical Loan Financing

Written by Haley Clark

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