What is a healthy days in AR?
Healthy days in AR is under 40 days for most outpatient practices. HFMA puts the ideal range at 30 to 40 days in its 7 KPIs guidance. Above that, the question is not whether something is wrong but which payer or workflow is causing it.
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Definition
Days in AR is the average number of days it takes to collect a dollar of revenue from date of service, calculated as (Net AR / Average Daily Net Charges).
The detail
HFMA writes that “ideally, days in A/R should range between 30 to 40,” and names net days in AR (FM-1) as one of its standard MAP Keys revenue cycle metrics. MAP Keys itself publishes the definition and equation, not the target. The American Academy of Family Physicians gives the same range and a ceiling: days in A/R “should stay below 50 days at minimum; however, 30 to 40 days is preferable.” AR over 90 days is the companion measure, and HFMA sets it tight: below 10 percent of total AR, with self-pay AR over 90 days below 30 percent. Payer mix moves the number. Money collected at the visit never enters AR, while slow payers stretch it; AAFP's own example is a practice averaging about 50 days whose Medicaid claims take 75. The usual drivers of high AR days are eligibility that was never verified, charges that sit unbilled (HFMA's guideline is to capture charges within three to five days of the visit), a denial backlog, and patient balances nobody follows up. Each day of AR on a practice with $5M of annual net revenue ties up about $13,700 ($5M ÷ 365), so cutting AR from 50 to 40 days frees about $137,000 of cash, once. Check your own days in AR to see where you sit against these bands.
| Measure | Target | Source |
|---|---|---|
| Days in A/R | 30 to 40 days | HFMA; AAFP |
| Days in A/R, upper limit | Below 50 days | AAFP |
| A/R over 90 days | Under 10% of total A/R | HFMA |
| Self-pay A/R over 90 days | Under 30% | HFMA |
| Charge capture | Within 3 to 5 days of the visit; late charges no more than 2% of charges | HFMA |
Neither HFMA nor AAFP publishes a specialty breakdown. Each day of AR on $5M of annual net revenue is about $13,700 (Sorso arithmetic: $5M ÷ 365), so moving from 50 to 40 days frees about $137,000 once.
“Ideally, days in A/R should range between 30 to 40.”
AR over 90 days should be less than 10 percent of total AR, and self-pay AR over 90 days less than 30 percent.
AAFP: days in A/R “should stay below 50 days at minimum; however, 30 to 40 days is preferable.”
Source: American Academy of Family Physicians, Practice finances and revenue cycle management
What this means for clinic owners
From Sorso
Days in AR is one of the first numbers to move when something in the revenue cycle breaks. Track it monthly, and when it rises, break it down by payer to see where the rise comes from. The four-minute assessment will show you where yours stands.
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What is a good clean claim rate?
The widely cited target is a 98 percent clean claim rate on first submission. HFMA repeats it in its 7 KPIs guidance, attributing the figure to Becker's ASC Review; it is a target, not a measured average, and every point below it is revenue sitting in rework rather than in the bank.
What is a healthy denial rate?
A healthy initial denial rate is under 5 percent of submitted claims: HFMA calls that optimal, AAFP calls it more desirable, and both put the industry average at 5 to 10 percent. Optum's 2024 Denials Index, based on hospital claims, found an average denial rate of 12 percent in 2023. Track denial write-offs as a share of net patient revenue too, the metric HFMA lists as AR-6.
What is the average net collection rate?
The average net (adjusted) collection rate is 95 to 99 percent, according to the American Academy of Family Physicians, which sets 95 percent as the minimum and says the highest performers reach at least 99 percent. HFMA agrees: “at a minimum, a provider's net collection rate should be 95%, although 97% to 99% is optimal.” Below 95 percent, revenue is leaking somewhere specific and it is usually findable.
What financial KPIs should I track for my clinic?
The core 8 financial KPIs every clinic should track monthly are revenue, EBITDA, net collection rate, days in AR, denial rate, revenue per provider, overhead ratio, and rolling 13-week cash forecast.
How do I improve my net collection rate?
Improve net collection rate by working denials promptly, reconciling payments against your contracted rates, collecting patient balances at the point of service, and requiring sign-off on write-offs. The target is at least 95 percent, with 97 to 99 percent optimal (HFMA), and each point you recover is worth $50,000 a year on $5 million of allowed charges.
Why does my medical practice have cash flow problems even when we are profitable?
Profitable medical practices run short of cash because revenue is booked on the date of service but the cash arrives weeks later: HFMA puts ideal days in A/R at 30 to 40, and the 2024 CAQH Index reports that 12 percent of claims were denied in 2023. Payer cycles, denials, patient balances, and bills that fall due on a fixed schedule create cash gaps even when the P&L looks healthy. The fix is a 13-week rolling cash flow forecast that maps expected collections against scheduled disbursements week by week.
How do I build a 13-week cash flow forecast for my medical practice?
A 13-week cash flow forecast is a weekly rolling projection of expected cash receipts and cash disbursements over the next 13 weeks (one quarter), updated weekly with actuals. For medical practices, it is the most practical tool for managing the gap between the date of service and the date payers pay. Build it from your billing system's expected reimbursement schedule and your fixed disbursement calendar (payroll, rent, taxes, debt service).
How long should medical practices hold operating cash reserves?
Hold at least as many days of operating expenses in unrestricted cash as your practice takes to collect its receivables, and more if payer concentration, fixed costs, debt or seasonality make a disruption likely. Sorso estimate: at HFMA's ideal of 30 to 40 days in A/R, that floor is 30 to 40 days of operating expenses; we found no published reserve standard for outpatient practices.
How do I know if my medical billing company is doing a good job?
Hold your billing company to your own numbers every month: an adjusted collection rate of at least 95% (AAFP's minimum), days in A/R under 50 and ideally 30 to 40, less than 10% of A/R older than 90 days (HFMA), and a denial rate under 5%. The payments the biller posts should also tie to your bank deposits to the dollar, and the bank account and payer logins should stay in the practice's name.
How long do insurance companies have to pay a clean claim?
Medicare has 30 days to pay a clean claim before it owes interest, state Medicaid agencies must pay 90% of clean practitioner claims within 30 days (99% within 90), and insured commercial plans follow state prompt-pay laws, which in Texas give an HMO or insured PPO 30 days to pay an in-network provider's electronic clean claim and 45 days for paper. Medicare can't pay an electronic claim before the 14th day, and Texas's deadlines don't reach self-funded employer plans, where your contract sets the clock.
Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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