5 Warning Signs Your Medical Practice’s Revenue Cycle Needs an Audit
Revenue cycle problems rarely announce themselves. Cash slows a little, then a little more. Staff are busy, claims are going out, and nothing seems broken. By the time the shortfall shows up in the bank account, the money is often months old and much harder to recover.
The good news is that the warning signs show up in your own reports well before the cash does. Here are the five most reliable ones, how to measure each, and what an audit should examine when you see them.
Warning sign 1: Days in A/R is rising
How to calculate it:
Divide total charges for a period by the number of days in that period. This gives average daily charges.
Divide your total accounts receivable by that figure.
Example: $250,000 in charges over 182 days is $1,373.63 a day. With $70,000 in A/R, you have about 51 days in A/R. Use a six- or twelve-month period to smooth out seasonal swings.
What good looks like: MGMA's revenue cycle guide describes 40 to 50 days as typical for an average-performing practice and 65 or more as a clear signal that improvement is needed. The trend matters as much as the number. In an August 2022 MGMA Stat poll, 56% of medical groups said their days in A/R had increased that year.
What it usually means:
Claims are not being worked.
Claims never reached the payer.
Follow-up is happening too late to beat timely filing deadlines.
Warning sign 2: Too much A/R is older than 120 days
How to calculate it: Divide A/R older than 120 days by total A/R.
What good looks like: MGMA's guide treats roughly 10% to 12% as the target range and 20% or more as a problem. Better-performing practices in MGMA's 2022 data held about 5 to 6 percentage points less of their A/R in the over-120 bucket than practices overall. They also had a larger share of A/R in the current 0-to-30-day range, by roughly 6 to 9 points.
What it usually means: Old A/R is the hardest money to collect. A growing over-120 bucket usually reflects:
Unresolved denials
Missing information that was never requested
Patient balances with no consistent follow-up
Age your A/R by date of service, not billing date, so late billing does not make old balances look new.
Warning sign 3: Denials are frequent or repeating
How to calculate it: Divide denied claims by claims submitted, measured on first submission. This is the standard industry formula. Also track your clean claim rate: the share of claims accepted on first submission with no errors.
What it usually means: Most denials start at the front desk, not in billing. Industry data cited in MGMA's revenue cycle guide attributes:
61% of initial denials to demographic and technical errors
16% to eligibility
12% to medical necessity
When the same denial reason keeps appearing, the practice is fixing claims instead of fixing the process that created them.
What to do:
Log every denial at the line level, with the reason code, within a day of receipt.
Review denials within 48 hours.
Never resubmit a claim without correcting it.
Trend denials monthly by payer, provider, code and reason.
Assign each top denial reason to the person who owns the step that causes it.
Warning sign 4: Charges are late or missing
How to measure it: Charge lag is the time from date of service to claim submission. MGMA's model policy breaks it into four segments:
Documentation within 24 hours of the visit
Coding within 72 hours of documentation
Charge entry within 48 hours of coding
Claim release within 24 to 72 hours of charge entry
Better-performing multispecialty groups in MGMA's 2022 report posted charges more than 11 days faster than their peers.
What it usually means: Open notes, no daily reconciliation, and services that were provided but never billed. Missing charges are the most expensive revenue cycle failure, because there is nothing to follow up on. The claim simply never exists.
What to do:
Every day, reconcile completed appointments against charges entered.
Escalate anything not resolved within 48 hours.
Reconcile procedure and testing equipment logs against billed services.
Warning sign 5: Collections are falling, or write-offs and credit balances are rising
How to calculate net collection rate: Divide payments (minus refunds) by charges (minus contractual adjustments). It answers a simple question: of the money you were entitled to collect, how much did you actually collect?
What good looks like: The net collection rate should be stable and high, and unnecessary write-offs should stay small. MGMA guidance holds them to no more than 5% of expected collections. Keep two categories strictly apart:
Contractual adjustments are expected reductions under your payer contracts.
Write-offs for timely filing, missing authorizations or missing referrals are preventable losses.
When the two are lumped together, real losses disappear into "normal" adjustments.
Credit balances deserve their own attention. They usually point to posting errors, duplicate payments or missing charges, and they distort your aging reports.
They are also a compliance issue. Under federal law, identified Medicare and Medicaid overpayments generally must be reported and returned within 60 days of identification. Confirm current requirements with your compliance advisor.
What a real revenue cycle audit examines
A meaningful audit goes beyond reading the aging report. It should test the controls that produce the numbers:
Charge reconciliation: Are completed visits reconciled to charges daily? Are missing charges escalated?
Coding sample review: 10 to 25 encounters per provider, checking that documentation supports the level of service, diagnosis specificity and modifiers.
Payment variance: Are contracted fee schedules loaded, and are underpayments flagged and appealed? MGMA's model policy calls for variances to be investigated within 72 hours.
Denial management: Is there a denial log, and is anyone trending it and fixing root causes?
A/R follow-up: Are claims touched at defined intervals (for example 45, 90 and 120 days), with documented actions?
Write-off authority: Is there a written adjustment code list, a dollar limit on staff authority, and supervisor approval for non-contractual write-offs?
Credit balances: Are refunds processed promptly and approved by a supervisor?
Cash controls: Each employee has their own login. Time-of-service collections are reconciled to deposits every day. Electronic payments are reconciled weekly, and the general ledger to the bank monthly.
Segregation of duties: The person collecting money is not the person depositing it. The person posting payments is not the person reconciling the bank account.
Outsourced billing oversight: If a vendor bills for you, are its adjustments capped and its reports verified independently?
When to act
If two or more of these warning signs have been trending the wrong way for three months, do not wait for year-end. Revenue cycle problems compound. Every month of delay adds to the volume of receivables that will age past the point of collection.
Ark Advisory Group conducts revenue cycle reviews for independent practices. We identify where revenue is leaking, quantify it, and install the controls that keep it fixed. Learn more about our healthcare practice consulting, or book a discovery call at (908) 900-4607.
Sources: Kem Tolliver and Shawntea Moheiser, Revenue Cycle Management: Don't Get Lost in the Financial Maze (MGMA, 2020); Taya Gordon and Kem Tolliver, Advanced Strategy for Medical Practice Leaders: Financial Management Edition (MGMA, 2023); MGMA, Performance and Practices of Successful Medical Groups (September 2022; 2021 data); MGMA, Operating Policies and Procedures Manual for Medical Practices, 6th ed. (2025). Benchmarks are cited as published. This article is general guidance, not legal or compliance advice.
