Did you ever have a lemonade stand when you were a kid? I am pretty certain you wanted to sell your lemonade for cash. A customer gave you money and you gave her a nice, cold lemonade. Maybe your little brother was extended credit — but, he was the only one!

Most businesses prefer to sell their product(s) for cash rather than on credit. However, that is not always possible (usually because of competitive pressures) and it is especially not true in the health care industry where a third-party payment system requires us to extend credit to patients. In the majority of our patient encounters, the revenue is booked as a “credit sale.” This credit sale becomes part of our accounts receivable.

Accounts receivable are a legally enforceable claim for payment by Texas Tech Physicians to our patients (or their third-party payer) for services provided. And, of course, we work to assure that we will be paid what is owed us. When this happens, we debit cash and credit accounts receivable.

The total amount of accounts receivable outstanding at any given time is determined by two factors: (1) the volume of credit sales and (2) the average length of time between sales and collections. For example, Texas Tech Physicians sees a patient on Feb. 10. We send a bill to the patient's insurance company two weeks later, and the insurance company takes 20 days to pay us. Thus, it is 34 days from the date the patient is seen to the time we have received a payment, and that is if everything goes smoothly and there are no denial issues. We want to keep the number of days in accounts receivable as low as possible.

In health care, we face some unique challenges — the most obvious is the billing complexity created by the third-party payer system. Rather than dealing with a single billing system (that applies to all customers) we have to deal with the rules and regulations of many different governmental and private insurers and it seems as if they all use a different payment methodology. It certainly makes life interesting and considerably different from sales transactions in the lemonade stand of days gone by.

But, it is all good and a service to Texas Tech Physicians and society.