Home Health Days Sales Outstanding (DSO): Why It Matters and How to Take Control
Days Sales Outstanding (DSO) measures the average number of days it takes a business to convert its accounts receivable into cash, starting from the day revenue is earned. In most industries, a DSO of 30 is typical, aligning with the standard n/30 payment term- meaning invoices are paid in about 30 days. However, home health agencies and healthcare businesses often face a DSO averaging 45-60 days due to reliance on payer reimbursements rather than direct patient payments.
For home health agencies with lean cash flow, high Days Sales Outstanding can cause significant financial strain. When accounts receivable exceed cash on hand by more than 100%, it becomes difficult to pay vendors and staff on time, jeopardizing operational stability and the delivery of quality care.
Why Managing Home Health DSO is Critical:
- Cash Flow Impact: High DSO delays cash receipts and limits working capital, making it harder to cover daily expenses.
- Operational Risks: Aging accounts receivable put pressure on financial resources, increasing the need for borrowing or external funding.
- Growth Barriers: Slow collections constrain reinvestment and hamper agency growth, threatening your ability to serve more clients.
Four Key Steps to Reduce Home Health Days Sales Outstanding
- Establish Your Current DSO and Set a Reduction Plan: Accurately calculate your home health DSO to benchmark performance. Set a realistic target to lower this DSO within 90 days.
- Assess Operations from Intake to Claims Submission: Audit your workflow (from patient intake to claims submission) to identify gaps that delay collections. Prioritize process improvements in order of their potential impact on DSO.
- Form a DSO Task Force and Review Policies: Bring together key stakeholders and review current billing procedures, documentation, and training. Streamlining policies and investing in staff education will lead to faster, more accurate collections.
- Track and Monitor DSO Performance Weekly: Track your DSO and collection trends every week. Adjust your practices- such as tightening credit policies, automating invoicing, or offering multiple payment options to maximize results. Additional Ways to Improve Home Health DSO
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Additional Ways to Improve Home Health DSO
Automate Billing and Claims: Using revenue cycle management technology can reduce manual errors and speed up collections.
Accurate Documentation: Make sure all claims are error-free. Inaccuracies and missing documentation can cause denials and increase your DSO.
Patient Payment Terms: Offer flexible and clear payment terms, but avoid making them so loose that they extend DSO beyond what your agency can sustain.
Need Help with DSO? Partner with Home Health Experts HealthRev Partners Can Help
If you need help calculating your days sales outstanding, use our DSO Impact Calculator or reach out to us today. Our consultative style of revenue cycle management for home health agencies ensures that you get key insights into your financial operations so you are better able to achieve success and drive investment across your agency. We offer a number of services including home health billing, home health coding, and home health billing recovery.
