Elizabeth W. Woodcock

DRO: Understand What This Important Performance Indicator Can Tell You – And What It Can’t

By Elizabeth W. Woodcock, MBA, FACMPE, CPC

Most business office managers rely on days in receivables outstanding (DRO) as a critical indicator of performance. Long recognized as the measurement of the period of time between when the money is owed to the point the money can be collected, our industry’s reliance on this indicator requires careful scrutiny. Don’t let your DRO deceive you; evaluate these factors to supplement your knowledge of true performance.

Let’s start with the definition.

Industry professional associations, such as the Medical Group Management Association, define DRO as total current receivables divided by the average daily charge during the past year. Even the definition presents challenges: using current receivables divided by the past year’s average daily charge won’t account for seasonal or circumstantial fluctuations many medical practices experience. Based on the ebbs and flows experienced by your practice, choose to measure your average daily charge based on the past 90, 180 or 365 days. The key is to make a choice and run the calculation consistently.


Second, let’s focus on the fact that credits offset receivables.

Any money that your practice owes another party sits on your books as a “credit”. Money owed by you – a credit – is a negative number; money owed to you – a receivable – is a positive number. When you run a receivables report, the numbers offset one another. That is, your credits must be added to your receivables to get a true picture of total accounts receivables outstanding. For most practices, the dollar amount runs between 2 and 3 percent of total receivables. For practices which collect pre-payments or those who just sit on refunds, however, credits may represent a larger percent. Either way, you want to calculate your DRO by adding credits to the numerator (“total current receivables” plus “total current credit balance”) to garner a true picture of your performance.


Third, let’s evaluate the period of time that the DRO is presumably measuring.

Receivables don’t become outstanding until you’ve submitted them to the appropriate party. This means that the period of time between when the service was rendered and when you submitted the claim/statement is not counted. Often considered the “charge lag”, this lag is actually a series of processes that all must be evaluated in order to pinpoint the opportunity for improvement. Charge lag includes the service date to documentation date, documentation to coding date, and coding to charge entry date. Furthermore, if charge editing occurs after the charge is entered but before the charge is released on a claim or statement, the money is not yet counted as a receivable. Be sure to take into account all of these lags – and add the sum of them to the DRO to get a true picture of the period of time between when the money is owed – and when it is paid.


Finally, let’s recognize that DRO does not represent the amount of money you can expect to receive.

The industry definition identifies receivables on a gross basis. That is, it does not account for contractual adjustments or non-contractual adjustments, such as bad debt. Although there has been some movement to “net the charge” to the expected reimbursement when posting it, I recommend against it. Expected reimbursement is not always predictable, and you’ll never know if you have guessed too low because payers will always default to the lower number. Further, netting just one payer (e.g., Medicare) makes receivables reports nearly impossible to interpret because they are no longer normalized to a consistent scale. Most importantly, the payers now consider their reimbursement to be the prevailing charge, thus creating a license for them to continue to lower what they are recording from your practice as market fees. In sum, stick to DRO as a billing performance indicator – you’ll need to gather more data to calculate what future payments to expect.

Days in receivables outstanding is an important performance measurement for any business office. Recognizing what it represents – and what it doesn’t – will only make it a more valuable indicator for you.