How To Improve Account Receivables In A Down Economy

cash I’ve heard many times that health care is recession proof. People are always going to need health care regardless of the state of the economy. So, if you are running a medical practice, you shouldn’t worry about the economy… right?

Well, if you are running the practice like a traditional medical practice, then yeah, you don’t have to worry about the economy. But if you are running your practice like a business, then you ought to be concerned.

Why? Because even though demand for health care may be consistent – or maybe even increase – in tough economic times, your account receivables will rise disproportionally to demand as a result of the economic downturn. The need for health care may remain regardless of the economy, but your patients’ ability to pay for health care will certainly diminish as people find ways to reduce expenses, lose their jobs, or buy plans with higher deductibles in order to save on monthly premiums.  Which means the burden to collect from patients, has now shifted to the practice.  

But how do we go about working our account receivables? How can we ensure they do not get out of hand? I don’t have all the answers, but I can share what we’ve done in our practice; and that is establish a comprehensive policy. I’ve broken it down into two key points:

  1. Create A Financial Policy: I’ve talked about the importance of setting up a financial policy. Some people may think this step is obvious, but many practices do not have one. I’ll confess our practice didn’t have one until our third year. And I regret not having one for so long. If you want to improve collections, make sure you have a sound financial policy. The policy is important because it sets expectations. More on this later.
  2. Create A Collections Protocol. After you have a financial policy, create a collections protocol. The collections protocol defines the steps that a collector for the practice must follow. A collection policy enables you to be consistent in your collections efforts, as well as provide a predefined execution method.

Our practice’s collection protocol was designed so every 15 days we contact the patient/parent in some way (phone or mail). This is what we do:

Step 1: After insurance has processed the claim, we mail out statements. The statements go out every 30 days and they are mailed out no later than the 2nd of each month. It is important that you keep a schedule so people will know what to expect. Inconsistency in collections is a detriment to your efforts.

Accounts that are within the first 20 day period, but are larger than normal, we call the patient before waiting for the required days to expire. Usually larger balances within 30 days means either they have a high deductible they haven’t met, missing information from insurance holder (DOB, SS#, subscriber not found, etc) or something else is missing that insurance cannot process the claim. Either way, we address them as soon as possible with a phone call.

Step 2: 45 days after sending out statements, we mail a friendly reminder letter letting parents/patient know we haven’t received payment. The letter also ask patient/parents to call us if they need assistance in understanding the charges, or if they want to set up a payment plan. The intent of the letter is, we need you to pay us, but if you can’t, call us and we can work something out.

Step 3: 15 days after step 2, we call the patient/parent (for those that are counting, the account is already 60 days past due). In those 60 days, we have sent two statements and reached out twice to our patient/parent. Again, the purpose of the call is not to hound or hassle the patient/parent, but rather initiate a conversation about the balance.

Step 4: 15 days after step 3, we send out a second, more firm letter. If the balance is fairly high, we may give parents another call in addition to the letter. The account is approaching 90 days past due at this point. In this letter, we finally mention the words “collections company.” We tell them that we want to help them fulfill their financial obligations, but if they are not willing to work with us, we have no other choice but to send the account to a collections company.

Step 5: If parents/patients still have not paid the balance or made any effort to pay the balance after 15 days of step 4, we send out a dismissal letter (account is already 90 days old at this point). We essentially fire the patient from the office by sending them a certified letter. The letter advises them that because we have been unable to collect the balance and per our policy, we will only schedule them for emergencies only for the next 30 days. After that, they are fully dismissed from the practice.

The financial policy is important in many ways. But it is critically important during Step 5. Patients/parents ought not to get upset at the practice if they are sent to collections because the policy already told them we would if they did not pay their bill. The financial policy helps the practice be consistent as well as set expectations.

Step 6: After the 30-day emergency only period expires, we write the debt off the books and send the account to collections. However, before we send it to collections, we add 40% to the balance. This is to cover the cost of the collection company as well as some of the administrative cost of trying to collect the balance. Our financial policy clearly states the 40% increase. Whatever the collections company collects is icing on the cake. But as far as we are concerned, it is off A/R. 

The secret to patient collections is: the sooner you work the balance, the better. The longer it goes, the more difficult it is to collect.  

Later, I will post the success we’ve had with this system.

Any good financial or accounting class will teach you the principle of “time value of money.” This principle refers to the notion that a $1 today is worth less than a $1 in the future. Most successful businesses understand, and in fact embrace this principle fiercely. There is no reason for a medical practice not to operate under this principle. The sooner you start working the balance, the sooner you will get paid. 

If you have thoughts on how to improve collections, I’d love to hear them. Don’t be shy. Share it with me and the rest of my readers.

Whether demand is high or low, learning how to effectively manage ones account receivable is important. Because we know that in any business, including a medical practice, cash is KING.

Comments

  1. Determine the copay due, deductible unmet, and level of service you have provided at the time of visit, and collect the balance due before the pt leaves the office. Copays are collected, of course, before the pt even enters the back office. Ideally, Real Time Adjudication with the payer so you won’t over collect and have to later write a refund check. MINIMIZE / ELIMINIATE THE AMOUNT YOU HAVE TO BILL THE PATIENT LATER!

    Cash is king, esp when collected at time of service, not AFTER the service. This is key esp when you take TVM as well as (wasted) effort in collections into consideration.

    It’s time to run your practice more like a restaurant than the traditional (inefficient) medical practice.

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    • pediatricinc says:

      John,

      I agree. Working as much as you can upfront (before the patient leaves the office) is certainly the way to go.

      But let’s face it, not many practices are very good at this. And instead of having a policy, they write off balances all the time and compensate the loss of revenue by seeing more patients.

      Copayments are easier to collect of course, but deductibles and coinsurance are much more difficult to collect upfront because it requires staff to call the insurance companies. I know some practice management systems do eligibility verification, but not all insurance carriers give access to patient info. And real-time adjudication, how many payers are offering that?

      Another hindering factor to verify insurance eligibility is patient counts. A primary care office, where 30 to 50 patients a day is not uncommon per doctor, it is not as easy. Not to mention 60 to 85% of the schedule is filled the same day. More than half of our appointments are same day sick appointments.

      Although I agree many office are not run efficiently, many specialties have more difficulty than others in collecting balances. All you have to do is attend a medical collection seminar and you’ll find many people that work for practices that have a very hard time collecting from patients. So often times it is not inefficiencies per say, just an inability to increase efficiencies.

      Thank you for sharing your thoughts.

      Brandon

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  3. I was wondering if providing discounts to the customers could be one way of enticing customers to pay back their amount on time. Although this would be an additional cost as they would less proportion of sales prior to discount, it helps to improve the accounts receivable turnover ratio thereby decreasing the collection period.

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    • Healthcare is different than other business in that we are contractually bound to not discount our prices. I’m not talking about LASIK surgery or varicose vain removal type healthcare. I’m talking about primary care and other specialties.

      You see, the patient isn’t really a doctor’s customer. They don’t pay for their healthcare directly. They pay a health insurance company that then pays providers. And that arrangement makes the discount complicated.

      There are other factors why discount is not an option.

      Thank you for commenting.

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