Debt collection from patients is a conflict doctors often prefer avoiding for fear of potential implications to practice reputation and increased exposure to malpractice lawsuits. Healthcare debt collections require unique combination of sensitivity, skill, and discipline. Understanding of debt collections process and outsourcing opportunities help the practice owner improve revenue cycle while minimizing practice risks.
The best way to improve the patient payment component of the revenue cycle is to collect cash payment in advance for healthcare services. However, without solid processes and disciplined implementation, upfront cash collection can challenge and frustrate front office staff, often contributing to accumulation of outstanding patient debt. Insurance companies sending payments directly to patients instead of the office further exacerbate the difficulties of debt collection.
A typical debt-processing scenario proceeds in three phases, starting with billing, to debt accumulation, to selection of the most appropriate collections method. Clear definition of responsibilities along with payment arrangements help effective collections, minimize practice risks, and reduce administration costs.
Billing Phase: Your billing office sends patient invoices and a number of reminder invoices regarding outstanding balance directly to the patient.
Debt Accumulation Phase: The patient does not pay the invoice for a time period exceeding desired limit (typically, 90-120 days). Accounts receivable distribution over the span of 30, 60, 90, and 120 days takes the shape of inverted horizontal S.
Debt Collections Phase: The practice must consider at least four alternatives for outstanding debt collection:
- Dismiss the patient until all debt is paid.
- Offer the patient the opportunity for a financial hardship write-off.
- Take the patient to small claims court.
- Hire debt collections agency.
First, dismissing a patient is not always an appropriate option because of associated reputation implications and potential medical malpractice risk. More importantly, dismissing the patient only stops subsequent debt accumulation but does not eliminate the already accumulated debt.
Next, financial hardship write-off may not be feasible as some patients refuse or are ineligible for it.
Third, a small court can help collections only from patients with steady work and debt under $5,000, upon paying a typical $75 processing fee. Keep in mind that a small court limits its scope to liens and/or wage garnishments instead of actually making collections.
Finally, a specialized collection agency with thorough understanding of the claim payment process and result-oriented and accountable approach to customer service recovers on average 15% of outstanding debt.
Key debt collections agency selection issues revolve around industry knowledge, performance, control, costs, and interaction between billing and collections services:
- Specialized Industry Expertise
- Compliance and Certification. HIPAA-compliant medical record processing and legal compliance with federal and state collections regulations.
- "Skip-tracing. " Ability to find patients that changed addresses or names
- Access to Special Funding Sources. Experience of working with specialized public and private funds for victims of accidents and violence
- Relevant Legal Expertise. Access to specialized legal expertise and ability to handle both small and large debt cases in court
- Understanding of Billing Processes Knowledge of healthcare claims processes and ability to successfully negotiate with insurance companies
- Proven Performance
- References. Provide a list of specialty-relevant references.
- Quantitative Performance Measurement. Compare collections performance including percent collected and time to account liquidation.
- Client satisfaction. Demonstrate long client retention history.
- Centralized Control
- Transparency. Provide real time status on all collection activities, including amount collected, actions taken, and patient responses. Include a wide selection of reports available over a secure Internet connection 24 x7.
- Tight Cash Flow Control. All collected money goes directly to your practice or bank account, increasing positive cash flow and immediately collecting interest. No waiting for a collection agency to take its percentage first and pay you at its convenience.
- Lower Risk with Indemnification. Collections agency must indemnify your practice from lawsuits resulting from collection efforts through a written hold-harmless agreement.
- Flexible Contact Style. Avoid offending your patients. Collections agency must be able to vary its patient contact style (e. g. , diplomatic or intensive) on a patient-by-patient basis according to your specific direction.
- Patient Relationship Maintenance. Collections agency must not intrude on your relationship with your patient. If you choose so, you should be able to maintain continuous control of patient's account, including negotiation of payment plans or dispute resolution directly with your patient as a key element of the collection process.
- Economies of Scale and Fees
- Collections Letter Generation. Generally, the procedure to collect a debt starts with a letter to the person that owes the money sent on the letterhead of collections agency or attorney firm. A letter from an attorney often results in many outstanding debts paid. Flat fees for sending such letters vary between $5 and $15 per patient per month.
- Aggressive Follow Up Using Legal Assistance. If the letter does not result in payment, the collections agency must begin vigorous pursuit for outstanding monies. If payment is still not made on the outstanding invoice, a complaint is filed with the courts and served personally upon the debtor requiring their appearance in court. The attorney then appears in court on behalf of medical practice to obtain an award of the amount that is owed. Although the court usually enters an award on behalf of medical practice, it is important to note that collections are not completed at the time of award. The collections agency must continue to pursue payment of all debts through any and all legal means available, including wage garnishment, bank account seizures, or, in rare cases, arrest. Success fees vary from 30% to 50% of recovered debt.
- Even Focus Regardless of Balance Size. Collections solution must be effective for all balances regardless of amount owed.
- Interaction between Billing and Collections
- Account Transfer Decisions. The practice manager must control the flow of patient debt and all associated information from billing service to collections agency.
- Account Transfer Mechanism. Billing service must facilitate the infrastructure for simple, timely, and effective decision-making and digital data transfer to maintain the highest likelihood of successful debt collection.
- Separation of Labor. The collection agency taking over the unpaid patient balance deals directly with the patient and the practice, excluding billing service from remaining collections process and any associated fees.
- Exclusion of Fees. Billing service should receive no referral or any other fees from collections agencies servicing the doctor's office. Upon account transfer away from the billing service, it should receive no fees from the medical practice for collecting the outstanding debt.
Yuval Lirov, PhD, author of “Mission Critical Systems Management" (Prentice Hall) , inventor of multiple patents in artificial intelligence and computer security, and CEO of Vericle.com Billing Technologies. Vericle® delivers comprehensive practice workflow engine that integrates patient scheduling, electronic medical records (EMR), billing, transcription, and compliance management. By consolidating technology for hundreds of separate billing services, Vericle® tracks payer performance from a single point of control, shares compliance rules globally, and creates massive economies of scale. Yuval invites you to share your knowledge of medical billing and compliance at BillingWiki.com and register to the next webinar on audit risk at ChiroAudit.com.