The Basic Tenets of a Good Collection Strategy

January 29, 2012

With current economic instability and looming decreases in payer reimbursement, your practice needs to retain the maximum amount of each dollar earned. But because the struggling economy is also affecting your patients, collecting payments has likely become an expensive and frustrating burden.

Patient bad debt is becoming a serious threat to profitability for healthcare providers nationwide, representing an estimated $65 billion in uncollected revenues in 2010. While self-pay patients do account for some of this debt, insured patients who neglect to pay post-insurance balances represents the fastest growing segment of individuals with outstanding medical bills. In a 2009 McKinsey survey of retail healthcare consumers, more than 74% of insured consumers are both willing and able to pay their out-of-pocket medical expenses for liabilities of less than $1,000 a year. Yet collection rates lag well behind these levels, even for lesser charges.

On average, a staggering 50% of every dollar billed to patients goes uncollected, even after sending as many as three billing statements; a costly process to any practice that yields little in return.

What steps can your practice take to increase patient collections in light of these changing dynamics?

Managing accounts receivable begins with:

  • Good financial controls, including written financial policies and a  process for holding staff accountable
  • Using systems that support best practices
  • Adoption of payment strategies and technology geared toward increasing patient collections at the point of care and minimizing the time and expense associated with capturing outstanding balances
  • Effective patient communication that maintains positive relations with patients.

The Basic Tenets of a Good Collection Strategy

Develop Written Financial Policies

The policies should strive to optimize revenue recovery and clearly outline what the practice considers acceptable in terms of patient payment timing and extended payment plans for large balances. Educate patients on your payment policies while they are making their appointments. Your payment policy should explicitly state that payments are due at the time of service. It should be posted in your office, listed on all billing forms, and communicated to patients before their appointment. As you are developing your policies, you should review your payer contracts. When it comes to collections, you may find that you have stipulations in your payer contracts about how, when and what you can collect from your patients. Make sure to look at these stipulations before implementing your collections policy. If your practice fails to establish written policies, you are jeopardizing the ability to improve cash flow and maximize your revenue.

Verify Patients’ Insurance Coverage

Just because a patient presents an insurance card doesn’t necessarily mean coverage is effective. With people losing jobs or transitioning between jobs and forgoing COBRA coverage, and with many businesses dropping employee benefits, taking the time to verify insurance coverage can reduce claim denials and the possibility that the patient balance won’t get paid. Use an online system that verifies patient eligibility electronically in real-time, prior to the patient arriving for his visit, as appointments are made, or at check-in. If you determine a patient’s coverage is no longer effective, ask the patient whether they have new insurance. If the patient has no insurance, then other arrangements for payment can be discussed at this time.

Set Clear Expectations

Until recently, many practices were unable to calculate a patient’s out-of-pocket financial responsibility until after the insurance company paid the claims. As patients continue to take responsibility for a larger portion of their medical bills, it becomes increasingly important that they understand their expected out-of-pocket costs. With new technologies emerging, practices now have the capability to generate an accurate estimate of the patient’s portion of the bill in just minutes. By sharing this information with patients in advance of procedures or at the time of service, providers can minimize misunderstandings and increase the likelihood that patients will pay. This also helps avoid the often futile and expensive (at a cost of up to $8 per statement) work of sending bills later.

If insurance verification shows a deductible, particularly if it is near the first of the year when most deductibles have been reset, the policy at many practices is for the patient to pay a deposit. Some practices may require that patients leave a credit card on file with authorization to charge the card post-insurance, up to the entire deductible, to settle any balances after the exact charges are known. If using a system to accurately estimate the balance owed by the patient at the point of care, make every attempt to collect the entire balance then. If it turns out after submitting an insurance claim that the patient had already met his deductible elsewhere, a refund against the credit card used can be processed or a refund check can be mailed.

Collect at Time of Service

Providers have a much greater chance of receiving payment from patients before they leave the office. Unfortunately, many front-office staff members are uncomfortable requesting co-pays and outstanding balances from patients, making collections both awkward and inconsistent. Employees should be committed to asking for the entire balance on the account at the time of the visit. When your practice has an established routine that is consistent, both patients and staff know what to expect of each other. Require patients to pay co-pays and their share of costs at the time of service. Failure to collect the co-pay prior to service too often results in patients walking out without paying. Point of care collections save your practice money on billing and help avoid the steep drop-off in collection rates that occur after 30 days.

It’s also a good idea to review the patient’s account and collect payment on any prior balances before the patient incurs additional charges. You can do this by putting copies of patient statements inside charts or use your billing software to aid in keeping appointment schedulers and front-office staff aware.

Make It Easy and Convenient to Pay

Give your patients the ability to pay by cash, check, and credit/debit card in the office or online. Teach staff to be compassionate without letting patients walk all over them. Ask for the payment politely after handing the patient a statement with the estimated amount owed. Don’t ask if the patient would like to pay today; ask how the patient would like to pay. If a patient indicates they forgot their checkbook, remind the patient that you accept credit and debit cards. If the patient cannot pay at the time of service, use a system for processing credit cards that allow you to keep a patient’s credit card on file to charge later, after insurance has paid it portion in order to guarantee payment. In addition, the option to pay bills online is becoming more prevalent in medical practices as consumers become more accustom to making payments on line. If using an online payment system, make it easy for the patient to understand what actions you want them to take when they receive their statement. The more options patients have, the more likely they are to pay in full.

Offer Flexible Payment Options

By offering a variety of payment options, providers can increase the chance that patients will fulfill their financial obligations, rather than sending patients to collections. Flexible arrangements, such as recurring payment plans, provide a predictable revenue stream for your practice. Use a system that allows you to set up plans using a credit or debit card or direct debit from a patient’s bank account that runs automatically. This alleviates the need for your practice be PCI compliant. Clearly define what payment plans are acceptable for large balances, but require the entire balance paid within six months. For example, you can require that patients make an initial payment to start the payment plan. These plans should be agreed upon, put in writing, and signed by the patient. The value of aged receivables shrinks considerably overtime, so it’s important to be more assertive in collection efforts.

Create Team Responsibility and Incentive to Collect

To garner participation from office-staff in committing to asking patients for payment at the time of visit, establish graduated expectations for improvement over a specific period of time. Provide staff with sample scripts and/or talking points on how to collect. Well trained staff may be your biggest asset toward improved collections. Monitor staff’s performance each week and share the results. Some practices offer bonuses when staff hit certain targets as an incentive to improve collections. Depending on the practice, the reward might be a set dollar amount, salary percentage or portion of above-goal collections. Indicators to watch include upfront collection percentage, gross collection percentage, total accounts receivable and days in accounts receivable. If your staff struggles to hit the targets, provide additional support to teach them the skills necessary to overcome obstacles and obtain patient payments. Incentive programs should involve and benefit every employee of the practice. Managing patient collections is the responsibility of the entire practice and all staff should be prepared to discuss payment at all appropriate points in the course of care and, ideally, be able to answer patients’ questions about what they owe.

By taking steps to collect patient payments at the time of the visit, you can significantly reduce your practice’s billing and collection efforts. When front office staff is careful to verify insurance before the visit, inform patients of collection procedures ahead of time, and collect payments at the time of service consistently, then your practice’s billing staff has a lighter work load and can focus on other areas of billing and collections.

But when you do have to begin the cycle of billing patients for outstanding balances, work to achieve a patient-friendly look and feel to your billing statement. Patient invoices should clearly explain the dates of service, services performed, insurance payments, payment collected at time of service (co-pays, deductibles), and the total amount due. Patient invoices should be sent as soon as the EOB is posted, because the sooner an invoice is received by the patient, the more likely and faster it will be paid.

With more transparent, patient-friendly billing processes in place, significant savings in the administrative costs associated with inefficient processing and collections can be achieved, thus cutting out a tremendous amount of bad debt that would otherwise be written off.

Remember, a patient-friendly experience begins the moment the patient walks into your practice. Do not miss the opportunity to create a favorable, patient-centered experience. By making adjustments to the manner in which your practice interacts with patients, your practice can build a more positive patient experience, ultimately establishing a more cost-effective workflow within your office.

Reed Tinsley, CPA is a Houston-based CPA, Certified Valuation Analyst, and Certified Healthcare Business Consultant. He works closely with physicians, medical groups, and other healthcare entities with managed care contracting issues, operational and financial management, strategic planning, and growth strategies. His entire practice is concentrated in the health care industry. Please visit www.rtacpa.com

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