Part 1 – Information / Part 2 – Age of Accounts / Part 3 - Account Balance / Part 4 - Type of Bad Debt

At this point we have a common foundation when discussing demographics, information and age of accounts (see Part 1 and/or Part 2 of this series if you need to). We now move the focus of our conversation onto how the balance of bad debt accounts affects the success rate when attempting to collect from debtors. And because an account’s balance does have significant impact, having strategies customized to deal with this impact is vital to achieving the greatest recovery.

Historical data comes to our aid once again. Let’s look at some hard data and then talk about how to use what we know to create good strategy for different dollar amounts.

The following is a sample from a medium size surgery group. Other’s data will vary based on specialty, entity type, number of providers, etc. But what can be observed here tends to hold true across the board.

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Note: This group decided not to place accounts into collection if balances were less than $50. And although this chart shows no accounts above $5000, they did have a considerable number of those, but chose to isolate those accounts and treat them differently. That’s good strategy.

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When should accounts be turned over for collections? What is the impact of age on the successful recovery of bad debt? How much does it matter?

The bottom row of this chart gives us the totals within each column of info. If we focus on the row of “Under 100.00” highlighted by using the red font, we find that within each of the bands of different dollar amounts, we can breakdown the placement as follows:

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• Both the number of accounts and the dollar value of each category of accounts (columns B&C)
• The percentage of the total placement this category represents in both number of accounts and dollars placed (columns D&E)
• Total dollars collected from that category (column F)
• The recovery percentage (liquidity)(column G)
• Percentage represented of the total amount collected by number and dollars (columns H&I)

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Some things seem so obvious as to not be worthy of mention. But I’ll mention them anyway. Lower balances are easier for a patient to pay leading to a higher recovery percentage but having a smaller impact on the overall percentage collected of outstanding bad debt. As balances become larger, fewer patients can afford to pay. High balances often lead to patients feeling defeated and choosing to pay nothing.

Most individuals today have very little in savings to pay unexpected medical bills. So many patients that have balances over $250 need options for payment plans.

Balances owed by the patient can be dictated by the service the patient receives and any coverage they have. Hospital bills and providers with varying specialties will inherently have wide ranges of balances due from the patient. How different payors have contracted to pay, (and how much they ultimately pay) for those services will impact the self-pay balance, not to mention whether a patient even has insurance.

For you and members of the revenue cycle team, sometimes it’s about managing expectations of what recovery will look like for your bad debt. I’ve noticed a trend in healthcare to categorize all self-pay balances in bad debt as “balance after insurance” or BAI. Regardless of balance size or the presence of insurance or not, all those dollars are put in one bucket. However, when a patient has no insurance there is no “balance AFTER INSURANCE”. If you want to manage expectations, have a better strategy, and reap higher recoveries, it requires segmenting the bad debt within a comprehensive approach that considers the unique characteristics of each segment.

Primarily all accounts turned over for collections need to be categorized as “low balance”, “high balance”, and most “everything else” that falls in between. There are sub-categories for accounts. Those so small they are held internally or even to be automatically written off*, accounts from patients with no insurance, and accounts that qualify for charity care or other special finance consideration. You can create rules internally on what should happen with these different sub categories.

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(* I once had a client that created a rule to automatically write off any balance over one year old. Bad move. The patients of that group found out, told others, and would often wait for the year to pass and then schedule their next appointment. But I digress. We’re talking about account balances now.)

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Each category will be left for the individual entity to define and set hard parameters. Before arbitrarily deciding what those parameters should be, it’s important to analyze the AR and see how much revenue resides in different dollar bands like in the grid above.

Some questions to consider when establishing your low balance definition: At what point is the cost to pursue the debt not worth the return? Is there a dollar limit where it becomes more effective to hold the debt and wait for a direct encounter with the patient and collect it at that point? Is there a REALLY low limit that makes automatically writing off the debt the most cost effective and practical thing to do? Do you schedule follow up visits that allow for collecting small balances in person? Will you even allow a patient to receive follow up service without them making some form of payment?

Your internal strategy will take some time to develop. Just know that the size of the accounts will have a direct impact on patients’ ability to pay and thus impact the recovery percentage.

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Next month is some bonus discussion: What kind of bad debt is it anyway?

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Part 1 – Information / Part 2 – Age of Accounts / Part 3 - Account Balance / Part 4 - Type of Bad Debt

Part 1 – Information / Part 2 – Age of Accounts / Part 3 - Account Balance / Part 4 - Type of Bad Debt

Today we continue our discussion about ways to improve recovery of revenue in the bad debt category and why having strategies that take into consideration the age of such accounts is important when determining when to turn them over for collections.

In our earlier post we set aside the issue of demographics and addressed the importance of the information used in such endeavors. Click here to read Part 1 . Let’s continue our discussion.

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Decades of experience has revealed that the more time that passes from the point of service, human beings have the incredible ability to disassociate value from both the services received and the financial responsibility they originally accepted. Add to that the following:

1. a sense of entitlement many feel around the subject of “healthcare should be free to all”
2. a tendency of many to put health care debt at the end of the line when prioritizing financial obligations
3. legislation that handcuffs creditors when pursuing payment of debt

All of which amplify the need to be strategic when attempting to recover revenue connected to delinquent balances.

Previously I mentioned research that isolated the impact of information received and how it effects recovery of bad debt. We can do the same with how the age of an account effects recovery. Looking at numerous clients and tracking the placements of each over a 24-month period, then observing the average age of accounts at time of placement for each client, we are able to see patterns emerge that have been born out over the years. Regardless of the client’s specialty, volume of placements, average per account value or any other variable, when you isolate data for the age of the accounts at time of placement some general rules continually seem to apply.

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1. Accounts placed less than 180 days after original date of service are recovered at a higher rate.


2. Accounts placed at 180 – 365 days begin to pay off at a slightly lower rate of success.


3. After 1 year and up to 2 years of age at placement there seems to be a significant drop in a recovery rate.


4. After two years from original date of service the return on investment of effort for such accounts diminishes greatly and typically for collection agencies even rates of 50% or more can prove to be non-profitable or even have losses associated with pursuit of payment.


5. When accounts reach ages of 3+ years after original date of service some state laws surrounding statute of limitations can seriously affect even attempting to collect while practicality dictates, in most cases, it is best to consider writing off the bad debt completely.

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The life cycle of bad debt placements: Anticipated recovery and other things to consider when considering your bad debt collections strategy.

Days 1-30 For first placements of bad debt / delinquent accounts: it is common when tracking the recovery of accounts placed as a group in a single month to notice trends. Recovery in the first 30 days can be nominal. During this time debtors are just learning that their accounts are in collections. They will be receiving letters notifying them of the delinquent debt. Debtors will often wait and hope it goes away while the collection agency waits to give debtors a chance to take action. Calls from the agency to the debtor may begin but establishing direct communication may take some time.

Days 30-90 in the life of a batch of accounts placed for collections: we often see the most considerable payment activity during this time, but since many debtors will go on payment plans this steady recovery may continue through day 180 or slightly longer. During this time if contact has been made with the debtor communication is “as-needed” while payment monitoring and invoicing become primary focuses of the agency. Many debtors may still be dodging the collection agency so strategic outbound calls are happening regularly.

Days 180-365: some remnant of payment plan activity can still be seen but the recovery at this stage diminishes considerably when measured monthly.

Days 365 or older: when considering ongoing revenue recovery, it is more about payments from extended payment plans and less about active outreach during this phase. Some debtors are good dodgers and it becomes necessary for the agency to be strategic when spending effort and resources pursuing those most likely to pay. By this time, we know that there are some debtors who find it difficult to pay but want to, and some that won’t pay no matter what.

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Armed with this knowledge I recommend the following:

1. Submit accounts for collections as soon as possible. Day 90-120 after original date of service should be easy enough to accomplish but there is really no reason to keep accounts past day 180. Sending patients 2 statements and a final notice should be sufficient. If they don’t act after 3 communications, history and experience can attest that the likelihood of them suddenly acting after 4 or 5 or 6 or more statements is essentially nonexistent.


2. There’s not much of a reason to leave your first placement accounts with a collections vendor for more than 12 months. Their proactive outreach activity has most likely run its course and unless a debtor is actively making payments via a payment plan or within the last 30 days suddenly began communication with the agency, you’re more likely to get results closing those dormant accounts and seeking the services of another agency to work second placements.


3. Don’t discount the value of second placements. See some additional insight in this article from HFMA
   
   
   https://www.hfma.org/content/hfma/www/topics/revenue-cycle/article/don-t-stop-with-primary-collections--the-value-of-a-secondary-ba.html
   
   
   A lot can happen in the lives of debtors in a year and firing up a fresh approach to recovering outstanding debt in months 13-24 can be quite fruitful.

Part 1 – Information / Part 2 – Age of Accounts / Part 3 - Account Balance / Part 4 - Type of Bad Debt

Let’s get the topic of demographics off the table right away. Each entity’s demographics are what they are, and we could dissect this topic ad nauseum and still not adequately cover every nuance and aspect of the impact. But once we’ve accepted our demographic circumstances there are things each revenue cycle executive can do to maximize recovery. For the sake of this discussion I will assume the healthcare providing entity outsources the bad debt collection responsibilities. This week we will cover Part 1 – Information. I want to share with you the impact that certain pieces of information have and the importance of making it a priority to gather said information at the point of service.

To be concise I will oversimplify things and say that in the process of recovering bad debt, collection agencies utilize sending letters and making phone calls as the primary tools of the trade. It is not nearly that simple. Other things like employing state-of-the-art technology, scoring accounts, developing strategies for varying categories of debt and utilizing a myriad of other industry specific tools and tactics along with applying empathy from highly trained and experienced collectors all go into this process. But at the heart of it all is: sending letters and making phone calls. In order to achieve the highest levels of success, these two tools of utmost importance require that collection agencies have certain pieces of information.

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When communicating with your patients here are some of the things that matter most and why: A good mailing address, combined with a good home phone number and if you really want to up the level of success, include a good mobile and good work phone number. And that would be for both the patient and the guarantor.

WHY? These are the absolute minimum things needed to begin proper, thoughtful, compassionate communication. More revenue is recovered for healthcare providers when we actually get to talk to a consumer. Consumers discover we are here to help them understand their bill, answer their questions, give them alternatives and facilitate an affordable method for paying what they owe. And we have patients who tell us how much they appreciate how we do this. But it doesn’t happen without the correct information.

We can even isolate the impact of having or not having this information. As an example I can tell you that in an analysis for an orthopedic surgery group, for the category of accounts that had a good address combined with a good home phone number and any one other phone number, for that category of accounts recovery was as high as 23-46%. Whereas with only a good address and one phone number recovery was often below 10%. And when working with a bad address and any combination of phone numbers, recovery on 670 accounts in this sample averaged 1.09%. Good addresses and phone numbers make a huge difference for a successful recovery effort. Make sure to get them at point of service. Point of interest: Good mobile phone numbers seem to matter most and are often listed as a patient’s home number. If you’ll just ask your patients for it, they’ll most often provide the information.

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Other information that matters and why: Information about the patient’s visit or procedure including: A description of the care they received, who was the provider, what date(s) care was performed, and where was it performed.

WHY? Patients will want to ask questions about what event(s) created the debt. We can help them remember by giving them answers. Also, it helps get them to the point of making a payment. If we don’t get this information, our only option is to direct them back to you creating more inbound calls to your staff. I’m pretty sure that’s not what you intended when you outsourced this service. So, provide enough information so that we can answer consumer’s questions. Everybody wins.

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Information about their insurance along with all other info on the statement patients receive.

WHY? Sometimes consumers don’t understand their bill and are hoping insurance isn’t done paying more. We need to be able to corroborate initial charges, credits and adjustments, payments by insurance and/or the patient, including secondary insurance, with all dates and balances. Sometimes we uncover new or additional insurance. This information allows us to explain that the balance really is their responsibility and we can move to getting a payment.

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Other patient PHI (and/or guarantor info – both whenever possible and appropriate): Sex, DOB, SS#, and possibly differing addresses.

WHY? When identifying the proper person with whom we should be communicating, this all helps avoid any confusion that can arise. We need to be able to ascertain if the debt pertains to the parent or a child. There are names with origins from other countries that sometimes provide no certainty as to a person’s gender. That can also apply to names commonly used in America for either gender. Not to mention complications introduced by divorces, adoptions, and blended families.

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Next week - the impact of an account's age at turnover on recovery.

It's no secret that the rise in high deductible health plans and the increasing amount of self-pay have impacted healthcare organizations' bottom lines. But, is it fair to say that enhancing patients' financial experiences can drive payment and improve an organization's financial health? In this roundtable, sponsored by Change Healthcare, several revenue cycle leaders discuss how their organizations are tackling the issue of escalating patient responsibility, exploring how they are putting individuals on pathways toward payment that boost satisfaction as well as revenue.

More patients are using their financial experience to make healthcare decisions, making financing programs a requirement of doing business.

Adding to the growing chorus of need for flexible patient financing options is a new study showing that 37% of patients would opt to forgo treatment without a patient financing program.