Collecting in Helathcare Journal Source: The Academy of Healthcare Revenue
Managing Collection Agencies to Reduce Bad Debt
In the last two months of CIH, we have explored strategies for selling uncollectible bad debt accounts outright to collection agencies that specialize in the purchase of aged and distressed receivables. However, managing traditional collection agencies more aggressively earlier in the collections cycle can also help to reduce providers’ bad debt write-offs, ultimately increasing collections on accounts before they become so aged that they are classified as uncollectible.
Bad debt continues to be a chief area of concern for healthcare providers, as uninsured rates climb and out-of-pocket expenses cause even insured individuals to experience difficulties in paying for healthcare services. According to top credit rating agency Fitch Ratings, “Three factors likely to impact bad debt in 2007 are the continued increase of uninsured and underinsured citizens, charity care policy revisions, and consumer driven high-deductible health plans…As HDHPs become more prevalent, certain markets may experience an increase in bad debt related to co-payments and deductibles.” The agency has predicted that nationally providers’ bad debt write-offs will level off in the near future to between 5.5 percent and 5.9 percent of operating expenses.1
Regardless of whether the residual balances of patients enrolled in HDHPs as well as other self-pay balances are outsourced at day one or later in the account cycle, managing collection agencies’ performance has become a critical component in reducing the threat of rising bad debt write-offs facing many providers.
To effectively monitor and manage collection agencies’ performance, it is first necessary for revenue cycle leaders to require complete and accurate reports detailing collections and collection strategies from each agency on a regular basis. One effective way to monitor and improve collection agencies’ performance is to develop agency report cards that can help to objectively compare performance levels between collection agencies and identify if changes should be made—for instance, allocating a larger volume of accounts to a higher-performing agency. Some of the performance-based metrics the report cards at best-performing hospitals include are total collections made by the agency, number of patient complaints received, and the number of times litigation was pursued against debtors. Additional metrics frequently monitored include the total percentage of accounts received that are resolved by each agency, the total dollars collected versus the total value of all accounts each agency receives, and the average time from when an agency receives an account until the time the account is resolved.
Another strategy some best-performing providers use to manage and improve their collection agency partners’ performance is to distribute accounts between two or three agencies and use report card scores to foster competition between the agencies. In meetings with collection agency partners, these providers present the anonymized scores of the other agency partners to allow each agency to know where it stands in relation to its competitors. After a set period of time, providers may drop the lowest-scoring agency and either split the remaining accounts between the two higher-performing agencies, or procure an agreement with another third agency and begin the comparative process again.
While fostering competition between multiple collection agency partners can be very effective, it is very important when using this strategy to monitor collection agencies’ tactics carefully for the purpose of ensuring that collectors do not become over-aggressive or resort to tactics that are at odds with the hospital’s mission and ethics. Holding frequent phone calls with agency leadership, conducting regular face-to-face meetings, and monitoring—and approving—reports detailing agencies’ collections strategies and tactics can help to ensure that good community relations are maintained.
In all, allocating necessary resources to monitor collection agencies’ performance and collection strategies can be a highly effective way to ensure that receivables are collected in a timely manner, preventing bad debt write-offs and increasing providers’ net revenue—strategies becoming even more vital as the self-pay landscape continues to change in 2007.
1.John Wells, et. al., “2007 Nonprofit Hospitals and Health Systems Outlook,” Fitch Ratings, 10 January 2007.
The Academy of Healthcare Revenue
The Academy of Healthcare Revenue is a membership-based community that provides healthcare leaders with objective research focused specifically on the healthcare revenue cycle. Members receive an unlimited supply of all research--including benchmarking and best practice reports, implementation tools, monthly journals, attendance to virtual conferences, and more--designed to enable them to improve their revenue cycle processes and financial health from within. Furthermore, The Academy's membership offering is tailored to team members throughout the revenue cycle, from executive leadership to patient access, coding, billing and collections, and clinical staff, helping to drive process improvement efforts revenue cycle-wide. Collecting in Healthcare is one of four journals written by The Academy of Healthcare Revenue monthly.
To learn more about the benefits of membership with The Academy of Healthcare Revenue, contact us today.
Media Contact Ross Monaghan
Manager, Strategic Marketing
262-782-7935
Email:
