Cash flow is one of the best indicators of the overall health of a medical practice. If your accounts receivable are sitting at a reasonable number, you're probably doing a solid job of running your business.
At the same time, however, collecting money owed has become harder than ever. What worked for a provider four or five years ago may not be effective today. Across all businesses, one in three Americans has an account in active collections. Adding to the pressure, in the past two months, FICO de-emphasized medical debt on credit scores — which means money owed to doctors and hospitals does not influence credit ratings as much as it used to.
Overall, last year's recovery rate for medical practices using collection agencies was 14.6 percent. Put another way, practices can expect to net about $95 for every $1,000 assigned out for collection.
“You've got to be prepared to compete for collectable money,” explained Wally Schmader, vice president of collections firm Transworld Systems. “You have to be very active on slow-paying patient accounts. Practices have to leverage the newest tools to move along cash flow and make it a priority.”
Here are 10 tips and techniques Schmader recommends you put into action to increase collections and optimize cash flow at your practice.
1. Establish a formal credit policy. Charge fixed amounts for broken appointments and interest on past-due amounts.
2. Be consistent. If you’re in a group practice, the same policies must apply across all doctors.
3. Clean up your statements. Do not put aging information (amounts 30, 60 or 90 days past due) on your forms. Also, don't provide a blank box for amount paid. Indicate the exact amount due.
4. Talk straight with patients. Asking “How much can you pay?” indicates that your practice doesn't expect to be paid in full for services provided. Ask how the patient will be paying, and insist that past-due amounts be paid today.
5. Understand your biggest cash flow threat. Time is not on your side. Progressive depreciation of 0.5 percent happens every single day in all of your accounts. Thirty percent of the value of an account is gone in 90 days, and 70 percent is gone in six months.
6. Watch out for agency “skimming.” Collection agencies may not give your accounts much attention if other clients give them larger amounts and more recent balances. The result will be inactivity on your accounts, especially if you submit a lot of low balances and old claims.
7. Avoid extra fees. If the agency charges 25 or 35 percent of amounts collected, you shouldn’t have to pay additional fees for things like skip-tracing and asset investigations. Those activities should be included in the percentage number.
8. Demand compliance. Ask tough questions about where the agency stands in terms of regulatory compliance and request appropriate documentation.
9. Focus on recovery rates. Some practices fall into the trap of shopping for a low percentage charged by the agency. Instead, ask what you should expect as a recovery rate. A very low percentage rate often discourages an agency from working your accounts.
10. Ask a lot of questions. Does the agency offer tiered pricing rather than a strict percentage arrangement? Will you receive robust reporting for the time periods you specify? Does the agency have an online interface? Does the agency have healthcare collections expertise, as opposed to general collections work?