One of the primary responsibilities of a hospital executive, is the protection and management of all hospital assets. This means implementing processes to monitor and maintain the ability of every asset to support the hospital’s mission.
Typically, accounts receivable is the largest asset on most hospitals’ books, second only to fixed assets, and has a significant impact on cash flow. Just like a hospital’s plant property and equipment, accounts receivable needs to be cared for by management. The business processes for managing the hospital’s receivables from insurance carriers is dramatically different than those for patient receivables.
One of the most significant differences between receivables from insurance carriers and patients is the degree of lost value over time. Carrier receivable risks are concentrated in the areas of compliance and documentation. The risks for patient receivables, however, are based on the patient’s willingness and/or ability to pay. The amount of patient receivables is a function of each patient’s healthcare insurance (of lack of) that determines the amount of patient responsibility that continues to increase.
While each patient portfolio will behave differently, it is well documented that as time passes the expected amount of cash to be realized will decline, often quite dramatically. Healthcare industry data suggests patient accounts that are less than 30 days old result in 95% collection; accounts that are 30 to 59 days old generate 85% collection; accounts that are 60 to 89 days old result in only 75% collection; and that accounts over 90 days old that are referred to collection agencies collection about 15% to 20%, which net of collection fees would represent 10% of the original value. This steep decline in the expected cash value of patient receivables is why healthcare executives think of patient receivables as being perishable.
Many executives continue the strategy of additional internal collection attempts with patient receivables. However, this approach ignores the precipitous decline in value, as discussed above, and the ongoing costs of additional attempts. For example, if plus 90-day accounts are likely to pay 15%, what is the cost of more attempts on all plus 90-day accounts compared to the expected collections? Additionally, applying the ‘one more’ attempt strategy to the larger past due patient accounts, ignores the well-established attribute that smaller balances are more likely to pay than larger balances. Therefore, the cost benefit economics of a large balance strategy are often very challenging to justify.
In summary, understanding of the expected cash to be realized from patient receivables enables, healthcare executives and managers to implement better financial strategies. Analyzing how your hospital’s portfolio liquidates during the first 90 days and then with collection agencies provides key metrics to understand the perishable attribute of your accounts receivable portfolio.
How We Can Help
See why hospital executives are trusting C&E Acquisition Group to implement processes to minimize the degree of lost value over time. Our proven approach helps hospital’s stay true to their mission! Contact Business Development Manager, Tim Wilson, today for a free assessment and you will quickly see the impact on your financial strategy. Tim Wilson, firstname.lastname@example.org, 443-371-7894.