Fewer than 20% of hospitals do anything to collect patient bad debt accounts except to “Set ‘em and Forget ‘em” with one or two primary collection agencies at about day 120.
Unpaid patient accounts languish with contingency collection agencies indefinitely while hospitals recover only 10% of bad debt according to a Self-Pay study by HFMA from June 1, 2016.
Meanwhile, high-deductible health plans tighten their squeeze on most hospitals financially and operationally by increasing patient bad debt and by increasing the workload to handle more, low-value self-pay accounts. According to the same HFMA study, bad debt now comprises 60% of uncompensated care while self-pay has increased 10% in the past five years.
This strategy of “Set ‘em and Forget ‘em” is like a manager of a baseball team who sticks with the starting pitcher through all nine innings, regardless of the situation, while the entire bullpen is available and ready.
Like the baseball manager, when your situation changes — doing nothing is NOT a strategy for success.
Contingency collection agencies always put their best foot forward right out of the gate — it’s essential to their profitability. 80% of their liquidations come within the first 60 days of the placement.
As we discussed in our previous article, Trends in Medical Bad Debt, accounts placed with one agency for long periods of time are not serviced effectively. The result is that the hospital’s yield on bad debt collections decreases each month. Said another way, this approach is designed to under-perform.
Obviously, a collection agency must speak directly with guarantors to settle unpaid patient accounts. Even with using sophisticated telephony systems and access to lots of information services, an effective collection agency will speak with only one in three guarantors within six months. Contacting people on a large scale takes substantial time and resources — and, it is really expensive.
Ask yourself: “If I owned a collection agency and I was paid on contingency, would I spend time and money to keep trying to reach the other two guarantors when I’ll get more, fresh and new patient accounts to contact on a regular, recurring cycle?” Of course, you wouldn’t!
Despite growing obstacles and decreasing performance, most hospitals stick to their old approach even though it guarantees that their results will get worse over time. It’s ironic that healthcare leads most industries with its commitment to Continuous Process Improvement.
So, why not look into improving your bad debt process? Here are three approaches that you should consider:
Secondary Contingency Placement – A secondary contingency placement is similar to a primary placement except that it would occur later in the revenue cycle. Inactive patient accounts are recalled from primary agencies that have stopped trying to call guarantors and are then placed with other (secondary) agencies that work the accounts with renewed vigor.
Hospitals can expect a jump in performance due to re-energized efforts to reach guarantors. But, like primary placements, performance will tail-off quickly within 60 days of placement.
Hospitals’ financial returns on these assets are unpredictable because they are contingent on results from secondary agencies. Small payments will trickle-in over an extended period of time.
Pre-Paid Secondary Placement – The timing and the recall process for a pre-paid secondary placement is similar to a secondary contingency placement.
The key difference between these two options is that the pre-paid approach makes hospitals’ financial returns immediate and predictable. A single, up-front payment is made for the right to work a hospital’s existing portfolio of inactive patient accounts for a pre-set period of time. Then, predictable recurring payments will be made for patient accounts that subsequently become inactive.
The up-front and recurring payments are established by a valuation process that determines the current market value of inactive, unpaid patient accounts.
Debt Sale – Hospitals that sell their inactive patient accounts benefit in three ways. First, they receive a higher financial return on these assets than through either contingency or pre-paid placements. Second, their costs of managing patient accounts are reduced. Third, they reduce their financial and legal risks by transferring ownership of the accounts to the debt buyer.
Unpaid patient accounts are financial assets, so bond covenants prohibit some hospitals from selling patient accounts. There may be other financial or legal restrictions on selling patient accounts.
Many of our hospital clients face challenges on multiple fronts. One consistent factor is that they are being required to DO MORE WITH LESS. We are uniquely positioned to help hospitals better manage their late-stage patient accounts. Through a combination of capital and operational expertise, we’ll provide a better alternative to your organization.
Let’s spend 15-minutes on the phone to see if we can help you objectively assess your patient bad debt process and how to attain the best return on these overlooked assets. Just email Tim Wilson, Business Development Manager, or call Tim at 443-371-7894 to schedule a phone call.