Bad Debt Collections-The Song That Never Ends

Bad Debt Collections-The Song That Never Ends

“This is the song that never ends.

It just goes on and on my friends.

Some people started singing it not knowing what it was,

And they’ll continue singing it forever just because . . .”

“The Song That Never Ends” is a children’s song with only one verse that repeats over and over. I remember hearing this song as a young boy when it played at the end of a children’s show called “Lamb Chop’s Play Along” with Shari Lewis. The show aired in the 1950s, so I don’t expect many of you remember it but I do want to use it to illustrate a boring and repetitive practice in the medical billing industry; self-pay.

Self-Pay A/R is the bottom of the accounts receivable barrel. It usually sits untouched, except for generating a few too many statements, and ultimately ends up with a collection agency. Some agencies collect a little more, some a little less. Some use auto dialers, some make manual calls. Some skip trace, most don’t. The way it is treated, you would think that self-pay was just so many pennies on the sidewalk. It’s not. It’s so much more than that.

No matter how you cut it, patient pay represents approximately 8% to 14% of your total accounts receivable. A director of patient accounts for a very large radiology group once told me “One percent equals one-million dollars”. (They had done the math in order to pre-calculate it into their projected losses.) That means that not only is self-pay inevitable, but it can represent big money.

Let’s consider the middle of that range- 10%. If an insurance payer represented 10% of your total revenue, would you try to collect it? Of course you would! You would diligently work the denials, rebill when necessary and call the payer if the claims were short or did not get paid. If that is the case, and if self-pay can represent the same percentage of your uncollected revenue as some payers, why do you accept self-pay as a bottom of the barrel dead-end?

Most of us know the answer, at least sub-consciously. We all know that only a small percentage of self-pay balances ever get paid. They are old, cause a bottleneck in aging collectibles, and we know we have to get them off the books and into the hands of a collection agency. We don’t expect the historically low rate of self-pay collectibles to improve so we don’t demand it.

Here is the problem. When we hand aging collectibles to an agency, we assume they will clean up the bottom dwellers and the rest is simply accepted as uncollectible. I contend that we accept that premise only because we don’t know any better.

Think about this. Look back ten to twenty years at the percentage of collections on accounts turned over to your collection agency and compare that with the collections rate today. Anything look familiar? That’s right, the historic collection percentage is the same, or even less than it is today. Don’t you find that odd?

It seems that other functions in our lives have entered the modern digital age: car windows no longer roll up, they power up, pay phones have been replaced with cell phones, green screen D.O.S. systems and printed reports have been replaced with advanced software and paper free offices. So why hasn’t modern technology improved agency collection percentages?  Almost every agency has an electronic means of accepting your accounts. Many have payment portals. Some even have virtual means of collecting. You may not have time to stay current with the technology that can help to solve these revenue cycle challenges. The question is, has your collections agency implemented any of these advances? If you have been with the same agency for many years, it’s time to ask what they have done to improve collections percentages for you.

As Self-Pay Climbs, Analytics Help

It’s no secret that the number of self-pay patients has increased over the years. The current state of the economy means that fewer people receive health insurance through their employers. Nearly all of those who are insured pay higher copays and deductibles and as a result, the self-pay portion of patient bills is increasing as well. I think it is time that we took a different approach to self-pay, one that is based on the philosophy that knowledge is power. I would like to see us adopt the adage, “Knowledge becomes wisdom only after it has been put to practical use.” So, let’s get some “knowledge”!

First let’s look at precisely what type of collectibles comprise “self-pay”. The main characteristic is aging. According to a U.S. Department of Commerce study of depreciation of medical accounts held in aging, accounts at 90 days reach a critical depreciation period of 0.5 percent per day. At 120 days, the ability to collect drops significantly, and by 180 days, the ability to collect plummets to less than 30 percent.

Consider that for a moment. “At 180 days, the ability to collect plummets to less than 30 percent.” Wouldn’t you accept weight loss quantified as “less than 30 percent”? Wouldn’t you accept a raise that is “less than 30 percent”? Then why are you ignoring collectibles that the data indicates is in fact collectable? If your agency isn’t collecting that 30 percent for you, or worse, if they don’t believe they can, it’s time to move on.

Road map to revenue success

If we are to accept the fact that a certain percentage of the population simply will not pay a medical bill then let’s pose a different question. Can you say with certainty that your billing office and collection agency has done everything possible to collect every balance? How much money is truly being left on the table?  How can you know for sure?

With today’s technology we CAN know that the most thorough collections job is being done on your behalf. That’s because today collections isn’t about collecting every dollar, rather, it is about verifying the receivables. Let me give you an example.

Last year my company took a medical debt portfolio from an Arizona hospital whose accounts were an average of three years old.  This portfolio had already been worked by two collection agencies. The first collection agency collected around eleven percent and the second collected an additional three percent. After receiving this portfolio I processed the accounts through a methodology that my company developed.  I discovered that approximately 20% of their receivables were still collectible! How was that possible? Because done right, collection is about analytics; simple calculations to complex outcome predictions.

My findings were based on advanced electronic skip tracing; scoring modules and an analytics program our IT team developed using payer financial algorithms and analytics. This program provided payer information based on the very neighborhood the indebted lived in. Before the first call was ever made we knew everything there was to know demographically. More importantly, we knew exactly where to find the money. We had a road map to success.

In 90 days we collected over 18% which was more than the previous two agencies collected in three years combined*. The most important feature of the project was that the hospital’s CFO now knew that every available dollar from that portfolio was worked, and the available revenue extracted.

Today’s technology has the power to revolutionize the collection industry. If an agency is willing to invest in it, technology will provide clean addresses, good phone numbers and highly sophisticated scoring modules. That is critically important, given that a recent study found that nearly thirty percent of all patient pay was a mail return or a bad phone number. (In these instances, the patient had never been contacted prior to their bill being turned over to an agency.) Technology can drastically reduce the time it takes to collect receivables, as well as the number of consumer complaints filed in your, and/or your client’s name. (Tighter regulations and stiffer penalties have led to reduced complaints overall, however more consumer- based complaints have been filed through regulating offices in the past year than at any time in history.)

As technology is increasingly implemented in the collection industry, there could be a tremendous re-evaluation of our self-pay receivables, reduced costs and improved efficiencies. In a competitive market this will greatly reduce lost revenue. As health care costs rise and medical professionals are pushed to constantly improve their stressed bottom line, we can end the repetitive nature of health care related debt. It’s time to embrace the wealth of knowledge we have at our finger tips and use it to develop increased wisdom about self-pay collectibles. After all, “Knowledge becomes wisdom only after it has been put to practical use.”

By: Audrey Cooper
*Results vary from client to client based on a number of variables, including demographics.

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