"Collect, Collect, Collect (Up-Front)!"

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"Collect, Collect, Collect (Up-Front)!"

The emergence of consumer-directed health care plans adds a new incentive for every podiatry practice to refocus on the importance of managing all patient-owed balances.

Gil Weber, M.B.A.

Adapted with permission from Podiatry Management
© Copyright, 2007. All rights reserved.
October 2007


Every practice understands that it costs money to send monthly statements to patients. More than simply the cost of postage and paper, the staff resources put into collection efforts dig into profitability.

Now the emergence of consumer-directed health care (CDHC), a new variant of traditional HMO/PPO managed care, adds incentive for all practices to do a much better job collecting at the front end on all patients no matter the payment source. Practices that do not, especially given increasing enrollment in CDHC plans, face the ominous specter of patient-owed balances growing appreciably. Failure to manage cash flow on the date of service could sink practices in a quicksand pit of extended accounts receivable and uncollected balances.

CDHC – It's Here and It’s a Wake-Up Call to All of Medicine

In growing numbers, payers and employers are deciding that the most effective way to get a grip on runaway healthcare costs is to involve patients directly in the financial management of their care – in deciding exactly how, when, and where healthcare dollars will be spent. Years of wringing out costs at the provider level have reached a point where there is nothing left to wring out.

Those who have paid the majority of costs for so many years now seek a fundamental change -- a redefinition of who is the purchaser of healthcare, and who ultimately must assume responsibility for managing the spending. Consumer-directed health care is the latest attempt to rein in costs while, at the same time, increase overall quality of care. This newest version of the insurance game has patients assuming responsibility to manage a pool of healthcare dollars funded by employers and their own contributions.

No longer will patients be responsible only for nominal co-payments on office visits and drugs, plus relatively small amounts for co-insurance or deductibles. Now, in exchange for lower premiums and greater access to care, they will have to dig more deeply into their own wallets to cover a significantly larger share of healthcare costs.

The fundamental idea is that until patients feel financial "pain" in the wallet as a result of their own healthcare spending, no significant changes in addressing runaway costs are going to occur. That’s the theory behind CDHC, according to its backers.

New Issues to Complicate Practice Profitability

When Can We Collect From the Patient?

Under "old school" third-party care, a practice collected most of its reimbursement from payers. Accounts receivable typically were manageable, and most payers did meet their obligations, even if sometimes payments did not arrive quite as quickly as one might wish. Patient A/R as a percentage of total practice A/R was relatively small.

Now, under the "new school" of CDHC, patient A/R (particularly extended out past 60 or 90 days) will take on greater significance. Here's why.

People will elect to move into CDHC plans primarily for two attractive reasons. First, premiums are going to be lower than with traditional HMO/PPO plans. Second, patients will have greater access to the providers of their choice. All of that is great until the patient needs care, particularly costly care. Then the out-of-pocket expense reality of high individual deductibles associated with CDHC plans ($1,000 or $1,500 or even $5,000) will come home to roost.

At that point, disillusioned patients will start to understand the actual financial workings of their chosen insurance. CDHC might make sense for young, single, healthy adult males with lots of disposable income. On the other hand, it may turn out to be a nightmare for families attracted ("blinded?") by the lower cost and increased access but who fail to recognize the much higher likelihood that the family as a whole will need care requiring cash outlays.

Therein lies the potential financial quicksand trap for medical practices. Unlike traditional arrangements with regulated health plans, under CDHC practices won't have the protection of prompt payment laws since these laws don’t apply to patient debts owed to physicians. So, as much as possible and practical, you'll want to avoid the costs of billing and rebilling patients. To do that, your practice must have and implement a policy on how much to collect from the patient, and when to collect those dollars. A patient who has pre-paid, at least in part, probably is less likely to become a collections problem after the fact.

Plan Protocols and Claim Processing Requirements

In some cases your policy will be influenced by plan protocols and claims processing requirements. Some will be problematic - especially from those plans that would insist on adjudicating your claim before you can collect the patient's co-insurance or deductible. This is surely going to increase the chance of problems collecting from some patients, particularly as a patient's financial responsibility increases into the hundreds or thousands of dollars.

So you'll want to negotiate the right to collect patient-owed amounts up-front, or perhaps consider not participating in a plan whose protocols or benefit structure(s) would cause you to face possibly unacceptable A/R risk.

The key concept to remember in your dealings with any and all patients who have balances, but particularly those in CDHC plans, is to collect as much as you can up-front. That leads to an across-the-board rethinking of A/R policies.

Accounts Receivable: Think and Rethink and Rethink Again

With patients responsible for a greater slice of the financial pie, it becomes essential for every practice to examine and refine its A/R policy. To that end, you might consider creating a patient promissory (patient financing) system. If you do this, then a concise written policy must be put into place, and it must be applied consistently if staff is to implement it effectively.

A patient promissory system should require the patient (or financially responsible party) to sign some sort of promissory note that would include:

  1. the name of the patient (and the financially responsible party, if different),
  2. the total amount of the patient's debt, and
  3. a payment schedule.

In addition, other data elements will be necessary, and you're advised to seek the guidance of a qualified financial (loan) advisor to create an appropriate and binding legal agreement, establishing both the debt and consequences of failure to service that debt.

Of course, the practice must have a policy in place for addressing the needs of patients who return for additional care, but who have fallen behind on their outstanding debt service obligations.

Staff Must Take the Challenge

Practices that do not do a superior job collecting at the front end could find that they are saddled with a sharp rise in bad patient debt to a level practices traditionally have not faced when patients only had to come up with a nominal co-payment. Two points will be key to maximizing your collections and minimizing extended patient-owed balances:

First, there must be no surprises at checkout for your patients or for the staff. Each patient's potential financial responsibility should be discussed prior to the day of service, and each patient should be told that payment (or at least some significant, partial payment, especially for surgery) is expected on the day of service.

Of course you can't always state the exact amount owed until after the patient has been seen, but at a minimum, staff needs to know the broad specifics of each patient's coverage (by calling the plan, if necessary), and then must convey that responsibility to the patient.

Second, staff responsible for collecting at the time of service must be told in no uncertain terms that this is a critical part of their job responsibilities. You may find that it's worthwhile to do performance evaluations measuring collection success, and make those performance results part of annual reviews. You might also find it worthwhile to base bonuses in part on staff achieving certain collection targets over designated time periods. Whatever the case, your staff must get on board with collections if you're to take control of A/R.

Pursuing Patients Who Don't Pay

Improved collections on the date of service notwithstanding, you're still going to have to pursue some patients who don't pay in a timely manner. It's surprising how many practices do not have an organized approach to collecting patient-owed balances. Included here is a collection of thirteen (13) sample collection notices and letters of various intensities. You can choose from among them as boilerplates for creating your own structured system of collecting on patient-owed balances and reminding, warning, cajoling, and, finally, closing the door on those who ultimately fail to meet their obligations.

Review these with your business office manager (for logistics and policy implementation) and with your attorney (to be certain that any notices sent out comply with state specific laws and any requirements in your third party contracts). Then, after rewording those that best fit your needs, put into place a program that vigorously collects as much as possible up-front and professionally but forcefully arranges for payment of any balances.

Sample Notice #1

REMINDER ***** REMINDER ***** REMINDER

This is a reminder that we have not received the payment you promised during our phone call. Your payment plan is based upon our agreement that your payments are timely and mailed.

Unless our office is contacted, we expect continuous payments without interruption. If there is some reason payment cannot be made, please notify us right away.

Thank you in advance for your attention and cooperation in this matter. To make arrangements please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #2

Thank you for your assistance in working out this debt. As per our telephone conversation, our computer has been programmed to expect payments according to the schedule you agreed to and signed.

Please make your payments on time so we can avoid any further collection activity. If there is a problem, you must contact this office. If payment is late and you do not call, our computerized credit system will flag this account as overdue.

As long as your payments are in our office by the date specified, the computer will track that for you until the next payment is due.

Thank you in advance for your attention and cooperation in this matter. To make arrangements, please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #3

Is there a problem? We have sent several notices and received no response. Please pay now or advise as to when we may expect payment.

Your cooperation and communication will benefit us both. If we do not receive payment, or if we are not advised as to your reason for holding payment, we will have to take whatever steps are necessary to satisfy this account.

We look forward to hearing from you soon. You may contact the Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #4

PAST DUE ***** PAST DUE ***** PAST DUE

Your account is now past due. You have not responded to statements and letters that we have sent to you.

We want to give you an opportunity to settle the outstanding account by sending the balance due now. If you are unable to pay your full balance, please contact our office so we can work out a suitable payment plan.

Thank you in for your attention and cooperation. To make arrangements please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #5

PAST DUE ***** PAST DUE ***** PAST DUE

Your account is now past due. You have not responded to several notices and letters that we have sent to you. This leaves us no choice but to turn your account over to a collection agency.

Before doing that, we want to give you one last opportunity to settle the outstanding account by sending the balance due now. If you are unable to pay your full balance, please contact our office so we can work out a suitable payment plan.

Thank you for your attention and cooperation. To make arrangements, please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #6

OVERDUE ***** OVERDUE ***** OVERDUE

Your account balance is overdue! It is necessary that we hear from you today if collection proceedings are to be avoided.

We know that you are not anxious to address what can be an uncomfortable and unpleasant matter, but ignoring it will not make it go away. We are willing to listen if you have a reason for not paying. But you must call!

Thank you in advance for your attention and cooperation in this matter. To make arrangements please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #7

******** ACT NOW BEFORE IT'S TOO LATE ********

Your account is being reviewed by my supervisor. Payment in full is now due.

Please send your check or money order to this office within 10 days. VISA, Discover, and MasterCard are also accepted.

Unless your account is paid in full or you have contacted us regarding your reasons for not paying, additional steps will be taken outside this office to enforce collection. Let's resolve this account before that happens.

Thank you in advance for your attention and cooperation in this matter. To make arrangements, please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts
cc: file

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #8

** YOU'RE RUNNING INTO TROUBLE BY IGNORING THIS OBLIGATION **

Sometimes drastic action is taken to collect an account -- action that could have been avoided with the patient's cooperation. To avoid such action, please either pay the above balance or make acceptable arrangements for settlement.

If you continue to ignore our requests for a friendly disposition of this claim, you must also accept the responsibility for future action. There is still time to avoid the consequences of your neglect.

Your prompt attention to this matter may save you unnecessary expense. To make arrangements please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #9

WARNING ***** WARNING ***** WARNING

Your account is in danger of being placed with an outside collection agency unless immediate payment is made.

The privilege of being billed for this service can only be extended when prompt and timely payments are received.

Thank you in advance for your attention and cooperation in this matter. To make arrangements, please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #10

We simply do not understand why your account has not been settled in full. Every attempt to work with you to get this resolved appears to have been unsuccessful.

However, we are willing to allow you one more opportunity to clear your account. Please send payment in full within 10 days. If your payment is not received we will have no other choice but to turn your account over to our outside collection agency for further action.

Thank you in advance for your attention and cooperation in this matter. To make arrangements, please contact our Patient Accounts office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #11

We would normally send this account to a collection agency. However, we would prefer to settle this matter between ourselves. In this way, we hope to save you the embarrassment of being listed with a credit agency, as well as being subject to additional collection costs and legal fees.

Our collection agency reports all bad debts with all national credit agencies.

Please read your options listed below and respond quickly. If you fail to pay or respond within 10 business days, YOUR ACCOUNT WILL BE SENT TO A LICENSED COLLECTION AGENCY.

[ ] I would prefer to settle this account now. Payment enclosed.

[ ] I would like to settle my account, but cannot pay in full. I will make prompt monthly payments of $ __________ and will do so until my account is paid in full. I understand that if I fail to live up to my promise I may be turned over for collection without further notice.

NOTE: Your first payment must be enclosed with this letter

Please Sign & Date:

     
Signature   Date

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

Sample Notice #12

With past due accounts it is customary for our office to place the account with a collection agency. However, before doing so we would like to hear from you regarding your preference in this matter. Please indicate your choice on the letter below.

1. ( ) I would prefer to settle this account. Enclosed is payment in full.

2. ( ) Enclosed is one-half the amount due. The balance will be paid by _______________

3. ( ) I would like to make three equal payments $ ________________ on the _____________ of each month. My first payment is enclosed.

4. ( ) I would like to pay the balance with VISA / Mastercard / Discover (circle one)

card #_______________________________

expiration date______________

amount to be paid______________

signature________________________________________

We will be happy to work with you to resolve this account, but please note that failure to meet any of the partial payment agreements chosen will result in your account immediately being sent to the collections agency. If you have any questions please do not hesitate to contact our office at <insert phone number>.

Sincerely,

Patient Accounts

********************************************************************
PAYMENT METHODS ACCEPTED
CHECK  MONEY ORDER  VISA  DISCOVER  MASTERCARD
********************************************************************

And here's the final notice. When every other effort has failed, this one is something of a "gotcha" directed to the deadbeat patient.

Sample Notice #13

We will make no further efforts to collect the above balance. The debt owed is forgiven by our office.

Section 61 (a) 12 of the United States Tax Code states that forgiven debts are considered taxable income to the debtor, which in this case means you.

We will be filing a Form 1099-C with the Internal Revenue Service to show the amount of the forgiven debt. If you fail to declare this, you could be subject to federal and state tax penalties.

If you would prefer to talk to us instead of the Internal Revenue Service, please call us at the numbers listed above. If we do not hear from you within ten days, we will proceed as planned.

Sincerely,

Patient Accounts


These materials are intended to provide useful information about the subject matter covered. The author believes that the information is as authoritative and accurate as is reasonably possible and that the sources of information used in preparation of the materials are reliable, but no assurance or warranty of completeness or accuracy is intended or given, and all warranties of any type are disclaimed.

The materials are not intended as legal advice, nor is the author engaged in rendering legal services. The materials are not intended as a replacement for individual legal or professional advice.

Information contained herein is presented only for illustrative purposes, and it should not be used to establish any fees or fee schedules, nor is it intended and it should not be construed as encouraging any user of the materials to take any actions that would violate any state or federal antitrust laws, tax laws, or Medicare or Medicaid laws.

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