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Collecting patient bills: When to use a collections agency


The importance of establishing internal collections policies before turning to a collections agency

Increasing patient accountability for the cost of healthcare means physician practices likely will need
to improve their internal collection processes and consider contracting with an outside collection agency. But choosing a good collection agency is the second priority. The first is establishing well-thought-out and specific internal procedures for collecting as much as possible before turning to an outside collection agency.

We are seeing our clients turn to collection agencies more often now than ever over the past 30 years. 

From the 1980s through just a few years ago there was far less patient responsibility involved with the cost of healthcare,  because most of the cost was covered by the insurance providers. 

Now, however, almost half of all coverage is provided under high- deductible health plans (HDHPs) with the patient responsible for the first several thousand dollars of expense. This patient responsibility portion of the cost is where delinquency and bad debt occurs.

The problem

The processes used when coverage was primarily under health maintenance and preferred provider organizations are not adequate in the world of HDHPs. Now, instead of $20 to $50 copays for routine encounters, the patient’s responsibility is often 3 to 10 times that amount, or even more when it involves procedures.

To add to the problem,  doctors’ practices typically are not very good at discussing finances with patients. This wasn’t the case before the widespread use of managed care and copays. When coverage was provided under indemnity plans, patients were primarily responsible for the cost of ambulatory care and were accustomed to paying for the services they received, just like purchasing other goods and services. Managed care essentially pushed the matter of cost out of sight since the party paying for the care was not the one rendering the service or receiving the care. And that which is out of sight tends to be out of mind. 

Consequently, most doctors and practice staff members today have not had to address finances with patients to any meaningful extent. Like most things in life, if you don’t have to deal with something, you don’t develop the behaviors important to the activity.

NEXT PAGE: Collections agency pros and cons



The solution

Should practices simply send delinquent accounts to a third-party collection agency?

Collection agencies can play a role in effectively managing accounts receivable. However, practices frequently turn to collection agencies prematurely. The proper role of a collection agency is to handle outstanding accounts receivable that have gone through the practic’ses established internal processes without success. 

The cost of employing a collection agency is significant, generally ranging from 20% to as high as 50% of the amount collected.

It is important to  understand how an agency will go about collecting delinquent balances. Because an agency represents the practice in the eyes of the patient, it is important to know what the agency will say to patients and what actions it may take to collect outstanding accounts.

Using a collection agency is different than other services. If the practice’s internal processes are well- designed and followed, then the collection agency should need to collect very little. Sometimes our clients lament that their collection agency isn’t collecting much and thus not doing its job well. Many times we find that is because the practice’s internal collection processes are effective, consequently the collection agency is receiving the most difficult of accounts to work.

The way to test an agency’s effectiveness is to use two agencies, give each a similar blend of accounts, see which one collects more and use that one.

The more important task, however, is to establish effective internal processes before turning accounts over to an outside collection agency. The internal processes should include a financial policy provided to each patient, in advance, so that expectations are clearly established.

NEXT PAGE: How to develop an internal collections process


Developing the internal process

Key elements of well-developed internal processes are:

  • Flagging charts of patients with delinquent balances and if a patient is expected back in the office soon, being prepared to address the outstanding balance in person.

  • Training staff and doctors on how to have financial discussions with patients. Determine who in the practice will be effective at this. Develop scripts  for staff and physicians to use to guide their conversations. And have a designated location for financial discussions with patients. The front desk/reception area is not the best spot.

  • Sending statements as soon as any portion of the patient’s responsibility has been determined, even if some charges are still pending with insurance.

The collection letter

Include dunning messages  with monthly statements sent to the patient, and  tailored to the age of the outstanding balance. If a  patient fails to pay after two statements are sent then a series of separate letters should begin.

Letters are more effective than dunning messages and phone calls. Dunning messages are passed over as computer generated and just part of the statement. Phone calls generally are not effective if placed during the day when the patient usually isn’t home or can be dodged because of caller ID. 

We provide a pre-collection letter service for our clients and many collection agencies do this as well. 

Some of the elements of the letter process important to achieving an effective result are:

A third party will do a better job making sure the letters are going out because they will be looking for a list of delinquent accounts monthly. When handled by internal staff, separate pre-collection letters  become a low priority behind charge entry, payment posting, routine insurance follow up and monthly statements. 

Letters should be in addition to statements so that they stand out and have a better chance of getting to the decision- maker in the family.

Letters should go out on practice letterhead but not under the doctor’s or staff member’s signature. The third party sending the letter should sign it. Be aware of the name used so when patients call in response to a letter everyone in the practice will know to direct the call to the billing department. Using a third party’s signature will help direct a patient’s unhappiness away from the doctor or the person ultimately handling the phone call.

Letters need to go out consistently. Without consistency patients will naturally disregard the effort.

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