Money In, Money Out

Collecting what patients and payers owe you should be a fairly straightforward endeavor. You provide a service and then you get paid for it. But we all know it's far more complicated than that - especially when the seemingly incongruous idea of receiving overpayment, or the distasteful idea of paying refunds, come into play. How do these situations crop up? These are some examples that may be familiar:

A practice receives payment from a carrier for 100 percent of the contracted amount; the procedure was exempt from a copayment. But the practice had already collected a $10 copayment from the patient up-front. Now the practice owes the patient $10.
Or: Medicare pays a practice twice for the same claim. The practice needs to refund Medicare for one of them to avoid trouble with the Office of Inspector General (OIG).

Or: The billing department receives an explanation of benefits (EOB) from a private carrier that contains a number of payments and a "takeback," or demand of a refund for a service you performed long ago. In this case, the carrier contends it overpaid you way back when. Your practice now must adjust the patient's account, investigate the takeback, and either accept or appeal it.
Maintaining accurate, up-to-date patient accounts is critical to the business side of your practice. On the surface, it's a seemingly simple process of addition and subtraction. Yet billing staffs commonly spend a large portion of their time resolving accounts after patients have complained about a problem. And while you probably won't get praise from patients for billing them accurately (that's what they expect you to do), mistakes may cause patients to question your professionalism. If the accounting is sloppy, what else is wrong with this practice?

There are other compelling reasons to maintain accurate, up-to-date patient accounts. For one, inaccurate accounts mean lost productivity. One incorrect entry can easily result in 20 to 30 minutes of extra work for the staff. If mistakes go uncorrected for too long, or become too serious, they may cost the practice a patient, or result in a complaint to the OIG to initiate a federal audit of the practice.

Proper management of patient accounts requires the billing department to implement and follow strict bookkeeping procedures, including step-by-step protocols for:

• dealing with each payment posting, adjustment, refund, and takeback situation,

• authorizing refunds, and

• separating tasks to avoid embezzlement.

To comply with laws and payer contracts, I offer the following suggestions to help your practice.

Overpayments, wrong payments

Overpayments may come in the form of receiving payment twice for the same service or receiving payment from both the patient and a carrier. Or a payment may simply come to you by mistake, for example, if the patient or physician in question is not part of your practice.

If your practice receives an overpayment by individual check, and you're aware the service has already been paid, it's best to simply send the check back with a letter of explanation. It is a waste of time and effort to deposit the check and credit the account, only to be forced to adjust the account and write a refund check later.
When an overpayment is included in a voucher with other payments, it must be handled differently. In this case, you have no choice but to deposit it, credit and adjust the account, and write a refund check. Now that patient account has a credit balance.

What to do with credit balances

Most practices establish a policy of not sending refunds when credit balances are below $5 or $10, which saves a great deal of work. Instead, they hold small amounts and acknowledge the credit balance on the patient's next visit, applying the credit to the patient's portion of charges. If the practice handles mostly episodic care and the patient is not expected to return to the practice in the foreseeable future, it may be appropriate to issue a refund on a small credit balance.

When overpayments are owed to Medicare, there are no ifs, ands, or buts. Refunds must be made regardless of the amount - in a timely manner - to avoid charges of fraud by the government or being dropped from Medicare. The process should be audited periodically to ensure compliance and to help you spot glitches in the operation of your practice.

For example, some practices routinely submit additional claims when the original claim has not been paid promptly. Most of the time this is useless because it rarely helps get the claim paid, and will raise legal red flags with Medicare. Moreover, occasionally multiple claims will result in multiple payments. And the vicious refund cycle begins again.

Your computer can help

Although collecting copayments and deductibles at the time of service is a very important part of good billing and collections procedures, collecting too much is one common cause of overpayments. You can use your billing system to help avoid this problem.

All good systems allow you to input payers' contractual parameters, but most practices I've seen are not using this valuable feature. When your billing system is set up with the parameters of each contract, the computer will help your staff to quickly calculate the correct patient portion of charges at checkout. (That being said, if the situation is not clear, it is better to collect what you think the patient's portion is and issue a refund check later, if necessary, than not to collect at all from the patient.)

And if you decide to apply a credit to patient accounts with small balances, make sure to reset your billing system so it does not send statements to these patients. Many systems are automatically programmed to do so whenever the balance is above zero, but this can be adjusted.

Managing refunds

Since there are usually no set deadlines for processing refunds, your staff may be putting them off until tomorrow - and beyond. But when refund processing is delayed, it means incorrect bills, irritated patients, trouble for physicians, and unnecessary work for billers.

Refunds should be processed on a fixed schedule, generally once or twice a month. Process refunds and adjust patient accounts before billing cycles to improve the accuracy of billing.

The process should look something like the following:

• List the refunds that should be processed, along with a reason for the refund. Your computerized billing system should be able to generate this information in a report.

• Review the list to make appropriate adjustments and uncover underlying problems. For example, if a name appears repeatedly, or if you're seeing the same reason given for refunds repeatedly, you need to find out why.

• Secure authorization/approval from an appropriate authority in the practice, usually the office manager or a physician.

• Print the checks. The person signing refund checks should perform another review.

• Adjust patient accounts to reflect the refund.

The process of listing, review, and check-signing should involve at least two people to avoid embezzlement and to track recurring problems.

For security purposes, set up a separate bank account for refunds. Otherwise, it's too easy to use the refund process to embezzle from the practice. For example, a staff member could put his sister's name on the refund list and write checks to her routinely. 
Using a separate account also allows for more detailed review and auditing of the checks being processed, and limits access to practice funds in the general account.

Transactions in this account should be adjusted within a very short time frame, such as 20 or 30 days, and should happen as part of the process of writing refund checks, to avoid the account becoming too large and difficult to reconcile.

Keep a watchful eye

The old business adage "What gets watched gets managed" applies to this process. Many practices do not track refunds, overpayments, and takebacks, and therefore have no idea of the volume and extra work the staff must devote to this process.
Start by tracking the number of these problem transactions you're processing, and the reasons for each. You may discover improper set-up of the computer billing system, a misunderstanding of payer rules or miscommunication among your staff, or poor claims processing procedures on the payer's end.

In any case, take action. If the source is internal, improve policies, procedures, forms, training - whatever's needed. When the source is external, contact the payer. Set up meetings with the patient liaison, and offer them specific examples of problems. Work toward an improvement plan with the payer, including changing some of your own procedures with that payer, if necessary. On the flip-side of the equation, you may need to re-evaluate certain payer relationships. When the administrative work of collecting your money and keeping patient accounts correct gets to be too much, it may be time to drop the contract.

In the end, account maintenance is still a matter of addition and subtraction, but one that requires continuous oversight and review.

Paul Angotti, BS, is president of Management Design, LLC, a company that helps physicians to establish and maintain financial and operational control of their practices. He can be reached at angotti@management-design.com or editor@physicianspractice.com.

This article originally appeared in the November/December 2004 issue of Physicians Practice.