Show Me the Money!

A billing employee recently asked if I could recommend any tactics to collect on a three-year-old account. She had already sent 36 statements, as well as a barrage of letters and phone calls. Her physician had asked her to "try one more time."

Sound familiar? If so, you could use a brush-up on working with a collection agency. 

Physicians often contract with an agency, or say that they use one, but that might mean all they are doing is sending  over an account or two every few months. These accounts are normally months, if not years, old, and have little hope of being collected. 

"Eighty percent of patients who haven't paid you at 90 days after the balance comes due are not going to pay you at 120 or more," says Dave Glass, founder and CEO of Extension Express, a collection agency with clients in more than 40 states and an experienced collector himself. "So it's in your best interest to address these balances sooner rather than later."

A lax approach to collections often symbolizes an underlying problem with your practice's operations. Think about the practice I just described. While I certainly appreciate the physician's patience, he would have been much better off to write the account off two years ago. Let's do the math, and you'll see why. 

The account in question was for a $200 hospital visit. The statements and letters cost 55 cents each, and the phone calls, at an average of 15 minutes of staff time, cost $5 each (including benefits costs). That's more than $75 in paper and labor costs. Then consider the time that goes into research and discussion of the account, estimated to be another $30 of staff time. Add on the physician's time to review the account, and there's another $50 on the table.

We've almost reached the $200 mark, breaking even on billing costs alone. What's left to contribute to your overhead and your income? Not much. And we haven't even addressed the negative impact on staff morale. 

If you have an agency, but aren't using it much or at all, be sure to scrutinize your internal processes. In the interest of being kindhearted by pursuing unpaid bills rather than turning them over to collectors, you may be wasting a lot of time, energy, and money chasing money you'll never collect. Here are three proven tips to improve your relationship with a collection agency -- and the agency's results.

Start with complete information

Accounts are usually turned over with only a balance, a patient's name, and an undeliverable address. The agency may have more expertise in chasing down that patient, but it can't work miracles. If you don't give your agency any information to work with, you're not going to see results.

Collect good information on the front end, including:

• correct insurance information, verified for eligibility at the time of service
• a copy of the patient's insurance card, front and back
• a copy of a picture ID from the patient
• the patient's home, work, and cell phone numbers.

Finally, review the patient's demographic information at all visits. Be specific: "Are you still at 123 Main Street?" is more effective than asking, "Is everything the same?" According to Glass, the lack of accurate information captured at the front office is the primary reason practices send accounts to his agency.

Develop a working relationship

Your collection agency is an extension of your practice. Just as you work to bridge gaps between two internal areas, like registration and billing, so should your efforts be with your agency.

Set up a semi-annual meeting, at minimum. Ask to review at least three accounts that were successfully collected, and discuss the agency's tactics. You might learn from them. For example, I recently spoke with a collection agency that successfully collected a $1,200 surgery from Medicaid. It took the agency just one phone call, yet it took a 35 percent fee right off the top. The account had been transferred from the physician's office as an uninsured patient.

The agency contacted Medicaid with the patient's information, and sure enough, he was covered for the date of service. The claim was paid immediately. The physician's office could have avoided this costly transaction by double-checking the patient's insurance information on its own.

As you make improvements in your working relationship with your collection agency, it's important that a supervisor be involved in reviewing each account prior to sending it to an agency; take a few minutes to evaluate the steps that were taken. For example, if it's an uninsured patient with previous Medicaid coverage, did anyone contact Medicaid to see if the patient was covered? Is there a guarantor on another family member's account that may have been overlooked?

In addition to reviewing accounts that were paid, ask the agency what information might have assisted it in collecting on accounts that it was unable to collect on. This will help both of you in the future.

And don't hesitate to negotiate the agency's fees, especially if you are making its job easier by sending cleaner accounts. Many physicians consider any funds collected by an agency simply "found" money, so they don't even know the fee the agency is assessing. Most agencies assess a percent of collections, but the fees vary from a low of 12 percent to more than 50 percent. Make sure you know how much you're paying your agency.

Collection agencies have seen a dramatic reduction in their internal costs because of easier information access via the Internet, as well as the plummeting costs of telecommunications. You deserve to see some of this cost savings through a lower rate. Moreover, if you're sending "better" accounts (by improving your front-end collection of information) and younger accounts, negotiate a lower fee. With your efforts, the agency has the opportunity to make more money, even with a lower fee, because it will be able to collect on more accounts.  

Review the agency's performance

Since accounts that are sent to the agency are typically written off your accounts receivable, they are as good as lost, right? Wrong. You should expect some return, particularly if you're following the steps above. In addition, you should be evaluating the agency's performance on a consistent basis. Keep a spreadsheet on the accounts that you send to them, tracking:

• the account number
• the age of the account
• the amount recovered
• the agency fee.

According to Glass, the average medical collector is successful in recovering payments on 15 percent to 18 percent of accounts. Keep an eye on your collector's recovery rate. If it slips, or is too low to begin with, send some accounts to another agency. Keep your spreadsheet running, and see if your recovery rate improves with the new agency. If it does, consider switching. Knowing when to call it quits with an agency is as important as your decision to pursue an account.

But remember, the recovery rate on your accounts depends a lot on the "quality" of the accounts that you send the agency. You can't respond correctly to a low recovery rate unless you know it's not being caused by accounts with incomplete or inaccurate information.

On the other hand, if the recovery rate is far higher than standard, reconsider the performance of your internal processes. You may be able to save money on collectors' fees by collecting some of the accounts yourself. For instance, I recently visited with a physician who paid more than $30,000 to his agency within a six-month period -- not a wise expenditure for this solo practice, in my opinion, as it demonstrated that his billing staff was underperforming.

But before you change your internal policies to keep more accounts in-house, recognize that physician practices are, by and large, terrible collectors. Collection agencies are better equipped to pursue patient collections than your billers are, and the agencies have specialized knowledge about collections, including relevant state and federal laws. That's why so many physicians use them. And, unlike most practices, they are good at it.

Don't pull your bad debt accounts in-house unless you're really ready. Instead, scrutinize accounts before releasing them to the agency; check for anything you may have overlooked that's easy to fix -- and be paid for.

Consider other services

If you like what the collection agency is doing for you, and you have limited internal resources, consider using it for precollect processes, managing your payment plans, or administering your patient collections altogether.

Precollect processes include a series of letters to the patient, instructing him to pay the practice directly. Collection agencies provide this service for as little as $1 an account. This will allow you to collect on some accounts without paying the agency's regular fees. If your billing system lets you to automate this process -- while making the letters distinct from regular billing statements -- consider doing precollection yourself. Otherwise, it's cheaper to let your agency do it.

When your practice establishes a payment plan with a patient, managing it is often the tough part. Billing staff spend hours combing through these accounts each month to see if patients have paid, then direct phone calls or statements to those who haven't. Transfer the responsibility of this process to the agency; they can do it less expensively than you can.

If you have a staffing shortage in the billing office, talk to your agency about managing all patient collections. Physicians often find this to be more comfortable than outsourcing the entire billing process. After all, for most practices, insurance receivables are where the billing office's focus should be.

Your collection agency is one of your most important vendors. Don't tolerate high prices or low performance. A collection agency can be a tremendous asset if you develop a working relationship that fosters its ability to do its job -- and your ability to recover money that is owed to you.

Elizabeth Woodcock, MBA, FACMPE, director of knowledge management for Physicians Practice, can be reached at ewoodcock@physicianspractice.com.

This article originally appeared in the September 2003 issue of Physicians Practice.