In today’s billing environment, increasingly higher payment responsibility resides with patients. Self-pay accounts have steadily grown to essentially their own payer classification. While the best practice is to initiate procedures to collect at the time of service, often this is simply not practical or feasible. Even though the decision to use external agencies to collect a debt is difficult, it may be a necessity for your financial health.
While using external collection efforts should improve your bottom line, it does have the obvious negative implications, particularly with patient relations. It is a decision that must be finalized only after a rigorous review of both the providers’ and patients’ needs, in addition to the proven reliability of the collection agency that you may ultimately select.
We have gathered a few factors that need to be reviewed and considered when deciding if your organization should utilize an external collection agency.
The majority of collection agencies make their profit by receiving a percentage of the amount of debt that is collected. Depending on the agency, the range can be as low as 10 percent or as high as 33 percent. Many factors can influence a fee, such as the age of the account, average balance, number of accounts placed and electronic vs. paper referral source. For example, if you refer accounts within 90 days, the percentage fee collected should be closer to the lower end. Similarly, if an electronic file is sent directly to the agency, should also result in a lower percentage fee.
It is important to note that some agencies will charge for each collection letter they issue to the debtor. For this arrangement, agencies will send a series of collection letters and will charge you regardless if any payment is received. This arrangement is not ordinarily advantageous, particularly since most billing software applications can perform this task automatically.
If you are using an agency that performs billing, “early out” and full collections, ensure there is no conflict of interest with the rate structure. For example, if billing and pre-collections are set at 5 percent of recovery, but full external collections are set at 15 percent, the incentive to collect quickly and efficiently is minimized.
Once a fee has been established, you should negotiate a “grace period.” Meaning, if a claim is sent to a collection agency, and payment is received by your office within 30 days, you should be able to exclude those payments from the collection agency’s commissions. Some collection agencies will send a letter with their letterhead as the first “soft” collection tactic but any payments resulting from this initial letter will be directed to you at no commission charge.
It is critical to understand the level of services that the agency will perform. To help understand the agency’s collections policy, ask them to define the number of letters they typically generate, the frequency of their telephone efforts, advanced skip tracing services and how they sort their priority of accounts. After they explain their typical procedure, offer your ideal scenario for each section and ensure they will be able to accommodate that request. Also, keep in mind what type of accounts to refer over to the collections agency. For example, will strictly private pay invoices or commercial insurance accounts be sent?
Also, it is very important to determine how patient inquiries will be handled. Will the collection agency, timely and accurately, send your office or your billing vendor details of new insurance or patient hardships?
After you negotiate the type and quantity of services provided, it is critical to ensure everything is clearly and specifically defined in your contract with the agency. In addition, make note that all expansive reviews such as credit counseling, demographic analytics (such as income, assets, and overall credit scores) are included in the contract. You will also need to confirm if attorney letters for aged and high balance accounts are utilized.
It is your organization’s responsibility to decide at what point in the billing cycle is an account sent to a collection agency. With the implementation of private pay invoices, most billing departments issue a series of three invoices before the referral. Once the collection form or electronic file is generated, you may decide if you want to write off these accounts as a bad debt. Unless your agency has external requirements that do not allow items referred to external collections to be written off, it is recommended they be removed from an active account at the point the collection agency acknowledges receipt of your accounts. For reporting purposes, you may want to set up a special credit or other distinction to readily ascertain the amount sent to collections.
Routinely, a collection agency will receive all payments. On a monthly basis, they will forward payment, less the commission percentage, and send a report that lists all account activity that happened during the month. If you decide to have payments issued directly to your office, more than likely you will be responsible for paying the agency’s fee.
You, not the collection agency, should decide when an account is no longer viable for collection. It is best practice to not allow the agency to close accounts without your approval. In order to be more hands on during the process, request monthly reports that detail the status of each account you have referred. After you received the report, diligently review to ensure accounts are being worked timely and judiciously. Additionally, make sure the reports you receive are “period driven.” This means that the total amount referred each month should be matched against total collected for that same period. Sometimes, the collection rate can be artificially inflated if this rate is compared to the current month’s collected amount against the current month’s referred accounts.
Depending on the state, there may be the possibility of revenue recapture from individual tax refunds, property tax refunds, and lottery or gambling winnings. If your state allows revenue recapture for medical debts there are some clear advantages to this methodology, most notably the collection rates are typically significantly higher than using a collection agency.
However, “Off Set” programs have their limitations and challenges too. There are often restrictions that exclude any low-income individuals, certain types of medical debt and the elongated time to collect. Debts such as child support have a higher priority, so the offsets will be applied to these debts first. Much like a collection agency, the state will charge a fee to both the provider and the debtor directly or through a third-party agency.
Although external collection agencies have its inevitable faults, it is something that every EMS agency or medical practice should consider. It may just be the most financially responsible system to correct bad debt within your organization.
Content written on behalf of R1 RCM.