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6 Strategies for Lowering Bad-Debt Exposure

By Jeff Elliott for HealthLeaders Media  
   September 07, 2010

With insurance deductibles and co-pays on the rise and more uninsured/underinsured patients paying medical costs out of pocket, bad debt continues to plague hospital balance sheets. According to the American Hospital Association's recent "Telling the Hospital Story" report, 87 percent of surveyed organizations reported increased bad debt and charity care as a percent of total gross revenue.

Don't anticipate this trend to ease anytime soon. With healthcare reform introducing anywhere from 20 to 40 million new patients into the healthcare system, hospitals must address self-pay balances as a way of controlling bad debt.

Organizations have instituted many activities to improve cash flow. Among them, collecting a portion of patient balances at the point of service is an increasingly necessary activity. But are hospitals being aggressive enough with their upfront collections efforts, particularly with self-pay patients? Many experts would say "no," given that collection rates are relatively low, ranging from 3 percent 10 percent of a self-pay patient's bill.

At a minimum, healthcare providers should use its front-end process to collect past due balances, says Benjamin Colton, manager with ECG Management Consultants "Instruct your patient access staff on the best ways to address a balance with the patient."

Beyond that, very few things are off the table, including co-pay collections in the emergency department—after the medical screening examination, of course, but prior to in-patient admitting.

Colorado's largest healthcare provider, Centura Health, instituted a thorough training program and progressive incentive structure for patient access staff in hopes of generating additional revenue through dedicated up-front collections. The organization has team of financial counselors completing insurance verifications and authorizations before a patient's scheduled procedure, reminding patients of any past-due balances they may have and determining the patient's portion of the bill due at time of service.

As a result of its strategic up-front collection efforts, Centura Health collects upwards of $1.5 million at the point of service, more than triple what it was receiving just two years ago.

Other healthcare organizations are taking an approach built around consumer finance collection tactics. As a result, tools to financially clear patients are becoming more sophisticated by enabling demographic verification and credit scoring during registration, which can assist providers in determining best way to collect payment or structure a lending arrangement with a patient.

Here are six point-of-service activities your organization should consider to help rectify self-pay balances and lower bad debt:

  1. Use front-end processes, such as collecting a portion of patient balances at the point of service.
  2. Screen uninsured patients for eligibility in government programs such as Medicare or Medicaid, or charity care assistance from the hospital. More and more companies are providing tools to organizations to accomplish this rapidly.
  1. Segment patients by financial risk to determine their likelihood of covering their portion of the medical bill. With demographic and financial information provided by the patient, a hospital can decide how much and what type of collections effort to apply to individual patients.
  2. Implement sophisticated insurance eligibility verification tools and processes to validate patient and service eligibility in real-time. "While may not help improve total reimbursements, it can help speed the time that you receive your cash," according to Colton.
  3. Establish financing arrangements with a patient such as a basic payment plan that helps a patient see how they can settle their bill in a reasonable timeframe.
  4. Discount prices for self-pay patients. A good-will gesture of sorts, this will drive near term-revenue as well as create an incentive for the patient to return to your organization when future medical attention is needed.

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