INDUSTRY REALITIES
The medical industry exists in a landscape of almost constant change. Because of rising patient responsibility deductibles, providers are often faced with limited internal resources that continue to diminish each year, which puts the profitability of any provider at greater risk, not to mention contributing to higher healthcare costs.
Additionally with new compliance regulations coming from Washington, healthcare providers are continuously expected to do more with less. Add to that the complications of employing FTEs in a fluid environment where the ebb and flow of a fluctuating revenue cycle can make staffing difficult (and expensive). Looking to outsourcing is one alternative to solve many of those problems.
For many providers the outsourcing of self pay collections has become a necessity, and because collections are typically contingency based (pay based on dollars recovered and performance) the demands of using outsource agencies presents a logical alternative to cover the bases without the internal cost of staffing, training and utilization of valuable space.
Still, as many providers use these services few really understand the inner workings of the process from the vendor side and that can make a critical difference in how successful the process can be.
First it is important to note that medical collections is far different than credit card debt or some other form of financial debt recovery. Medical reps must be able to walk patients through their bill rather than just collect it, resolving the misunderstandings that patient’s may have surrounding it, and at the same time be patient sensitive in a way that other forms of collections may not be.
Collection agencies that use “cross over” reps collecting other types of debt typically have lower recoveries and often, more complaints, only adding (instead of minimizing) the frustrations of the providers that hired them.
In healthcare, most delinquency occurs as an “unexpected” expense, and for many, the reason why patients have not paid their bill is simply because they didn’t understand the statement they received. (I even have a problem with my own physician and the statements I get).
Too, the way that patients receive bills is confusing: patients may get a bill for a hospital stay, then another from the doctor, and still another for lab work and so on.
Imagine going to the grocery store to by a loaf of bread and at the check out they also charge you separately for the packaging, the delivery costs, and the shelving cost all separately.
Unlike almost any other form of collections, most providers want the relationship between them and their patients to continue. Add to that the compliance demands surrounding patient confidentiality requiring constant updating and training. Well-established agencies regularly invest in compliance as a way to protect themselves and their clients from legal liability exposure.
*Legal liability extends not only to the outsource vendor, but often to the provider who hires them as well.
So these are the 7 things that all providers should know when looking to outsource their self pay collection process.
1. WHAT IS EARLY OUT AND BAD DEBT?
A. EARLY OUT is a collection process that occurs upstream in the revenue cycle, often within the first 1 to 90 days. Early out is not a “bad debt” collection process moved forward, it is essentially “customer service” rather than a true collection process, done in the name of the hospital, as if the agencies’ reps are employees of the hospital.
B. BAD DEBT is the more traditional medical collections process. An account is moved to bad debt once it has clearly demonstrated to be delinquent after a determinate amount of time has passed. The recovery process is then done in the name of the collection agency, giving more power to the process. Even though the growing trend is not to report patient bad debt to the Credit Bureau, still the bad debt agency has many sophisticated and expensive tools that hospitals do not have to collect the debt.
2. UNDERSTANDING THE PROBABILITY OF PAYMENT.
Many outsource agencies typically have a dollar floor/threshold they will not go below to recover accounts. The reason: assume the debt is a $50 copay. At 15% (only an example fee rate) the agency only makes $7.50 which may come close to covering the cost of recovering that one claim, but if you figure a bad debt recovery rate of 20% (which is high), it means the fee on that one account has to cover the cost of five (not just one) additional accounts that were worked, but not recovered. So the agency is losing money unless it calibrates their rates to also cover accounts that are not recovered.
Some agencies even send back large balances without attempting to recover them because they know that a patient is likely to pay a $50 copay, or a bill that is, say, $100 to maybe $2000, but it is easier to walk away from a bill that is $50,000 or larger.
*The complication in this is in the reporting process. If uncollectible accounts are summarily closed and sent back to the provider and not figured into the performance equation reported back to the provider each month, the recovery rates may look inordinately high (which bodes well for the agency, but not so much for the provider. The red flag is that recoverable accounts are being missed farther upstream).
The ACA (American Collection Agency) states that the average collection of medical bad debt accounts should only be around 16.5% (which most bad debt vendors will report far less pending the particular book of business), so if a provider shows recovery rates of 30+% one of three things is happening:
· Either the upfront collection process (either in house or an early out vendor) is missing recoveries that should have been collected, by either the provider or an early out vendor.
· The reporting is not counting closed and returned accounts that are deemed uncollectible, shifting them instead to bad debt which typically has a much higher rate with nearly 5 times “less” collectability.
· Additional dollars are being added to the self pay numbers such as insurance follow up and recovery.
In each instance the provider does not receive the accurate recovery rate of the outsource vendor’s performance and for management purposes, the process is flawed. The “best” formula is: Total accounts/dollar volume placed divided by accounts recovered, closed/ unrecovered, (including closed/unworked accounts for whatever reason). This will show the accurate outcome for every account placed, which the provider will need to accurately access and manage the process. Healthcare recovery rates will often be lower than other forms of debt recovery because healthcare debts are usually unexpected and can be significantly higher, spurred by a high deductibles and out of pocket costs.
3. WHY DO I NEED MORE THAN ONE BAD DEBT AGENCY?
Most healthcare accounting firms agree that providers should have more than one vendor. It is most prevalent for bad debt, but some providers also have two or more vendors for early out as well. The reasons are:
A. COMPETITION: When more than one agency is involved, recoveries increase across the board.
B. VALIDATION: Creating a performance “base line”, critical for any provider to know how effective each agency is.
C. SECURITY: If an agency suddenly goes off line, there is still another agency working where accounts can be shifted to keep the revenue flow in tact.
*Also if an agency under-performs, there is still a second agency that can assume the workload while a replacement is found… without affecting the revenue flow.
4. WHAT IS THE “BEST” FEE RATE?
Many providers still believe that the “lowest” fee rate is the “best” rate, and often ask, “What are your fees?” even before they have shared their numbers with the agency.
Any agency that gives you a rate before they know the specifics of your particular book of business should be a red flag.
In any outsourcing investment, the most critical number is actually the “net back”—how much is collected against what is paid in fees. Getting the lowest rate may actually have a higher cost to the provider if the recoveries don’t meet expectations. And there are many other considerations as well. Is the vendor responsive to the needs of the provider? Do they function as a “partner” proactively addressing issues that may occur, and do they protect the provider’s relationship with their patients, while promoting the brand of their clients’.
Contingency Fee rates are risk based meaning rates must be determined on the probability of recovery, and they are driven by four factors–AVERAGE AGE, AVERAGE BALANCE, VOLUME, and COLLECTABILITY.
1. AVERAGE AGE determines collectability. A bad debt self pay account that is 120 days old is more likely to be recovered than one that is 360 days old. Average balance is best determined by the provider providing a report showing all the accounts to be collected. This insures the agency can “slice and dice” the project to determine an “accurate” average balance.
*It should be noted that averages can be misleading in that several large (uncollectable) balances or many small balances, can skew the numbers in both average age and average balance. Having a report encompassing all accounts allows the agency to determine the “collectable” average balance.
2. AVERAGE BALANCE- will help identify the accounts most found in the “most collectable” range of the book of business.
3. VOLUME—Account and dollar volume determines allows the agency to know how many reps will be assigned to the book of business.
4. COLLECTABILITY- is determined by a number of factors and many good agencies have a propensity to pay formula that can be applied to any book of business that will help them forecast recovery rates and thus, determine an appropriate fee rate.
*When considering any early out or bad debt collection agency it is important to ask what their process is and share yours with them to insure a seamless integration.”
5. PROCESS FLOW
One of the most critical pieces of information that a prospective agency needs to know is your own internal process flow, what has been done with the accounts up to the point that they will be assigned.
· How many statements have been sent and the interval at which they were sent?
· What is the current recovery rate?
· How are updates received?
· What is the level of system access?
· What are the challenges you face?
5. REPORTING
Reporting is the eyes and ears of the provider in dealing with an agency, the way they see what is being collected, and if transparent, what is not being collected. Some agencies use a “real time” portal to view daily activity, and some issue a monthly report, and some will provide both.
*If you use more than one vendor it is important that the reporting criteria is the same for both (or all), so, when doing performance comparatives the comparisons are accurate.
6. EXPECTATIONS:
It is critical that everyone be on the same page with goals and expectations. If expectations are unreasonable on either side it is critical to know at the outset of a relationship instead of during.
7. HOW DO I KNOW WHICH AGENCY TO CHOOSE?
On average providers report that they receive 10 to 20 calls a week, sometimes daily, from collection agencies wanting their business. On the face of it, most sound the same, however many experienced providers will tell you that there is a difference.
These are a few questions you need to consider of any potential vendor to determine what the “differentiators” are.
1. Are they licensed in all states where you have locations?
2. Do they have a Better Business rating?
3. Are they certified by the ACA (American Collectors Association)?
4. How long have they been in “healthcare” receivables?
5. Are they exclusive to healthcare?
6. Do they have a track record of success with providers similar to you?
7. Do they have references similar to you?
8. Do they have the capacity “currently” to adequately take on your book of business?
*If an agency has to hire staff for your book of business they will likely have the same learning curve issues that you would have, and likely lower recoveries (and more issues) because of it. Having immediate capacity is an important consideration. ”
9. What are their “compliance” and “security” provisions, and is compliance budgeted in their yearly operation?
10. If they do both early out and bad debt, are the departments segregated?
* Because there is such a difference in early out and bad debt applications, great agencies typically will separate their early out reps from the bad debt reps, not allowing them to cross over.
11. Do they have a track record of responsiveness to the needs of their clients?
12. What is their client services “liaisons” make up?
13. What does the individual training of each rep look like?
UNDER-BIDDING It is important to understand that a vendor can seriously “under bid” a project with the idea of earning more business later on, only to find that they do not have the resources to perform well, ruining their chances for any other additional business moving forward.
Understanding the dynamics of “outsourcing” will go a long way in insuring that you end up with the best solution for your individual needs.
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