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Don’t lose patience (or patients) over rising delinquencies

By Lauren A. Irwin-Szostak

Every day, there’s another headline about the fallout from the declining economy. Record home foreclosures. Bank failures. Rising consumer debt. Now, more and more, we are seeing how these issues are negatively impacting the healthcare industry.

Doctors, hospitals and managed care providers are too often portrayed as the cause of rising healthcare costs. But the facts show that the industry is suffering from the economy’s woes — not profiting from them. Unpaid patient receivables are growing at an alarming rate. The reason: the economic downturn is making it harder and harder for all patients (both insured and uninsured) to pay their bills. And with no true remedy for healthcare providers to pursue, patients are inclined to put medical bills at the bottom of their financial priority list — concentrating instead on avoiding home foreclosure or putting gas in their car.

Just look at some of the numbers. A recent article in Healthcare Finance News reported that Tenet Healthcare Corporation has seen its bad debt rise 5.8% to $163 million. In July, the Orange County Register reported California hospitals lost $9.7 billion treating patients who were unable to pay. And early last year MSNBC reported that U.S. hospitals carry a staggering $40 billion in unpaid bills each year.

With delinquencies rising, healthcare providers are spending more time and effort managing their accounts receivable. It’s a process than can be costly and frustrating. And if not handled with the proper care, it can negatively impact your relationship with patients. To add to these challenges, chances are that your patients may not only owe you, but other companies as well. Therefore, efforts to collect outstanding patient fees can play out like a competition between you and your patients’ credit card companies, auto finance firms or even other healthcare providers. So what’s a hospital or medical group to do?

If you choose to handle your collections in-house, be advised that the staffing costs can be high. You’ll also be diverting valuable time and resources away from your core area of expertise: patient care. Plus, there are increasing nuances to debt collection in terms of laws, compliance, and overall strategy, which will likely be outside the scope of knowledge of your internal staff. For these reasons alone, many healthcare providers outsource the responsibility to a dedicated debt collection agency. While these agencies are typically more capable of collecting the revenue, and more efficient at it, there are risks to outsourcing.

By allowing a third-party to contact your patients directly, you run the risk of a “bad interaction” between your patient and a debt collection agency. And when that turns up as a story on an Internet blog or message board, the negative PR can cost your organization more than just one patient. So if in-house collections are costly, and outsourcing is risky, what other options are out there? And which ones are best suited to the current environment?

One approach that has gained popularity is selling off the distressed debt. This relieves you of the burden and the risk of collections. But the trade-off is a return that is often just pennies to the dollar. Some healthcare organizations have even taken to selling off their accounts via online auctions. The drawback with auctions is that in addition to the low rate of return, there’s the uncertainty of knowing who will acquire your accounts. Will the acquiring company be a collection agency or an investor simply looking to profit from distressed debt? Who will ultimately be contacting your patients? Will they be respectful and sensitive to your patients’ financial concerns? Without the ability to choose who will be managing the accounts, you give up more than just revenue. You give up control.

A more balanced approach that healthcare companies are discovering is enlisting the services of a professional “receivables management firm,” which is different than a debt collection agency. Receivables management firms offer a more promising model that can help you increase returns, reduce net collection costs and give you more say in the process. Here’s how it works: In exchange for a management fee, these companies will act on your behalf as an intermediary to the debt collection firm(s). There are multiple advantages to this strategy, beginning with the approach to collections.

Management firms use sophisticated analytics to examine the characteristics of your accounts receivable and match them to the agency (or agencies) most qualified to collect on them. They also employ detailed screening processes to carefully vet their agency networks. This ensures that the collectors adhere to the highest professional standards and make use of customer-friendly strategies. The management firms will also verify all licensing, insurance, and customer service practices on your behalf. In addition, because management firms often represent multiple creditors (in this case, medical providers), they can negotiate preferred rates with the collection agencies based upon their aggregated volume of accounts. This is a valuable benefit to help lower your net collection costs. Furthermore, the best management firms operate as a true partner, allowing you, as the client, to stay informed and involved in the collections process. So there’s greater transparency — and control — at every touchpoint.

While the economy continues to give everyone reason to be concerned, healthcare organizations can rely on numerous options to help minimize the impact of bad debt. The key to choosing the best one is to consider three key factors: costs, returns and control. Once you prioritize these factors, you’ll have a much easier time choosing the collections approach that works best for your organization, and for your patients.

 Lauren A. Irwin-Szostak is the founder and president of Business Processes Redefined, a New Jersey-based accounts receivables management firm that offers turnkey solutions to help organizations maximize revenue and minimize costs. She can be reached at 800-470-6622 or via e-mail at

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