At a Glance
- The probate process is a way to recover hospital payment while respecting the feelings of the patient's loved ones and protecting the hospital's reputation and bottom line.
- A healthcare organization's probate strategy could include internal staff who are dedicated to this process or outsourcing to specialists in probate recovery.
- Several strategies, including setting up a system for flagging the records of a person who has died within a provider's facility, can be used to recover payment from estate accounts.
Without a probate recovery strategy in place, hospitals may be passing up an opportunity to recover as much as $10 billion a year in unpaid accounts of patients who have passed away.
Over the next 40 years, the number of adults older than 65 will more than double, from around 40 million today to nearly 90 million by 2050, or one in every five people. For the healthcare industry, this graying of America has many ramifications, including the need to meet the rising demand for services.
For healthcare finance managers, an additional cause for concern is what happens after members of this population die. Within the 65 and older age group, the number of deaths each year is increasing, to nearly 3.5 million annually over the next 40 years, according to the National Center for Health Statistics. For many healthcare organizations, this will mean a growing amount of bad debt from unpaid accounts.
Already, the aging population and soaring end-of-life care costs, coupled with a dramatic increase in patient payment responsibility, have driven accounts receivable (A/R) for patients who have died-known as deceased accounts-to an estimated $10 billion per year, according to our internal research.a Depending on the type of healthcare provider, estate accounts make up from 4 to 50 percent of total A/R, according to actual test file results our organization has performed on provider data samples.
These trends are inescapable and present a major challenge: How can healthcare providers ensure that they receive payment for the care they provide, especially when so much of the cost of that care is borne near the end of a patient's life? There are several strategies to consider.
A Proactive Approach to Probate Recovery
Despite the significant money at stake, most healthcare providers have no strategy for recovering payment from estate accounts.
Recovery efforts are complicated by the reality that surviving family members have not personally incurred the debt, so providers are understandably reluctant about contacting survivors for fear of appearing insensitive, thereby damaging their reputations within their communities. Collecting on estate accounts, after all, may seem like the hospital is seeking payment for what appears to be a failure-the patient's death.
Many providers simply write off these receivables, but at a time of razor-thin operating margins, providers can no longer afford to take a passive approach. Instead, hospitals do have an option for recovering payment on an estate account in a way that is sensitive to survivors of the deceased.
Identifying Estate Accounts
The first step in recovering payment from estate accounts is, of course, identifying deceased patients. A provider can set up a system for flagging the records of a person who has died within its facility-communicating to the revenue cycle system, for example, that such an account should be categorized for special handling.
More challenging is flagging the accounts of patients who have died outside the provider's facility. Weeks or months may go by before a hospital is notified of a patient's death, if notice comes at all. Providers, therefore, should also should set up a routine process for identifying estate accounts. Typically, this process will involve running a software program against all active A/R to identify patients who have died.
Once an account has been flagged, it should be removed from the regular workflow for A/R. The process for searching for a probated estate should then begin.
Pros and Cons of Probate
Probate is a legal process where a court oversees the administration and distribution of the deceased person's assets. Probate gives priority to state and federal obligations, as well as child support payments and expenses of last illness, then pays the claims of secured and general creditors; any remaining assets are then distributed to estate beneficiaries.
This legal pathway can be used to collect on a considerable number of receivables. In fact, the Federal Trade Commission recently released a policy statement in connection with collection of a decedent's debt that highlights the importance of using probate as part of the recovery process on estate accounts.
The probate process offers a number of benefits.
Unlike other types of legal recourse, probate is not an adversarial process. There are no plaintiffs and defendants. A representative of the deceased is appointed as an executor or administrator of the estate and has a fiduciary duty to every interested party. A hospital would be considered a creditor of the deceased's estate.
Unnecessary contact with survivors or heirs is avoided. The established rules and procedures of the probate process keep the conversation focused on attorneys and personal representatives instead of on the family. This process eliminates the potential for unnecessary or stressful conversations between the provider and surviving family members.
Priority is given to healthcare debts. Acknowledging the importance that Americans place on end-of-life care, probate recognizes the priority of payment of certain medical claims, including those relating to expenses of last illness. Healthcare providers, therefore, often have priority legal status over other unsecured creditors.
Probate is an administrative proceeding. Healthcare providers are not required to hire an attorney to present their claims.
At the same time, with more than 3,450 probate courts in the United States, the probate process can be complicated, time-consuming, and expensive. Challenges include the following.
Probate rules differ. Within every state, individual probate courts have their own processes and specifications needed to file probate claims. Creditors must adhere to specific court-approved procedures to properly present a probate claim. Creditors, like healthcare organizations, generally aren't set up to understand these nuances or to maintain staff with this expertise.
Limited experience with the probate process reduces the chances of recovery. Many healthcare providers do not regularly use probate to collect on estate accounts. Creditors that try to implement a probate strategy on their own quickly realize that tackling probate one case at a time, one jurisdiction at a time, is an overwhelming endeavor.
There is limited time to find and file claims. Probate claims must be filed in a timely manner. Otherwise, creditors lose their rights to payment entirely. In some cases, the timeframe for filing can be as little as 60 days from the opening of the estate until the claims period has ended. That's not a lot of time for providers to find the open probate, organize the claim, and properly present it. In addition, more than 15 percent of estates are opened outside of the last known legal residence or mailing address of the deceased. This makes it challenging to find and contact the right probate court within the allotted time.
Fees can undermine any recovered payment. Probate courts can charge fees ranging from a few cents up to $35 or more per search to search for estates. Search expenses-coupled with the fact that in some jurisdictions, it can take more than a year to open a probate-often cause healthcare providers to terminate the search before the estate has actually opened. Such termination to avoid expense can cause a provider to miss as many as 50 percent of estates.
Options for Healthcare Providers
Combine a provider's limited experience with probate and the confusing and overwhelming nature of the probate process, and it's clear why so few providers have an estate A/R collections strategy that includes probate. Yet the evidence of success in using probate to recover A/R is compelling.
For more than a decade, the nation's largest credit card issuers have been using probate to recover as much as 30 to 40 percent of their estate A/R⎯with no additional risk to their brands.
A healthcare provider has several options when choosing to implement a probate process. Each has its own pros and cons.
Outsource to a collections agency or attorney. The main benefit of outsourcing is that a hospital doesn't have to dedicate internal resources to the probate process. An agency or attorney, however, should be an estate account specialist with a specific process for handling this type of receivable. For example, the agency or attorney should proactively identify accounts that may become estate accounts and be able to locate a probated estate that has been opened anywhere in the country. Without such expertise, the agency or attorney will face the same kinds of challenges an inexperienced provider would by handling the process internally.
The downside is that outsourcing also comes with a fee, which generally amounts to one-third of the amount recovered. Although outsourcing also means the provider gives up control over a sensitive receivable, an agency or attorney who specializes in estate accounts may be more effective in recovering payment, which may offset the fees charged.
Implement an internal strategy. By using an internal team or staffer dedicated to estate accounts, the provider actually "owns" the process, meaning it is better able to control the payment recovery process and may be more effective at dealing with community members and, therefore, better able to protect its reputation. The provider should ensure that it has sufficient resources to effectively manage and recover payment from estate accounts, or chances of success will be limited.
Although providers avoid any fee associated with outsourcing, they may also be losing a level of expertise that can be found only with a specialist whose main job is to handle estate accounts. Lack of such expertise may reduce amounts recovered.
Combine internal staff with technology. By adding probate software or online probate applications, the in-house staff gain expertise while maintaining control of the process. Automating the process also reduces the staffing requirements; in some cases, estate accounts can be handled by less than one FTE, as the technology automatically scans receivables to identify estate accounts, locate the probated estate, and determine the correct forms to file.
Providers should take time to choose user-friendly technology or the effort to automate will be counterproductive. Likewise, technology comes with a cost, which may be significant or nominal depending upon the type chosen. Software and hardware will have up-front costs, while web-based applications will have a transaction fee for each estate account that matches a probated estate.
A Healthier Bottom Line
A proven remedy is the preferred approach in health care. Likewise, a proven approach to managing the debt of patients who have died should be welcome news for healthcare professionals tasked with maintaining a healthy bottom line.
Regardless of how the strategy is implemented, using the probate system gives healthcare providers the opportunity to fulfill their financial responsibilities without putting their organizations' reputation and relationships at risk. Probate recovery offers a practical solution for providers looking to find the right balance between patient sensitivity and fiscal responsibility.
Angela Horn is vice president and general counsel, Forte, LLC, Minneapolis, and a member of HFMA's Minnesota Chapter (firstname.lastname@example.org).
a. This research examined actual provider portfolios from about 30 providers to determine the percentage of unpaid healthcare debts and the percentage of those debts owed by deceased patients.
Publication Date: Tuesday, November 01, 2011