August 11, 2004
With self-payment and copayment on the rise, many hospitals are looking for new ways to manage their bad debt. What should you do if you want to realize some value from all of the bad debt you have charged off over the past few years but don't want to create patient complaints or public relations problems? Selling the bad debt could be an option, although the recent negative publicity surrounding billing and collection practices has forced closer scrutiny -- compelling hospitals to be cautious in choosing a partner for such A/R placement. A new HFMA educational supplement, sponsored by Premium Asset Recovery Corporation and Senex Services Corporation, offers some useful insights into how hospitals that sell their bad debt can keep control of patient accounts and, thus, avoid patient complaints and public relations problems.
Choosing a Debt Buyer
Hospitals depend on their reputations as caring institutions, and choosing a debt buyer should reflect a hospital's mission, vision, and strategies. It's important to sell to a third-party purchaser who will handle the hospital's bad debt professionally and compassionately -- without generating patient complaints.
To find the right purchaser, start with checking references with other healthcare providers who have used the buyer. You should also ask a prospective purchaser to answer the following questions:
- Are accounts handled sensitively to minimize patient complaints?
- Are employees well-trained and professional?
- Does the purchaser specialize in healthcare receivables?
- Does the purchaser itself service the accounts, or does it resell or outsource accounts to third parties?
- Will the provider be able to recall accounts that prove particularly problematic?
- Is the buyer licensed to practice in your state (if a license is required), and does the license comply with all federal and state laws and regulations?
- How is the buyer financed?
"It's important to make sure that the people you sell your accounts to are the same people who are going be working your accounts and not some middlemen," cautions Doug Womer, a consultant for Matrix Dynamics, Inc. and a former chief financial officer and regional health system vice president. "This could result in bad public relations. Meet the people who are going to be buying and working your accounts, not just buying them."
The Importance of Relationships
It's also important that the debt buyer maintain a good working relationship with the agency that has previously handled the hospital's accounts. Many hospitals stop updating their records when the account is written off. If so, the purchaser will need to receive the data file of the accounts to be sold from the agency.
"When you sell to a debt buyer, the agency needs to prepare all the files for the debt buyer. Therefore, the hospital needs to maintain a good relationship with the agency, and so does the debt buyer," says Debbe Winkle, owner of Outsource Receivable Services in Indianapolis and former hospital interim director of patient accounts.
Careful Management is Key
Selling accounts can be an effective way for hospitals to accelerate cash flow and optimize revenue. When hospitals sell their bad debt, they book an immediate gain on accounts that they had written off earlier, and the proceeds drop directly to the bottom-line. At the end of the day, however, selling accounts is an individual decision. Hospitals need to determine on a case-by-case basis if selling their accounts is the best option for them.
SOURCE:
Bad Debt Rising: When to Sell Your Accounts Receivable, an HFMA educational supplement sponsored by Premium Asset Recovery Corporation and Senex Services Corporation. Published in the August 2004 issue of hfm.
Additional Resources
- Revenue Cycle: HFMA Products and Services
- HFMA's Internet Guide to Billing and Collections for the Uninsured (online access available to HFMA members only)
- The Patient Friendly Billing® Project web site
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble.
HFMA Wants You to Know ISSN: 1540-0697. Volume III, Issue 18. Copyright 2004, Healthcare Financial Management Association. All rights reserved.