Bad Debt

Ask the Experts: Self-Pay Accounts

April 10, 2017 2:07 pm

Has anyone placed self-pay unpaid accounts with a third-party collection agency at day 90? If so, was it beneficial or detrimental?

Answer 1: The details and proper handling of bed debt and free care for Medicare patients are extremely important. Auditors of Medicare cost reports are not uniform in terms of what they allow or disallow. Many take extremely narrow views of what is allowable. Some auditors become tougher as the years go by with little or no warning. Hospitals should assume that audit requirements will be very strict and, therefore, follow the best procedures both for attempting to collect self-pay amounts and for writing-off accounts that are not collected.

Also, it is important to make sure that patient account staff do not write-off individual accounts to Medicare bad debt when the accounts were actually something else, such as Medicare denials that were not properly or not successfully handled by the hospital. When this happens, a denial cannot be pursued and re-billed in a timely manner.

A number of hospitals where I have worked have outsourced unpaid self-pay accounts to outside companies at 90 days. In these situations, the companies have been working as subcontractors for the hospitals, not as collection agencies. This means that the accounts have not been written-off to bad debt.

I recommend that when hospitals use companies as subcontractors to perform the follow-up on self-pay cases, hospitals should use a different company for follow-ups once cases meet the thresholds to be bad debts. This provides the right incentive for the first company and provides clarity with regard to the exact date that a case becomes a bad debt. Note that some hospitals outsource self-pay cases from the first day.

This question was answered by: Robert J. Ellertsen, FHFMA, former hospital CFO with more than 35 years experience in healthcare finance, and a member of HFMA’s Massachusetts-Rhode Island Chapter.

Answer 2: There are several factors to consider.

  • What is the collection percentage under the current system (e.g., 120 days)?
  • What is the upside percentage anticipated by moving to a more current time frame?
  • If there is a Medicare cost report being filed, you must follow the same collection policy for all accounts for bad debt to be considered allowable (Medicare/non-Medicare).
  • If you have accounts with no ability to pay (i.e., qualify for charity), you may use a presumption of non-collectability and write off the accounts without collection efforts, but you must have an established policy for charity.

This question was answered by: David A. Williams, FHFMA, CPA, partner, Horne LLP, and a member of HFMA’s Mississippi Chapter.

Answer 3: My bad-debt expert and said that considering 501(r) regulations, the average is more likely 120 days. Consult with your legal department on its interpretation of 501(r), and check if there are any state laws that regulate when accounts can qualify for bad debt.

This question was answered by: Suzanne Lestina, FHFMA, CPC, vice president, revenue cycle innovation, AvadyneHealth, and a member of HFMA’s First Illinois Chapter.

What do you think? Please share your thoughts on this question in the comments section below.  

The information provided through the Forum’s Ask the Expert service does not constitute legal advice, even when the advice is provided by lawyers. You need to obtain your own legal counsel for legal advice, and consider the laws and regulations that govern your state. The content and opinions expressed are those of the Forum experts, and not that of their employers or of HFMA. HFMA does not endorse the material or warrant or guarantee its accuracy. The responses are based only on the specific facts or circumstances provided. Forum experts cannot be held liable for outcomes related to any information provided.

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