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Published 8/1/2007
Jennifer Bever, MS, FACHE

Are your collection agency accounts collecting dust?

Do you know how much money your collection agency recovered last year? If you don’t, how can you evaluate their effectiveness…or your return?

Although patient balances forwarded to a collection agency are often considered “lost causes,” there would be little point in using such services if that were always the case. Some patients simply do not respond to practice statements or internal collection letters. They will, however, respond when a collection agency states it will report their failure to pay to credit bureaus.

Given that most orthopaedic practices acknowledge the need for collection agency services, they should evaluate and manage this collection method just like any other. Practices should have a full understanding of the terms of the agreement with their collection agency and the results of such arrangements; they must also understand how their own internal processes affect the agency’s success.

Here are seven questions you should ask when evaluating your current collection agency.

What is the total dollar value of accounts placed with the collection agency last year?
To determine this number, run a detailed adjustment report showing the total dollar value of adjustments taken under each adjustment type. Practices typically use a “collection agency” adjustment when they transfer patient balances to an outside agency for further action. When you transfer the account, you can write off the balance. When you receive payment, you can post it to the patient’s account.

Newer billing systems may place the account balance in a separately tracked “collection agency” financial class. As such, the balance is not included on active accounts receivable reports that staff receive, but can be viewed on select management summary reports.

Because per physician figures or benchmarks for collection agency submissions exist, practices should review historic levels to compute an expected target. If limited dollars are going to the collection agency, you face a potential loss of additional, albeit reduced, collections. Inconsistent levels of dollars to collection can signal process concerns.

What is the protocol for turning accounts to collection?
Traditionally, physicians in small to mid-size groups review all patient accounts identified as candidates for the collection agency before turning over the accounts. In some cases, they may know the patient’s financial situation and wish to mark the account for a charitable discount. Others may review the accounts with an eye toward surgical outcome and patient satisfaction, believing that collection activity may increase the risk of malpractice claims. Whatever the reason, physicians must complete their review within a timely fashion, preferably one week.

Physician delay in approving collection accounts is an impediment to collection success, and one that only the practice controls. To facilitate the process, create a protocol dictating the information needed for account approval. Typically the following information is needed:

  • a print out of the patient account to date, with total patient responsibility portion clearly marked
  • the patient’s insurance status/type
  • an explanation of the outstanding balance such as “$500 deductible applied to in-office fracture care; patient has paid $0 to date”
  • a summary of action to date such as “three statements mailed, two internal collection letters mailed, two phone call attempts, no response to entire series”

Putting the information on a worksheet enables the physician to simply check the desired action—forward to collection agency; write off to bad debt; or, if the patient qualifies, consider a charity write off or financial need discount.

Practices should also provide new patients with a detailed, written financial policy that outlines when patient balances will be collected and when accounts will be considered for collection activity. With financial matters, upfront communication is critical to reducing complaints.

What is the average age of transferred accounts?
Most practices turn accounts over to the collection agency on a monthly basis. Some, however, will wait as long as 120 days.

Patients who pay their bills will usually respond to the first statement; delinquent accounts ignore subsequent statements and letters. Collection agency representatives often note that the older an account is, the less likely it will be paid. Turning accounts over within 90 days may yield better results.

What percentage of transferred accounts had balances less than $50?
Many collection agencies will not accept small accounts because the potential yield is not sufficient to cover the collection costs. Even if the agency does accept balances less than $50, it makes better financial sense to collect them in the practice. These sums are often missed copays that should have been collected at the time of the visit. The balances may be small enough that a conversation with the patient during a follow-up or postoperative visit is manageable.

Run a report of patient accounts transferred to collections for the past year and calculate the volume of small dollar accounts. If a significant number are less than $50, consider implementing a training program to help staff talk with patients about financial issues and collect outstanding balances. Local colleges or associations such as your state orthopaedic society or BONES chapter may offer courses on this topic. Web-based training tools, such as the CD-ROM on “Successfully Talking with Patients about Money” available through KarenZupko Associates, are also an option.

How much did the agency collect last year?
The comparison between the value of accounts submitted to a collection agency and the amount collected indicates your collection yield. If you are seeing yields in excess of 50 percent, you should be asking whether you are sending accounts that could have been collected in the practice. If accounts are too “easy,” the agency yield will look quite good, but you should also consider the opportunity cost to the practice. With internal training, perhaps your staff could have collected some of those accounts.

Although no benchmarks exist for an “acceptable” yield for collection agencies, you should request a report of collections for the previous year for comparison to total dollars turned over. If you are not impressed with the results, meet with the agency to discuss how to improve future yields.

What fees does the collection agency charge?
Although some collection agencies work for a fixed price per account, most work on a contingency basis, taking a percentage of the recovered collections as their fee. Practices should investigate local agency options and rates at least every other year; rates may be negotiable depending on dollar of the accounts, volume of accounts transferred, and history of account yield.

Some practices use more than one collection agency under the assumption that the “promise” of potentially increased business will yield superior results and/or better rates by both. Some local or state medical societies endorse specific collection agencies, which offer discounted rates to members.

What reports does the agency provide?
Collection agencies should forward monthly reports detailing—for each account placed—total amount placed, status in the collection cycle, and total collections to date. Many companies now make this information available online for viewing by practice billing team members; this can be helpful if patients come to the office or call and wish to set up a payment plan. In some cases, practices can add or remove accounts online—another convenience for busy staff with multiple priorities.

Jennifer Bever, MS, FACHE, is a consultant with KarenZupko & Associates, Inc.

How do you compare?
In 2006, KarenZupko & Associates conducted an online survey on collection agency activities of the members of its Orthopaedic Alert Community. Following are some of the results.

  • 93 percent of practices use a collection agency
  • More than half of respondents turned over total billings of $75,000 or less per practice (group size varied in survey responses)
  • 14 percent of respondents “had no idea” how much they turned over to the collection agency
  • 51 percent of respondents indicated physicians approve all accounts turned over to collection agencies; 83 percent of groups of eight or fewer physicians require physician approval
  • 35 percent of practices surveyed turn accounts over to the collection agency at 120 days, or 4 months
  • 66 percent of respondents noted their agency collected less than $25,000 the previous year; of those, one third collected less than $5,000, resulting in a return on accounts of less than 20 percent
  • 39 percent of respondents’ collection agencies charged between 21 percent and 30 percent of collections; 31 percent of respondents used agencies that charge between 31 percent and 40 percent of collections
  • 71 percent of respondents use just one collection agency, but 20 percent use two agencies

Why don't folks pay?

  • lack of insurance
  • true financial need
  • multiple/significant medical bills
  • consumer-directed benefit plans with high out-of-pocket costs
  • poor financial management and budgeting skills
  • failure by the practice to obtain payment when the opportunity presented itself in the office
  • don’t think it’s their responsibility

Any of these issues can contribute to a recent trend indicating that practices are seeing a sharp increase in their accounts receivable due to increased patient-responsible balances.