MPM Publications
The Business of Medicine
You write off an average of 7 percent of gross charges from your accounts receivable to turn over to a collector. The collector charges only 24 percent of receipts collected. The collector collects an average of 7.5 percent of the charges after six months of diligent efforts. "And that's the way I always heard it should be." But should the tune change?
The business of medicine is to collect money. I started in this business (a quarter of a century ago) as a business manager of a large (by mid-70s standards) hospital-based physician practice in Georgia. I learned from everyone who appeared to know about billing, and one of these people in particular was a Specialty Society consultant who talked about the keys to successful billing operation.
Two of his basic tenets were:
- Keep the months on the books less than 3.0
- Turn over delinquent accounts to an outside collection agency.
While both were true then, many things have changed and these may need to evolve as well. In 1975, most medical practices were collecting between 70 and 80 percent of their gross charges. Commercial payers reimbursed within 30 days of receipt of a claim, and they paid you 80 to 90 percent of your fee. Medicare paid you 80 percent! Medicaid paid you only 50 percent! You probably did not participate with Medicare and you collected most/all coinsurance and deductibles. Do you remember any of this?
I assert that the combination of these "basic tenets" adds problems, not revenue, to your practice; problems in that you pay the collector 20 to 50 percent of your money, and you create hard feelings from patients as well as their primary care physician when you send them to the collector. Also, I have found that turning over some accounts is completely justified, while others are turned over because of inefficiencies in your own office. Have you ever heard your patients lament: "I mailed/called in the insurance information but you never filed the claim!" or "Why can't you people get this information from the hospital? All the other doctors billed this to my insurance and never even billed me!" While some comments can be ignored, there may be some/a lot of truth in the patient's complaint.
Medical Practice Management (MPM) believes that less than three months on the books can be maintained without turning over any (or much) of your accounts receivable to the collections agency. Our months on the books range from 1.2 to 2.8; we do not turn over anything in some practices.
How do you make that decision? We believe you must first look at the culture of
your practice. Culture is many things, but first look at the payer mix. If you have a large indigent population, you may turn over a large sum (quickly) to the collector. The indigent population will tend to be rather transient and may require speedy, aggressive pursuit to "catch" the patient.
However, if your patient mix is largely middle class with one primary payer from the commercial/managed care arena, these accounts will be slower to pay. Any co-insurance or deductible due from the patient will rarely come until after the carrier pays. You have to be patient but payment will come.
Further, MPM has developed a report called the Payer Mix Analysis that tells us when the bills go out and when the payments come in ... by payer. This report analyzes/proves how long it takes to get what is coming in. We use this report to ensure that we do not turn over accounts that will be paid ...but we have to be patient.
If you have analyzed your culture and have turned over accounts to the collection agency, monitor their success. How do they work at collecting your bills and how successful are they? Know what efforts are being made and what is working for them. Can you emulate their activities and avoid the 20 to 50 percent contribution made to their coffers? If a collector is collecting more than 8 percent of what you turn over in the first six months after you turn over the money, you are making their job too easy!
I know you do not want to see your accounts receivable grow. But acknowledge that what you really want to see grow are our receipts. If the accounts receivable goes up three-tenths of a month but your deposits increase correspondingly because you are working the accounts longer with greater return, then rejoice in a higher accounts receivable! The result will be higher receipts ... and that is the tune you want to hear.
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