Beware significant increase in bad debt during tough economic times

March 1, 2010

The new decade started out to be challenging, frustrating and concerning for everyone. Whatever the future brings, it is evident that physicians who want to remain profitable and avoid decreases in their practice revenues must be proactive.

Key Points

Will the temporary two-month Medicare fee schedule be reversed this month to reflect deep cuts? Will the commercial carriers follow Medicare's lead in eliminating payment for consultations? And will commercial carriers continue to design unreasonable edits to deny and delay payments for eligible and medically necessary services? Only the crystal ball knows.

Whatever the future brings, though, it is evident that physicians who want to remain profitable and avoid decreases in their practice revenues must be proactive.

One of the main areas of concern has to be patient-owed balances. Practices will see a significant increase in bad debt resulting from balances owed by patients. Why?

1. More than 10 percent of Americans have lost their jobs and have no insurance coverage.

2. Many Americans have reduced incomes and are struggling to keep their homes and food on the table. Non-emergent medical expense bills are last on their list of bills to pay.

3. Many Americans are underemployed, further reducing their ability to pay their bills.

4. Americans who are able to obtain new jobs often have to wait 90 days or more to become eligible to obtain medical coverage.

5. Higher deductibles for most Americans are making it impossible for many to handle their bills for basic outpatient services.

No. 5 on the list is probably the biggest reason physicians will see increases in patient-owned bad debt. In an article dated Nov. 20, 2008, in the Los Angeles Times, staff writer Lisa Girion stated, "Employers are dramatically shifting healthcare costs onto workers, so much so that the average annual deductible for an individual surpassed $1,000 for the first time this year, according to a new study.

"Millions of workers - whether employed by small, medium or large companies - must now pay an average of $1,001 out of their own pockets before their health insurance coverage begins paying a share of the expenses. That's up 17 percent from $859 last year."

Statistics for 2009 stayed pretty much the same, showing that 22 percent of all workers with employer-sponsored coverage had a general annual deductible of $1,000 or more. Rates for 2010 are expected to increase significantly as insurance carriers suffer from decreased profits - the result of more unemployment, decreased number of premiums paid and higher healthcare costs.

Bottom line: Your practice can expect to see larger balances from commercial patients who have high deductibles and cannot afford to pay their portion of the bill due to their unstable economic situations.

Seeking solutions

I'd like to outline what you may believe would serve as successful solutions to this problem. These ideas may sound good, but read a bit further and I'll explain why each may not be in your best interest.

Solution 1. You pre-verify insurance coverage before the patient is seen.

OK, so you know the patient has a $1,500 deductible that has not yet been met. You call the patient and advise them that they have to pay for their services at the time of the visit. Chances are the patient will no-show or cancel.

Solution 2. You obtain credit card information to keep on file so that you can balance bill patients if they have a balance due after insurance has paid, or the charges are applied to their deductible.

Your practice takes on a huge legal liability when collecting and storing this sensitive information. Identity theft is a significant threat, and employee embezzlement - especially in medical practices - increases at alarming rates. If you are going to collect credit card information and patients' written permission to keep on file in order to balance bill patients, you must have the following in place:

A. All employees should be bonded.

B. Background and credit checks should be performed on all employees, even if they have worked there for years and even if they are the office manager or administrator. These background checks should be done every 90 to 180 days.

C. The Red Flag Identity Theft Compliance Program should be implemented into your practice before you begin collecting credit card information. (A ready-to-implement program and training program can be ordered from http://www.iepg.com/).

Another problem is that patients who can't afford to pay most likely have no credit cards, have maxed out their credit card limits, or aren't willing to use what little credit they have left for non-emergent medical services.

So, in essence, you are getting credit card information from patients who would pay their bills anyway. I personally would not give out that information, given what I know about identity theft and employee embezzlement in the current economy.

Solution 3. You offer the patient a discount if they pay off their balance.

For example, if a patient owes $800 as the result of a high deductible, you offer a 50 percent discount if they pay their balance in full. The problem with this solution it that you now have violated the Federal False Claims Act by submitting a bill for an amount that is higher than the amount you are willing to collect. Not a good idea, unless you look good in an orange jumpsuit.

Discounts can be given and charges may be written off on a case-by-case basis if you determine that the patient is medically indigent. But there can be no policy or evidence that you do this routinely.

Solution 4. You turn patients over to a national collection agency.

Such agencies aren't going to be much more successful and will charge you at least 40 percent of the total to start, and the percentage goes up each month or after a certain amount of contacts. If you select this option, you had better discharge the patient from your practice as soon as you turn them over.

Other options

So what are the solutions if the above options aren't a good idea? Since you cannot squeeze blood out of a turnip, you need to find ways to increase your practice income. There are always five ways to accomplish this.

1. Increase your Medicare population. Let me say that again: Increase your Medicare population. Here's why:

a. The deductible is only $155 per year compared to $1,000-plus for the non-Medicare patient.
b. More than 90 percent of Medicare patients have a supplemental insurance that picks up the deductible or the co-payment.
c. The average Medicare bill is $250, compared with the commercial patients whose average bill is only about $115. Even if the 21 percent discount would be implemented, your practice will still make much more money seeing a Medicare patient versus a patient with commercial insurance.
d. Medicare pays on average in 14 days versus 30 to 45 days for the commercial carriers.
e. When Medicare patients owe a balance, they pay. They are used to paying their bills on time.

2. Decrease the cost of doing business by setting up a budget - and sticking to it.

Renegotiate with all vendors. Now is a great time to get discounts and better prices on office and medical supplies, equipment, service contracts, support contracts, etc. Revisit your pricing structure with every vendor no matter how large or how small, or how much you like them. "It's business, not personal."

3. Get better results on your billing processes. This includes:

a. Getting the money in faster. Thirty days or less is doable with electronic claims processing, electronic remittance and electronic funds transfer.
b. Working the A/R faster and more efficiently. Your total A/R for insurance over 90 days should be no more than 10 percent of your entire insurance A/R.
c. Enter charges and post payments in real time, not days, weeks, or even months later.

If you are far off that mark, it's time to outsource billing to the professionals. It may cost you 7.5 percent to 8.0 percent to hire a professional billing service, but if you are losing thousands to hundreds of thousands of dollars in revenue due to unpaid claims, inappropriate write-offs and a huge uncollectible A/R, the cost is not just two billers' salaries and some benefits ... the real cost could be the difference between profit and loss for your practice.

4. Capture revenue that you are already doing, but not billing for - making the pathology slides (e.g., the technical component) in your office.

You are already seeing the patient and providing them services; why not capture that extra $50 to $80 per specimen that you could get for producing the slides in your office rather than outsourcing? You can still read your own slides or outsource the reading of the slides (which only pays an average of $35) compared to double that for making the slide itself. For more details, contact Emmett Kane at TC DermPath, (860) 490-7695.

5. Add a physician assistant or nurse practitioner.

The addition of a nonphysician provider can greatly enhance your practice's revenue. The new provider can see patients when you don't work and provide services for extended hours, attracting new patients that may otherwise not be able to see you. They can also optimize your office overhead expenses by increasing profits while the cost of doing business increases only slightly.

Medical practices will continue to thrive and prosper as they have in the past, but it will take more planning, creativity, attention to detail and proactive strategizing. The fate of your practice can no longer be left to the gods. You will need to take fate into your own hands and understand the challenges.

Inga Ellzey, president/CEO of the Inga Ellzey Practice Group, is the nation's foremost expert on dermatology coding, documentation and reimbursement. Visit her Web site at http://www.iepg.com/.

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