Keep close eye on credit balances

February 1, 2007

At most dermatology and cosmetic practices, between 2 percent and 10 percent of accounts receivables (A/R) are actually credits.

Sending back money you've collected may be a nuisance but it is a fact of life in health care. At most dermatology and cosmetic practices, between 2 percent and 10 percent of accounts receivables (A/R) are actually credits. If your practice is in that range, stop considering every refund a nuisance and, instead, learn why they happen and how to process them more efficiently.

Refund fodder

Advance payments are more than acceptable reasons for credits to appear in the accounting system. In fact, they're to be encouraged, but carrying inappropriate overpayments are not. Because most physician billing systems lump these two types of credits - both "good" and "bad" - together, it's important to periodically audit accounts to see what's really happening.

Credit where credit's due

Because credits appear in A/R management reports as negative amounts (i.e., you owe money to someone or it's been collected before you've rendered the service), they distort the picture of how much patients or payers really owe you.

In other words, credits deflate receivables. In so doing, they make your financial performance look better than it really is. To make matters worse, most billing systems list credits as "current" accounts, that is, less than 30 days old. A high number of credits will make the current category of A/R proportionately higher than other categories (31 to 60 days, 61 to 90 days, etc.).

To better understand how you're managing ageing accounts, ask your business office to report key performance indicators - days in A/R, total A/R and aged trial balance - as net of credits. Be aware that most industry benchmarks of A/R include credits rather than netting them out.

When you find a legitimate credit for a service that was rendered to a Medicare or Medicaid patient, process the refund within 60 days to comply with the timeliness suggested in the Office of the Inspector General's Compliance Program Guidance for Third Party Medical Billing Companies.

This guidance states, "An overpayment is an improper or excessive payment made to a healthcare provider as a result of patient billing or claims processing errors for which a refund is owed by the provider... Billing companies should institute procedures to provide for timely and accurate reporting to both the provider and the health care program of overpayments (Federal Register, Vol.63,No.243.1998)."

Refund fundamentals

Many practices follow the 60 day guideline for making refunds to privately insured or uninsured patients with one exception: when the patient is expected to return for additional services.

However, don't hold on to any credit for more than a year beyond the final encounter. Most practices, however, just hold on to small balances that are too expensive to refund. Don't process refunds of less than $10 unless the patient requests the refund.

Insurance companies are notorious for finding and taking back overpayments during retrospective audits conducted months or years after the claims were paid. Sometimes, they ask for the refund; other times, they just subtract the money from other payments they owe you.

State law may be your first line of defense against these takebacks. Many states prohibit payers from taking refunds more than a year after the date of claims adjudication. (Contact your state's department of insurance to learn more.) Your next defense is the contract with the payer - insist that the period in which the payer may request or take back an overpayment matches the period you are allowed to appeal claims payment denials (often a year).