By: Lynn A. Degrote
The healthcare industry wrote off more than $20 billion in bad debt in 1999
alone, according to one estimate. Bills frequently do not reach patients because healthcare
organizations do not have accurate patient contact and billing information. Incorrect billing
information can be easily and inexpensively corrected by using Internet-based search tools.
Healthcare accounts receivable staffs are using these tools to improve the patient experience and
the bottom line with no capital outlay, minimal staff training or workflow change requirements, and
low cost.
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Although technology has made gathering and sharing information quicker and
easier; bad debt and increasing accounts receivable continue to affect the financial performance of
healthcare organizations, physician practices, and laboratories across the country The healthcare
industry's write-off to bad debt has been estimated to be more than $20 billion in 1999. (a)
There are two major causes of bad debt that have nothing to do with a
patient's unwillingness or inability to pay One cause is incomplete or inaccurately entered patient
information, such as home address, telephone number, and Social Security number. The other cause is
the increasing mobility of the population. When patients move without giving their healthcare
provider a forwarding address, or the forwarding order at the post office has expired, bills are
returned.
Collecting on bad debt is particularly difficult for healthcare organizations
that do not use the same processes, procedures, and tools that collection agencies use to find
patient contact information. According to the American Collectors Association, the average recovery
rate is 6.5 percent for hospitals and about 7.6 percent for clinics. (b)
Even a small amount of bad debt can have a significant financial impact on a
healthcare organization. For example, if a hospital has $300 million in annual revenues and bad
debt of 5 percent, its write-offs are $15 million per year. For this organization, reducing bad
debt by even 1 percentage point would yield an annual cash benefit of $3 million. Between October
1999 and September 2000, U.S. hospitals' total uncollectible income averaged 5.7 percent of their
total revenue, of which bad debt made up 4.1 percent and charity care accounted for 1.6 percent.
(c)
With the rise of technology and availability of Internet access, healthcare
organizations that use Web-based search tools can reduce returned mail, bad debt, and accounts
receivable simply by identifying and correcting inaccurate billing information.
Internet search tools gather patient contact information, such as address,
phone number, and Social Security number; from national databases. On-line search companies with
direct access to national databases can help accounts receivable staff find information easily
Using the Internet to access this public information is a cost-effective, labor-saving way to
correct inaccurate patient information. For example, using a search tool costs about $5 to collect
on a $1,000 account, compared with a collection-agency cost of $200 to $500.
Selecting the Tool
Although patient contact information is available on the Internet, finding the
best search tool for a healthcare organization can pose a challenge. The best way to evaluate an
on-line search tool is to conduct actual searches and then test the results. For example, by
readdressing a stack of returned mail using addresses through on-line searches, and then measuring
patient responses to the remailing, healthcare billing staff will gain more knowledge of the tool's
reliability, while determining how the service will fit into their workflow.
Payment options for on-line search services vary greatly among products,
including a monthly fee, a fee-per-search payment, and payment only for successful searches. Costs
typically depend on a healthcare organization's volume of admissions; however, the cost per search
can range from $0.20 to $39.95, depending on the vendor and who is performing the search. A 300-bed
hospital with 8,000 inpatient and outpatient visits per month that aggressively searched on all
patients who had not been to the facility within the past three months might spend between $6,000
and $7,000 per month ($72,000 to $84,000 per year). Each method has benefits and drawbacks that
organizations should address. For example, a monthly fixed-fee approach will provide a predictable
cost stream, but typically uses older data to control costs and, therefore, the data the healthcare
facility receives are less accurate. The fee-per-search vendors will have a low, per-search cost,
but will charge an organization whether or not a response is rece ived. The
fee-for-successful-search vendors charge clients only for giving them additional data, but the
monthly charges will be less predictable.
It also is important to select an on-line search service provider that will
train the staff who will be using the service. As new employees join the collections efforts and
current users develop proficiency with the service, the service provider should offer training that
will ensure employees know how to obtain the most accurate information. A focused, innovative
organization can implement this service into its work flows within a week and can be using the
product to its full value shortly thereafter. An initial training session typically takes less than
an hour; weekly refresher training sessions typically take a half hour.
Customer support is another important feature of an Internet-based search
tool. Before signing up for a service, potential users should find out how customer questions are
handled. Customer support should be available via phone or e-mail, and customers should not have to
wait long for responses to their questions.
To optimize return on investment, healthcare organizations should determine
how they expect the service to meet their needs. For example, they should determine whether they
want to spend less time searching for information on each account, reduce the number of days in
accounts receivable, or decrease the number of accounts sent to collection agencies.
Before implementing a search tool, healthcare organizations first should
analyze their volume of returned mail to determine how often searches should be conducted so they
then can establish a return-on-investment baseline. Next, they should assess how long staff is
spending on each search. Because search tools can be precise, the most accurate information
typically is found in the first three minutes. Healthcare organizations also can benefit from
having admitting and emergency department staff trained to use a search tool to verify patients'
addresses, phone numbers, and Social Security numbers. Such verification would ensure that accurate
information is documented at the time of check-in.
Case Example
Like other healthcare organizations, All Saints Health System in Fort Worth,
Texas, prides itself on putting patients' needs first. Recently, however, the system found that it
often was discharging patients without obtaining accurate and complete billing and contact
information. Last year, Barbara David, self-pay collector at All Saints Health System, noticed an
increase in returned mail, as well as incorrect phone numbers and addresses on patients' accounts.
At one point, she was receiving more than 200 pieces of returned mail per week. During that time,
she tried to find correct contact information for the returned mail by calling information for
telephone numbers and using a paper directory of residents in the Fort Worth area. She made nearly
250 calls per week to directory assistance. At $1 each, those directory-assistance calls cost the
system an average of $1,000 per month.
Despite her detective work, David could not locate all the patients,
particularly those who had unlisted phone numbers. She even called the post office to see if any of
the patients' addresses had the incorrect zip codes. Often, she would learn that the address was
incorrect. As a last resort, she would contact the patient's place of business or next-of-kin.
Using this tedious, time-consuming process, she spent up to 20 minutes on each piece of returned
mail.
Most of David's time was spent searching for information on self-pay patients,
who typically were uninsured and likely received emergency care. In about 90 percent of self-pay
cases, contact information gathered upon admittance was incorrect or incomplete. A recent survey
found that hospitals that aggressively focus on inpatient collections of money owed by self-pay
patients have lower amounts of bad debt than those that do not. (d)
Due to the increase in returned mail and the difficulty in tracking down
accurate billing information, All Saints Health System analyzed Internet-based search tools,
choosing one that met its cost and benefits expectations.
As a result of implementing an Internet-based search tool, David has decreased
the number of accounts she sends to a collection agency by 30 percent. In addition, she knows that
if missing information cannot be found within three minutes, the search probably will not produce
results, so she then can forward the account to a collection agency.
David uses her Web-based search tool about three hours each day to gather
information on an average of 60 accounts per day Besides spending considerably less time per
account, she is able to find correct information on about 70 percent of the people she is searching
for, compared with 30 percent before using a search service. She receives less than half the amount
of returned mail that she used to receive.
Conclusion
Healthcare organizations should try to limit the number of accounts they send
to collections professionals.
When they send a returned bill to a collection agency because they do not have
the means to redirect the bill, they lose money. Because collection agencies typically keep an
average of 35 percent of the amount collected as their fee, healthcare organizations are likely to
realize a cash benefit from first performing their own search to correct inaccuracies or find
missing information.
Internet-based search tools offer an effective means to conduct such a search
and thereby reduce bad debt. When selecting an Internet-based search tool, healthcare organizations
should weigh their options, make an informed choice, and fully use the benefits that Internet-based
search tools have to offer. Although Internet-based search tools will not eliminate bad debt, they
improve the chances that healthcare organizations will be able to recover money they are
owed.
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