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How Much Are You Paying Your Collection Agency?

Posted by Chris Heckler on May 19, 2015 8:00:00 AM
Chris Heckler

past due

While patient health is of primary concern, hospital management can't overlook the essential business side of running a hospital, which needs every incoming dollar to survive. In 2012 alone, U.S. hospitals provided $45.9 billion in uncompensated care, only 25 percent of which resulted from uninsured patients. What’s more, the average collections recovery rate for hospitals in 2013 was a mere 15.3 percent, according to ACA International.

However, those same statistics show a higher debt recovery rate (21.8 percent) when collection is enacted by non-hospitals. Unfortunately, hospitals can use up to six different collection agencies on average—a clear case of too many cooks in the kitchen. Between the use of so many agencies and not having the necessary staff to handle it in-house, hospitals too often continue bleeding money instead of collecting it. 

These three tips can help you develop a better understanding of how collection agencies function—an understanding essential to keeping your facility in the black.

1. Know the Different Collection Types

When it comes to hospitals, there are three primary collection types:

  • In-house collection: Hospitals can handle the collection process internally, typically handling the issue within 30 days.
  • Early out: For debts that are less than 60 days overdue, hospitals may bring in an outside agency. Normally, these agencies are compensated with a percentage of the collected debt. 
  • Long-term: If short-term debts remain unpaid, early out collections agencies pass the debt on to long-term collections. These agencies purchase the debt for pennies on the dollar, which allows them to offer extended payment options to patients.

2. Understand the Relationship Between Patients & Collection Agencies

Since debt collection is already a complex issue, using more than just a couple of collection agencies increases the chances that patients will get confused, debts will get mishandled or a bad customer experience occurs. Most patients don’t realize collection agencies are outside entities. Instead, they view efforts of collection as an extension of the hospital. Intrusive, aggressive or otherwise inappropriate collection tactics will reflect poorly on your facility.

While hospitals may provide necessary services, patients have choices. Maintaining a positive patient relationship is a must, and that can mean taking critical steps to simplify or clarify the collections process.

3. Put a Plan in Action

Regardless of patients' interpretations of debt collection, outstanding medical bills still need to be paid. But the massive volume of individual patient debts often mandates using multiple collection agencies. So what’s the answer?

Expecting the CFO to coordinate the efforts of all existing collection agencies isn’t realistic. Instead, consider having no more than two agencies at the early out and long-term stage of the process. These agencies must be thoroughly vetted.

  • Look for a consumer rating that indicates a high level of satisfaction. While no one’s thrilled about being contacted by a debt collector, the experience can still range from helpful to harmful. The more positive the interaction, the more likely that your percentage of debts collected will increase. 
  • Speaking of percentage of debts collected, do the prospective agencies feature some kind of performance rating? Do they guarantee a specific collection rate? Look for an agency that has an excellent record along with the professional chops to deliver great results.

4. Recovery and Fees

Each stage in the process will have a different set of vendors that specialize in that stage and larger vendors will have the ability to tackle all of the stages. Once you've narrowed down your search to reputable vendors, there are two variables that you need to look at: recovery rates and fees.

Early out collections typically recover between 25%-35% of your Accounts Receivable and shouldn’t charge you more than 10% of what they collect.

For long-term debt collections (>60 days), stages are typically broken out in 60-90 day increments (i.e. 60-120 days, 120-180 days, etc.). The estimated recovery amount will be based on a tiered schedule. Debts collected closer to the 60 day mark will start around 30% recovery and then step down from there with debts around a year old only getting about 10% recovery. 

The fees work in reverse for these types of debts. If a debt is collected closer to the 60 day mark, the fee will be no more than 10% of the collected amount. For debts collected a year later, the fee would be around 25%-30% of the collected amount.

The Future of Healthcare Debt

Medical bills are the biggest cause of U.S. bankruptcies, according to CNBC. Of the 32 million American adults who were contacted by a collection agency in 2012, 52 percent were contacted regarding medical bills.

Effectively collecting payment for healthcare services is critical in managing spiraling healthcare costs. Some hospitals collect payment upfront in an effort to reduce administrative costs related to bill collections later on. I think this is the best tactic for self-pay patients.

Healthcare debt collection has become a serious enough issue that government agencies such as the IRS and Congress are involved, at least with regards to not-for-profit practices.

Will this trend continue? I believe it will, but it’s hard to say in this ever-changing industry we work in. In the meantime, taking smart steps to understand the process of healthcare debt collection can be one of the many ways hospitals can maximize savings when it comes to dealing with outside vendors.

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