Managing Medical Receivables In Healthcare

By PayrHealth

SUMMARY: The following article reviews what Medical Receivables (MR) are and why careful management of these assets is the lifeblood of any medical practice. PFD Capital Partners, LLC not only is in the business of helping healthcare providers in removing difficult to collect MR Personal Injury claims from the ledgers, but we also work to help medical professionals in understanding suggested best practice ideas for streamlining the PR process.

Improving your accounts receivable in healthcare requires active management of your revenue cycle and addressing any process inefficiencies. Dedicating efforts towards optimizing administration, running AR reports, and tracking claims helps providers in the healthcare practice recover what otherwise would be lost revenue.

Should aging accounts receivable begin to pile up, providers may wish to investigate outsourcing reimbursement collection to a revenue cycle management (RCM) company. Let’s dive in.

What is an Account Receivable?

A medical account receivable refers to the outstanding reimbursement owed to providers for issued treatments and services, whether the financial responsibility falls to the patient or their insurance company. Healthcare providers must stay on top of efforts to collect reimbursement for accounts receivable.

The longer an AR goes unpaid, the less likely healthcare providers receive payment at all—after 120 days, clinicians can only expect ten cents per dollar owed.

The AR cycle starts when healthcare providers bill a patient or their insurance company. Despite indicating money owed, ARs do not qualify as assets. Providers typically classify accounts receivable in terms of their age:

• 1-30 days
• 31-60 days
• 61-90 days
• 91-120 days

Failure to collect reimbursement lengthens the AR cycle and risks revenue leakage (i.e., situations where issued care is not reimbursed and the provider suffers a loss).

The Consequences of Revenue Leakage

Excessive revenue leakage poses a severe risk for U.S. healthcare providers. Many hospitals already operate on negative margins that fall short of their income by hundreds of millions of dollars. Hospitals located in rural areas are closing at their highest rates since 2005.

A 2018 survey conducted by Fibroblast of C-suite executives in healthcare revealed that over 40% of respondents’ organizations lose 10% or more to leakage. Perhaps more frightening remains that 23% of respondents do not know the leakage costs their organizations bear. Providers cannot afford long periods of hemorrhaging revenue.

Revenue Cycle Management (RCM)

Whereas the AR cycle begins with billing, the longer revenue cycle begins with patient registration and scheduling their first appointment. The AR cycle is the final segment of the revenue cycle. Issues that may occur throughout the revenue cycle, even as early as collecting patients’ personal and insurance information, threaten the success of both.

Revenue cycle management (RCM) seeks to streamline the process, identify areas to make it more efficient, and minimize instances where mistakes can occur. RCM requires ongoing engagement, and sophisticated efforts may leverage data analytics.

Ongoing Challenges to Achieving Short AR Turnaround—the ACA

Following the Affordable Care Act’s passing in 2010, many Americans signed up for high-deductible plans to reduce their monthly expenditures. However, this choice leaves many patients responsible for a higher percentage of their medical bills.⁵

Recouping reimbursements from individual patients places a more significant burden on medical providers’ AR processes. Providers must wrangle with missed collections during visits, individuals delaying payments due to financial hardship, the unpredictability of AR duration,  and more.

How to Reduce Days in Accounts Receivable

Evaluating your processes remains one of the easiest ways for many medical providers to improve their accounts receivable. When process inefficiencies and oversights go unaddressed, ARs begin to accumulate, age and turn into revenue leakage.

Getting it Right the First Time

It’s critical that providers properly collect patient information and submit correct claims on their first attempt. Inaccuracies and mistakes set providers up for insurance claim denials and lengthed AR cycles from the start.

Unverified insurance poses the biggest threat to medical claim reimbursement.

According to Gary Marlow, Vice President of Finance at Beverly Hospital and Addison Gilbert Hospital: “From a revenue cycle perspective, getting the most accurate information up front starts with patient scheduling and patient registration…that provides the groundwork by which claims can be billed and collected in the most efficient and effective manner possible.”

Set Payment Expectations and Collect Patient Portions Promptly

Providers can reduce patients’ delinquent payments by setting the expectations for their financial responsibility ahead of scheduled visits. Additionally, providers who do not make a concerted effort to collect patient copays before patients depart care settings risk letting revenue walk out the door with them. When patients do not pay immediately following appointments, providers are 20% less likely to collect reimbursements.

Collecting immediate payment from patients helps quickly bring one portion of the AR cycle to an end and eases tracking efforts further along the AR cycle. Integrate prompt collection with release processes, as nearly half of all patient financial responsibility ends up written off by hospitals as bad debt.

Even if patients cannot cover their portion of the bill directly after receiving care, providers should investigate offering partial payment plans to lock up some reimbursement and establish an easily tracked schedule.

Charge Entry

Following a patient visit, providers take on the administrative burden of determining the exact charges for the care provided before submitting and tracking claims through the end of the AR cycle. Charge entry in medical billing refers to the process clinicians follow for submitting detailed lists of the services patients receive, which must be coded for claims submission. A single healthcare provider must keep track of thousands of healthcare codes for various procedure charges.

Inaccurate charge entry impacts providers’ bottom lines. Research estimates that up to 1% of net charges are captured incorrectly due to discrepancies between documentation and billed services or missed charges. While 1% may seem like an acceptable loss, a hospital expecting $250 million in yearly revenue stands to lose $2.5 million due to administrative errors.

If charges are miscoded, providers leak revenue due to underpayments and risk audit penalties when overcharging payors and patients.

Claims Submission

Once providers have captured and coded charges, they must submit claims to payors and patients to collect reimbursements. Charge entry errors and patient information inaccuracies on submitted claims lead to claim denial and lengthened AR cycles. On top of bridging the lag between care and reimbursement, resubmitting claims increases staff expenses.

Submitting claims for Medicare reimbursement becomes even more complicated should patients have additional insurance coverage. Providers must monitor:

• The patient’s supplemental insurance information and whether the coverage remains active
• That the supplemental insurer received the correct bill from Medicare
• The list of expenses not covered by Medicare and the resubmission process for those charges
• Patient collections for the remaining amount not covered by their Medicare and supplemental deductibles.

AR Tracking

Tracking your accounts receivable every month gives providers the information necessary to identify those at risk of becoming leaked revenue and contributing to bad debt. Providers can compare ARs over time to recognize dangerous trends early and determine any outstanding reimbursements that may prove easy to close.

Providers should analyze their AR data to determine aged debtors and collection rates. These two metrics provide an overview of providers’ AR cycles and whether they are trending in the right direction. Aged debtor reports reveal how many ARs exist within each age group. Collection rates demonstrate how successful providers are at converting ARs to reimbursements in a given accounting period.

When tracking accounts receivable, providers should run reports to determine their average AR cycles.

Is there a delay between providing care and invoicing? As longer ARs carry a higher risk of becoming forgotten by patients and going unpaid, starting the cycle as quickly as possible can keep them from aging beyond collection. Determining how long the different stages of the AR cycle take can help providers identify where to make improvements.