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Sara S. Lankford, Carter Lankford CPAs

Wilt thou seal up the avenues of ill? Pay every debt, as if God wrote the bill!

When Ralph Waldo Emerson penned that verse, it's obvious he wasn't thinking about physician practices. That's because, even when a physician heals a patient's "avenues of ill," sometimes that patient doesn't pay the bill. Ask physicians and practice managers to name one of their most frustrating — and trickiest — business problems, and you'll hear "delinquent accounts" or "bad debt" time and time again.

"It's always been a challenge for them, how to handle bad debt," said Sara S. Lankford, who along with partner Lucy R. Carter owns Nashville-based Carter Lankford CPAs, specializing in healthcare accounting. In fact, Lankford predicted that the industry will see bad debts rise as patients' deductibles and co-pays ratchet up and the uninsured population increases.

According to a 2005 survey of physician practices conducted by the Medical Group Management Association, 92 percent of the practices that responded contract with a collection agency for past-due patient accounts. But what steps should practices take first? When should delinquent accounts go to collections? How much control should physicians retain over these accounts?

First of all, Carter said practices need a solid system for collecting co-pays and deductibles at the time of service. "Those can certainly turn into bad debt. Having that process in place is extremely important," she said. "The co-pays, in many cases, are the profit in that office visit. The insurance may cover the cost of providing the service, but the real profit to the doctor is in the co-pay."

Many practices also need to step up their efforts to verify a patient's insurance coverage before the time of service, Carter recommended. For example, insurance information should be gathered from the patient over the phone when the appointment is made, and, if possible, patients should be notified about a potential insurance problem before they arrive for the office visit. Lankford added that, although it will take some time, physicians need to be actively involved in helping patients navigate an insurance denial – for example, ensuring the proper paperwork has been filed to make the case for medical necessity. Finally, patients without insurance should be fully informed about the potential charges and an agreement reached about how they will pay.

When all that fails, practices should have in place a typical process to contact patients who owe money. Mina Vidal, director of operations for STAT Solutions, a Nashville physician practice service organization, said, "Usually, it's a minimum of two statements that the patient is sent and two internal collection letters. Those letters are basically just requesting payments from the patient. In these letters, you definitely make an effort to let them know that you're willing to set up a monthly payment plan that they can afford if they can't pay the entire balance all at once." Also, patients who arrive for an office visit and have an outstanding balance should be asked to settle the account or be required to sit down with an office representative to determine a payment plan.

Eventually, a collection agency may be the only alternative. At STAT Solutions, that's one of many services offered to the company's physician clients. "The way we run our agency, the physician has final say on every single account that goes to collections. The physician is provided the information on the account – what the balance is, how old the balance is, what attempts were made to collect on the account. ... Then the physician would decide," Vidal explained, adding that a general rule of thumb is to send an account to collections after 120 days. The general fee for medical collections, which because of HIPAA is more complicated than collecting most debts, is 25 to 35 percent, depending on the difficulty encountered and whether the patient has to be taken to court.

Lankford and Carter agree that physicians should know which patient accounts are going to collections. Lankford said an interim option might be a "pre-collect" step now offered by many agencies. It's a less aggressive communication before credit bureaus are notified of the bad debt.

Vidal noted that practices walk "a fine line" when turning patients over to collections. "You have to do your best to collect and recover on whatever debt people owe. But, at the same time, your practice depends on word of mouth, and your reputation depends on how the collection agency deals with your patients. So it is very important that, if you are going to use a collection agency, you do a good job finding the right one," she said.

When hiring a collection agency, all three experts encouraged first talking to physician colleagues for recommendations. What do they like and dislike about the agency they use? How often do they get complaints from patients about the agency's practices? An agency representative should visit the physician in person to review the agency's policies and present the agency's credentials. Find out if the agency is a member of ACA International, the trade association for collection agencies, which enforces a code of ethics by which its members must abide.

Finally, Vidal had this advice: "I think one thing that's really important for physicians to know is the best way to avoid having to go through all of this is to just do a really good job of verifying insurance upfront and to make sure that they collect on the co-payment right at the counter during the time of service."

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