A reader brought to my attention that I've never touched on the topic of accounts receivable in my management tips. I'm not sure why that's the case, but maybe there is something Freudian about it since the topic is not my favorite, but I'll share my thoughts in this tip article.
Here is an excerpt of the email that I received: Knowing that none is good, but some will occur (especially with insurance carriers trying to deny as much as possible), what is an 'acceptable' amount for accounts receivable, especially over 90 days, or over 120? Try as we might these just seem to keep creeping up. How can we keep from having the AR balances creep up to unacceptable levels and is there anything else we can do besides write off long overdue balances?
You should be seeing an accounts receivable report on a monthly basis, which is typically very simple to produce from your practice management software. The report should show the detail of the amounts owed to you with columns indicating the aging of the balances. The report should be divided by balances owed by patients and those owed by insurance plans.
I'm not aware of any national benchmarks for optometry on accounts receivable, but a good rule of thumb is that the total amount owed to the practice should be less than the average 30 day gross revenue. For example, a practice with an annual gross of $600,000 has a monthly gross of $50,000. This would roughly be the maximum I'd want to see as the total AR from all sources of payment.
If a practice were to bill all of its fees for services and products and if all those fees were paid in a typical 30 day business cycle, the total due would be the 30 day gross revenue. In reality, most practices do not bill all the fees, but many are paid directly at the time of service. That would tend to drive down the total AR. Counteracting that factor, however, is that many payors take longer than 30 days to pay. The maximum accounts receivable for your practice will vary based on how much insurance billing you do. I've seen many practices that have AR less than 50% of one month's gross revenue.
Consider what's in there
As you analyze your accounts receivable and ponder how nice it would be if everyone simply paid what they owed, realize that part of the total of balances due is for products not dispensed yet. Consider your office payment policy. Many practices allow the patient to pay a 50% deposit and pay the balance upon delivery. If the total fees are presented properly at the time of the order, most patients will pay the whole balance right away, but the success of this varies.
If some of the eyeglass and contact lens orders that are in process at the lab or sitting in a drawer waiting for pick-up have not been paid in full, those balances are included in the accounts receivable report. This portion is not technically really due yet if the office policy is to require payment in full at the time products are delivered. This can be a significant part of the AR owed by patients. 50% of eyeglass sales can represent lots of dollars. In the case of contact lenses, many offices accept reorders for disposable lenses over the phone with no deposit, so the entire balance appears to be part of accounts receivable.
What to do about past due AR
Well, the best thing is to prevent AR from becoming past due by tightening up your payment policy and working only with insurance plans that have a good track record of processing and paying claims. I see no reason to offer any credit or payment plans directly to patients in this age of credit and debit cards. If the patient can't obtain a usable debit card then you don't want to offer that person credit either. There are also national finance companies that will work with your office to finance large ticket items for patients, but once again, you're practice is not extending the credit.
If you have an old policy of offering payment plans after products are dispensed, I'd train your staff to stop it cold turkey. If questioned (and it won't be as often as you might think), just respond with: yes, we used to offer a payment plan but we had to discontinue it due to the high cost of collection. We are happy to accept major credit cards, so you can still pay for the items over time. A few patients may grumble a little but they will generally comply. It's time for tough love!
As for third party accounts receivable, all you can do is select plans carefully and verify benefits before the appointment. Many offices wait until the day of the appointment or until the patient is in the office. I think it's very important to get the insurance information over the phone and confirm benefits the same day the appointment is scheduled. If the benefits are not authorized, your staff can call the patient back and let them know what the fee will be and that it will be due at the time of the visit. Never position the call in a way that implies the patient can't come in for eye care, only that the fee will have to be paid out of pocket.
I'll acknowledge that calling patients and insurance companies about past due balances is one of the least pleasant jobs in the practice, but somebody's got to do it and get good at it. It's tempting to try to outsource this task to a collection agency or billing service, but the best chance of collection is for your office to manage it in the early stages.
Here are some points to consider:
- Appoint an employee to be in charge of accounts receivable.
- Schedule regular meetings to review the AR report and to monitor efforts and progress.
- Develop a plan as to when the first call should be made and for subsequent calls and written notices. The older the debt, the less chance of collection. If a person can't be reached by phone, written letters are a must. Develop form letters so they are automatic.
- Start off in a friendly manner with patients, assuming a simple oversight was made. Be careful, because the oversight could have been made by your office! Obtain acknowledgement that the amount is owed and then come up with a plan for payment.
- If the patient has any dissatisfaction with products or services, take steps right away to correct it. Speak with the manager or doctor.
- Keep a written log of calls and promises made and follow up on them in a timely manner.
- Charge interest on past due amounts. Follow your state regulations in this regard, but it's not that difficult. People in financial trouble ignore bills that don't charge interest. You may also be able to pass the costs of collection and legal fees on to the debtor if they were notified in advance.
- Find out about rejected claims from vision and medical plans as soon as possible, correct the error and resubmit. This requires a diligent review of claim status statements, but your accounts receivable aging report is also a good guide.
- Calling provider relations for assistance with insurance claims may provide some benefit and must be attempted, but it can be frustrating.
If all efforts to collect fail, you may consider referring the account to a collection agency or local attorney, although I find the success rate at that point is low. Having a letter sent from an attorney's office may have enough punch to stimulate action and this approach is usually fairly low cost. The threat of damaging a person's credit rating may provide some leverage. Taking a person to small claims court is an option, but I don't think it's good for the practice image and it's a huge drain on time.
Your only recourse with past due insurance balances is to determine the reason for the rejection and then follow up. You may be able to appeal the claim, or if the service is not covered you may be able to bill it to the patient, depending on the provider contract. Of course, the chances of collection from the patient are often slim after the many days the claim was in processing. At least try to learn from the experience and avoid it in the future.
In the end, there may be nothing else to do but write off the bad debt. Speak to your tax professional about how to claim that as a tax deduction.