Hospitals and other major providers around the country, especially in rural and small community settings, continue to have mounting bad debt. Several factors have been cited for contributing to this situation including pressures on the patient like growing deductibles, lack of financial understanding and failure to make application for charity care. On the hospital side, several of these factors are shared since institutions and providers lack informing their customers on how to manage the healthcare minefield.
The Practice Of Bad Debt
Unlike other consumer credit portfolios like credit cards, mortgages, public utilities and telecom, healthcare and particularly hospitals are shunning a heavily used option – selling the aged bad receivables to a debt buyer. This practice dates back thirty years where a second and third market exists for collecting on old receivables while the initial provider takes a discounted amount in cash, rather than simply watch them sit on their books.
This legal and legitimate practice was put in place for a reason and the other industries mentioned have been using it to create cash for other purchases and investments in their business. So while hospitals hemorrhage from the volumes and the total outstanding receivables grow, the option is often ignored. In fact, attempts by several firms to educate CFOs and Revenue Cycle experts are also largely thwarted. Free webinars, offers to speak at conferences and countless phone calls and emails to chat in person are left hanging.
Why? Part of the challenge is the lack of knowledge depth in this domain amongst the healthcare community. Too many are worried about reputation management and tactics by these investors to collect. The truth, however, these portfolio investors and their collection talent are very similar to those collecting receivables for the hospitals today. They understand and abide by the laws of the land and provide those that use them a constant flow of cash.
Some CFOs and Revenue Cycle managers say they do an effective job in-house and with third party collections relationships already in place. There is an important tool in the collections business called a capacity plan that helps manage the number of people with the number of accounts to collect. Unfortunately, the volume of aging accounts outruns the number to collectors available on a monthly basis. Therefore, many aging accounts get very little, if any, attention on a monthly basis. These accounts are ripe for selling while they still have value.
Identifying and valuing these accounts is what a debt buyer can provide – many times with a quick review of the accounts and discussion over the phone. It is time for CFOs and RCM managers to pick up the phone or drop and email to a debt buyer today and get the information needed to create cash for your hospital.