Internet-based search tools can help reduce bad debt - Business

Healthcare Financial Management, June, 2002 by Lynn A. Degrote

The healthcare industry wrote off more than $20 billion in bad debt in 1999 alone, according to one estimate. Bills frequently do not reach patients because healthcare organizations do not have accurate patient contact and billing information. Incorrect billing information can be easily and inexpensively corrected by using Internet-based search tools. Healthcare accounts receivable staffs are using these tools to improve the patient experience and the bottom line with no capital outlay, minimal staff training or workflow change requirements, and low cost.

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Although technology has made gathering and sharing information quicker and easier; bad debt and increasing accounts receivable continue to affect the financial performance of healthcare organizations, physician practices, and laboratories across the country The healthcare industry's write-off to bad debt has been estimated to be more than $20 billion in 1999. (a)

There are two major causes of bad debt that have nothing to do with a patient's unwillingness or inability to pay One cause is incomplete or inaccurately entered patient information, such as home address, telephone number, and Social Security number. The other cause is the increasing mobility of the population. When patients move without giving their healthcare provider a forwarding address, or the forwarding order at the post office has expired, bills are returned.

Collecting on bad debt is particularly difficult for healthcare organizations that do not use the same processes, procedures, and tools that collection agencies use to find patient contact information. According to the American Collectors Association, the average recovery rate is 6.5 percent for hospitals and about 7.6 percent for clinics. (b)

Even a small amount of bad debt can have a significant financial impact on a healthcare organization. For example, if a hospital has $300 million in annual revenues and bad debt of 5 percent, its write-offs are $15 million per year. For this organization, reducing bad debt by even 1 percentage point would yield an annual cash benefit of $3 million. Between October 1999 and September 2000, U.S. hospitals' total uncollectible income averaged 5.7 percent of their total revenue, of which bad debt made up 4.1 percent and charity care accounted for 1.6 percent. (c)

With the rise of technology and availability of Internet access, healthcare organizations that use Web-based search tools can reduce returned mail, bad debt, and accounts receivable simply by identifying and correcting inaccurate billing information.

Internet search tools gather patient contact information, such as address, phone number, and Social Security number; from national databases. On-line search companies with direct access to national databases can help accounts receivable staff find information easily Using the Internet to access this public information is a cost-effective, labor-saving way to correct inaccurate patient information. For example, using a search tool costs about $5 to collect on a $1,000 account, compared with a collection-agency cost of $200 to $500.

Selecting the Tool

Although patient contact information is available on the Internet, finding the best search tool for a healthcare organization can pose a challenge. The best way to evaluate an on-line search tool is to conduct actual searches and then test the results. For example, by readdressing a stack of returned mail using addresses through on-line searches, and then measuring patient responses to the remailing, healthcare billing staff will gain more knowledge of the tool's reliability, while determining how the service will fit into their workflow.

Payment options for on-line search services vary greatly among products, including a monthly fee, a fee-per-search payment, and payment only for successful searches. Costs typically depend on a healthcare organization's volume of admissions; however, the cost per search can range from $0.20 to $39.95, depending on the vendor and who is performing the search. A 300-bed hospital with 8,000 inpatient and outpatient visits per month that aggressively searched on all patients who had not been to the facility within the past three months might spend between $6,000 and $7,000 per month ($72,000 to $84,000 per year). Each method has benefits and drawbacks that organizations should address. For example, a monthly fixed-fee approach will provide a predictable cost stream, but typically uses older data to control costs and, therefore, the data the healthcare facility receives are less accurate. The fee-per-search vendors will have a low, per-search cost, but will charge an organization whether or not a response is rece ived. The fee-for-successful-search vendors charge clients only for giving them additional data, but the monthly charges will be less predictable.

It also is important to select an on-line search service provider that will train the staff who will be using the service. As new employees join the collections efforts and current users develop proficiency with the service, the service provider should offer training that will ensure employees know how to obtain the most accurate information. A focused, innovative organization can implement this service into its work flows within a week and can be using the product to its full value shortly thereafter. An initial training session typically takes less than an hour; weekly refresher training sessions typically take a half hour.