04/21/08  Another Option For Managing Receivables
From The HFMA Wants You To Know Newsletter
Published: April 16, 2008

Another Option for Managing Receivables

The pressure on hospitals to optimize revenue is more intense than ever, with stagnant payment and rising costs. At the same time, the growing uninsured population and increases in deductibles, co-pays, and co-insurance add to the receivables that a hospital is challenged to manage. Yet aged receivables may also be a way to optimize revenue. Some hospitals have begun to consider an option that other industries, such as credit card services, have been using for years: selling bad debt.

Those pursuing this strategy for the first time should keep in mind the following advice, according to the recent HFMA report, Getting Rid of Bad Debt Blues: Another Option When Managing Receivables, sponsored by CarVal Investors.

Select only one or two blocks of debt to start. If your experience is successful, then consider expanding the program to all debt of a certain age. By dipping a toe into selling debt, the hospital can test the relationship with the buyer and examine the effects, if any, that the strategy will have on its business office, such as changes in patient call volume. Optimal candidates for sale typically are "warehoused" accounts, or those that have made their way through an internal process and one or more collection agencies and are receiving much, if any, attention. Avoid sale of receivables that may have inaccurate patient data due to age or that have not been appropriately "scrubbed" to remove accounts of those to whom collection communications would be inappropriate, such as patients who have declared bankruptcy, are deceased or incarcerated, or who are eligible for charity care. It also is in the best interest of the hospital to retain those accounts where a payment plan with the hospital or agency has been stabled or where the hospital or its agency has filed a compliant on the account in a court of law.

Understand the value of your portfolio. A hospital should be able to get a general gauge for the value of a debt portfolio by giving a potential buyer the same basic information about the accounts that its collection agencies receive. For complete pricing, however, the hospital should research experienced, appropriately qualified buyers and then conduct a formal request for proposal process among those deemed with the best potential to meet its needs. Pricing depends on a number of factors, including account type, age of accounts, payer mix, geographic region and demographics, average account balance, previous agency liquidation, and resale provisions.

Seek terms that protect your interests. In addition to price, criteria when evaluating bids should include the buyer's willingness to accept contractual allowances granting the hospital necessary control. For example, hospitals may seek the ability to call back accounts at any time for any reason without a cap on quantity or the buyer's refusal to resell accounts. The hospital may choose to do a one-time sale of archived accounts or a forward-flow arrangement. No matter the arrangement, the purchase and sale contract should specify the collection methods allowed by the debt buyer, such as whether the buyer can place liens or send accounts to a credit-reporting bureau, and how the buyer will respond to questions from patients regarding the accounts.

Communication with the community is a crucial component of billing and collection. You can find out your peers' successful practices from the HFMA Roundtable Your Communication Strategy for Effective Receivables Management. And HFMA has a wealth of other tools and insights in the Billing and Collecting section of HFMA's Resource Library.

Ultimately, your hospital's revenue cycle will only be as effective as your staff's ability to perform critical tasks such as submitting clean claims to avoid denials. HFMA offers a four-hour in-depth training package, Mastering the Revenue Cycle, that hospitals can implement themselves covering roles and responsibilities, solutions to common roadblocks, steps to submitting clean claims, an overview of the UB-04, and steps to eliminate and manage denials.

Finally, the number one concern for the hospital revenue cycle is Medicare payment. Upcoming Medicare payment changes will likely involve even more requirements for quality reporting, more incentives for quality care, and refinements to DRG weights. You can get an early look at these changes from "The Medicare Proposed Inpatient Payment Rule for FY09," an HFMA audio webcast on May 13 at 2 PM Central Time.

Visit the HFMA web site for more business resources that will help you make a difference in your organization.