Medical Accounts Receivable-Take the Proactive Approach

March 17, 2008

Fuel is the life’s blood of any automobile, pumping its way through the engine and powering the vehicle along its path. Without that constant, steady flow of fuel, the engine would falter and the car would stop in its tracks.

“He that is well paid is well satisfied.”

—William Shakespeare

Fuel is the life’s blood of any automobile, pumping its way through the engine and powering the vehicle along its path. Without that constant, steady flow of fuel, the engine would falter and the car would stop in its tracks.

For a small- to mid-sized business, accounts receivable is its life’s blood. Without that constant, steady stream of cash, the business cannot function. And when you get right down to it, that’s what physician practices are: small- to mid-sized businesses. Accounts receivable is a medical practice’s life’s blood.

“Physician practices do have their own unique challenges,” explains Glenn Fromer, CPA, director of development at Treasury Software. “But, they’re also small- and mid-sized businesses, so they face the same challenges that all small- and mid-sized businesses face—professional or non-professional, service or retail. As economic times get tougher, everyone is looking to extend their own accounts payable.”

Challenging Times

Fromer points out that given the economic recession that may already be upon us, businesses that pay their bills every two weeks or once a month are slowing their outgoing cash. “That, in essence, is a loan to themselves as a source of financing,” Fromer says. If companies are slowing their accounts payable, that means another company’s accounts receivable is growing, a trend Fromer expects to continue.

“Businesses rank their invoices accordingly,” Fromer explains. “Utilities get paid first, because if you don’t pay those, you’re out of business. Paying bills gets ranked just like anything else in life.”

It’s no different, Fromer says, between a doctor’s office and a patient. The physician sends out an invoice and waits to get paid, but the patient will pay his rent and utilities first; he’s going to put food on his table first. “The bottom line,” according to Fromer, “is that [paying the physician] might not be his first choice of where he’s spending his funds.” And if a patient slows his/her outflow of cash, a physician’s accounts receivable is going to grow.

Time to Get ProactiveFromer explains that there are two ways to reduce accounts receivable: the passive approach and the proactive approach. The passive approach is easy—send out an invoice and wait, or hope, to get paid. But as Fromer points out, that most of today’s medical practices can’t afford to be passive.

“What you want to do is always have payment pre-approved,” says Fromer. “It’s always good to get payment at the time of service, that’s the number one rule. But, if you don’t know all the charges involved because of lab and other third-party bills, you want the patient to authorize payment as soon as the invoice comes in.”

That, says Fromer, should be done in the form of an automated clearing house draft, or ACH, not unlike an electronic funds transfer. It’s the reverse of direct deposit, where an employee’s paycheck is directly deposited into their checking or savings account. Consumers are used to the ACH process, often making utility, automobile and mortgage payments in that manner. And, ACH has significant advantages over credit card usage.

“Let’s say a patient has a $500 balance due,” Fromer explains. “If the practice has to charge a service fee of 2.5% on that $500, that’s $12.50. That might not seem like much, but if you have 10 of those a day, that’s $125. Conversely, if an ACH account is set up with the patient’s bank, each transaction costs approximately 12-cents. That’s a huge difference, and that’s why a lot of companies are moving to an ACH scenario.”

Easy to Establish

Fromer explains that establishing an ACH arrangement with a patient is easy to do. Standard forms can be obtained from the patient’s bank, or can be downloaded from the Internet. The patient agrees to pay the balance of their account through an automated draft, provides their checking account and routing numbers, and signs the form.

“The investment in software is under $500,” says Fromer. “And the physician is receiving ACH as a service from his/her existing bank. It’s not like they have to make new friends or go with a company they’ve never heard of before. Contact your bank, tell them you want ACH services. It’s a quick and free underwriting process.”

What happens if the bank attempts to make the draft and the funds are not in the patient’s account? Fromer says it’s no different than if a patient wrote out a bad check. “If the money is not there, it bounces,” he explains. “Then you work out a payment plan, just like anything else. Maybe you can’t pull $1,000 from the account, but can you pull out $300 each month over the next three months?”

The important thing, adds Fromer, is to make sure some amount is paid. “You want patients to get in the habit of paying, even if it’s the smallest amount. Because once they don’t pay, that’s when you’re in trouble.”

91%Percentage of Americans who say healthcare costs are too high.(Mayo Clinic Health Policy Center, 2008)

Ed Rabinowitz is a veteran healthcare reporter and writer. He welcomes comments at edwardr@ptd.net.