The best bad debt collection strategy utilizes three leverages, which “motivate” patients to pay a delinquent bill.

1. Independent Third-Party | Collection Leverage

The first is the involvement of an independent third-party. Collection agencies create a situation where the debtor may or may not know what the collection agency is going to do to collect the debt. I call this the threat of the unknown. This creates an environment, which motivates some account holders to resolve their debt quickly and amicably.

2. Individual Credit | Collection Leverage

The second leverage is the threat of affecting a person’s credit. For those who care about their credit, this can be a huge motivator to resolve their outstanding account.

3. Threat of Litigation | Collection Leverage

The last leverage to collect a debt is the threat of litigation. A successfully litigated past-due account may not only include the initial amount of the debt in the settlement. It could also include interest, court fees and potentially collection fees if it is annotated in the agreement the patient acknowledged when the service was rendered (such as a consent form).

Once the court has ruled in favor of the provider, wage garnishment and property liens are strategies to collect a judgment. I am a believer that medical services are paramount to a community’s well-being. Some hospitals limit or mandate the use of lesser leverages, such as not allowing accounts to be reported by the credit agencies. Limiting the leverages a collection agency may use to collect outstanding accounts will hurt the provider’s cash collections and negatively affect capital budget appropriations available to purchase additional equipment and provide expanded services to the community.

Many providers have experienced an increase of self-pay accounts over the past three years. In some parts of the country, it is not uncommon to see patient pay accounts double or triple year over year.

With the advent of healthcare reform, patients are having to pay higher deductibles and copays. This change in the way healthcare insurance is structured and the growth of uninsured patients is causing providers to change the level of priority they place on collecting self-pay accounts.

Minimizing the leverages a collection agency can use to collect outstanding A/R takes away from the financial well-being of the medical provider, thus reducing the amount of services they can provide the community. Quality medical care does not come without a cost. I recommend providers utilize credit reporting judiciously, and only after the patient has an ample opportunity to resolve the debt.

In addition, with the new Patient Protection and Affordable Care Act (PPACA) requirement and the IRSs 501 (c) (3) statute, not-for-profit facilities must be sure the accounts going to a collection agency do not meet the provider’s charity policy. If collection activity is performed by a third party, and it is determined the account could have qualified for charity, new legislation requirements could put a provider at financial risk.

My recommendation is to scan all accounts ready for write-off with an automated charity-scoring tool. If providers follow a consistent process for identifying and pursuing patients who truly deserve to be written off as charity, they minimize the risk of attempting to collect cash from unsubstantiated charity accounts.

Following a written charity policy, and designating the correct accounts as charity helps to lower the risk of running afoul of the new PPACA legislation and the IRS’s 501(3) (c) requirements.

These new rules actually work in favor of the provider and the collection agency.

They create a win-win scenario where the provider wins because they can control their bad debt reserves, provide more community benefits and eliminate the possibility of a legislative infraction. The collection agency wins because they are collecting on accounts, which truly are “bad debt collection accounts”. This reduces the time, effort and the cost of attempting to collect accounts, which should be deemed as charity.

Phil C. Solomon is a healthcare finance, clinical documentation and revenue cycle BPO strategist with experience spanning two decades. Phil has expertise in the areas of revenue cycle optimization, clinical documentation improvement, healthcare technology integration and BPO outsourcing. He is the publisher of Revenue Cycle News, a healthcare revenue cycle blog and is a featured speaker at many HFMA, NAHAM and AAHAM healthcare educational conferences.