Does Your Medical Practice Have a Problem with Bad Debt? Here is a Solution

Photo credit: barsen

With the economic downturn that started last year thanks to the housing and consequently the financial market, it didn’t take a genius to figure out that medical practices were going to feel the pain. People were going to be losing their jobs/benefits, people were going to find ways to spend less on premiums, benefits diminished, and people were  going to put their medical bills at the bottom of the “to be paid” pile. Result? Bad debt was surely going to increase. Especially when you consider we have this backwards system someone created where doctors are the only ones that don’t get paid at the time of service.

Did everybody’s prediction come true? Yes.

Our practice had two options when we looked at what was coming last year.  Come up with something to prevent writing off bad debt or prepare to work for free a little more than in previous years. The latter was not an option, so we instituted a new financial policy that enables us to collect 100% of what we are entitled to for our services without the unnecessary administrative and financial burden of collecting overdue balances.

Our new financial policy requires ALL patients to leave a credit card on file as a guarantee of payment.

Fact is doctor offices are extending credit by not collecting at the time of service. So why then do we carry all the risk? No other business that I know of extends credit without some form of guarantee. At the very least companies that extend credit check patrons’ credit worthiness. But no other business lets customers walk out the door without some guarantee. Why do we?

We understood this was a big departure from what is traditionally done in medical offices. However, in other establishments such as video rentals, cell phone and car rental companies, giving a credit card as a payment guarantee is very common. So why can’t we ask for a credit card just like Blockbuster does? Think about it… Can you book a hotel room without giving a credit card first?

This is what we said to parents.

• Patient/parents must leave a credit card on file if they wish to be seen by our doctors.
• The practice will continue to bill insurance and balance bill patients just like we’ve done in the past.
• The practice will continue to offer payment plans for large balances.
• If the practice is unable to collect a balance after 90 days, we reserve the right to charge the credit card on file. In other words, the credit card only gets charged if the patient has been delinquent more than 90 days.

We felt this financial policy was a fair compromise to reduce bad debt write offs (virtually eliminate account receivable greater than 90 days) while not completely disrupting the insurance claims submission model we all love (insert sarcasm).

So this is how we went about the process.

• Wrote a letter that explained the situation and why we had to implement this policy. Click here to see the letter. Feel free to use it if you’d like.
• Letters started going out in January inside every statement. We also handed over to parents the new policy when they checked in at our office. We also noted our website.
• Despite advising parents since January, the policy did not go into effect until July, giving parents ample time to find a new physician if they didn’t appreciate the new policy.
• In July we executed the policy. We wrote up a memo and included the credit card form where the guarantor placed their card and signature for our files. Check out the two documents here & here.
• The form gets scanned into the patients medical records (we have an EMR) and the authorization with the credit card number gets shredded as soon as it is scanned.

Scary proposition

I’ll confess it took a lot of guts to implement this policy. I didn’t know if parents were going to be OK with this. I haven’t heard of a medical private practice instituting such as policy. But losing money due to bad debt is bad business. As I’ve said before, our ability to offer health care diminishes if we are unable to collect for our services. Needless to say, we committed to the policy and have stuck behind it 100%.

With the policy, we can shift our focus from health care provider/collectors to health care providers because we now have a way to guarantee payment and removed the risk of extending credit.

The credit card financial policy has been in effect for 3-months now. In a subsequent post I’ll write about how parents took to the new policy and how I’ve addressed some of the customer service issues we’ve had as a result.

Stay tuned.