Monitoring and controlling accounts receivable are vital processes for any business that is not cash and carry. It is even more important in health care as the initial financial loss from managed care contractual write-offs, combined with a financial loss from out-of-control accounts receivable, can mean death to a practice.

Dealing with accounts receivable is usually thought of as a process that begins once a practice is up and running and the business is well established. After all, the accounts must build for a period of time before they can be monitored and controlled, right? Wrong! Monitoring and control of accounts receivable must begin immediately.

Start at the Beginning

One of the keys to controlling accounts receivable is collecting the money that can be collected at the time of service. Deductibles and co-pays should be collected immediately and not allowed to accumulate.

Two important procedures must be implemented in the practice to do this. The first is timely and accurate verification of the patient's insurance benefits. The second is collecting the patient's portion of the charges at the front desk prior to seeing the doctor.

Timely means verification occurs before or during the patient's visit. Accurate means asking the correct questions. Verification provides the information needed to charge the patient accurately at the front desk. It will also serve as the template for correct filing of the patient's insurance.

Collecting fees prior to care prevents the practice from having to chase after the carrier and the patient for payment. Many office visit co-pays these days are larger than the amount reimbursed by the carrier for the visit. Delaying collections of known co-pays during the visit reduces practice cash flow, increases future workloads, and risks the loss of the majority of fees collectable for each visit.

Initially, collecting the patient's portion of fees prior to care may bother some patients and providers. However, this procedure has become common in health care and is now the norm. Holding out on adoption of this procedure only compounds collection and accounts receivable problems.

In addition to timely/accurate verification and co-pay collection implemented prior to care, the practice must also track two key financial statistics: collections percentage and accounts receivable as a multiple of monthly collections.

ECLIPSE automatically determines how much the patient owes as entries are made based on the patient's coverage and remaining deductible. It also takes authorizations into account and displays appropriate messages.

Collections percentage indicates what percentage of services rendered is being collected each month. Tracking collections percentage depends upon four other monthly financial statistics: collections, total services rendered, write-offs, and adjusted services.

In the past, collections could be divided by total services and multiplied by 100 to obtain the collections percentage. However, in today's world of managed care, total services can no longer be used in this calculation. Contractual write-offs from managed care contracts must be subtracted from total collections prior to the calculation, as write-offs will never be collected. Without this step, collections percentage would be artificially reduced and accounts receivable would be artificially inflated.

Subtracting the monthly write-offs from total services gives adjusted services. Collections are then divided by adjusted services, and the result is multiplied by 100 to obtain the collections percentage. The final number should be 85% or greater. Any number below 85% is an indicator of collection/accounts receivable problems. A practice will typically experience cash flow problems with a collections percentage lower than 85%.

The statistics listed above should be trackable with business/insurance software. Reports that include these stats should be easy to generate each month. Software that does not track these stats should be replaced or updated.

Accounts receivable should not exceed 21¼2 times average monthly collections. For, example if the practice collects an average of $40,000 per month, accounts receivable should not exceed $100,000. Accounts receivable greater than 21¼2 times monthly collections means receivables are out of control. Once again, software should track and report these statistics.

Business/insurance software should also track the aging of accounts receivable. Aging means determining which accounts are 30, 60, 90, or more than 120 days old. This is important as the older the accounts, the lower the likelihood of collection. This reinforces the reasoning behind collecting fees prior to the time of service.

Getting Back in Step

If a practice did not get off on the right foot or has gotten out of step, the following steps will help everyone get back in stride.

Pay attention. Monthly statistics should be tracked monthly, not occasionally.

Check your software. Make sure it allows you to track the statistics described above. If it does not, replace it. Many of the newer software packages will be able to go beyond the statistics listed above and allow identification of the patients/carriers (Medicare, managed care, personal injury, etc) that are associated with accounts-receivable problems. The software should also allow the doctor to identify problems that may be occurring at the front desk.

Invest in training for the doctor and staff. Multitudes of seminars are available that teach verification, filing, and collection procedures. Doctor participation is emphasized here, as the doctor should know as much or more about these procedures as anyone in the practice.

For more on keeping your accounts receivable in shape, see our January 2006 article "Management: Paid in Full."

Don't beat a dead horse. Write off impossible accounts, and start with a reasonably clean slate. Spend the energy, time, and funds that would have been spent on old accounts on fixing accounts receivable on the front end.

As a last resort, use a collection agency. This is a last resort because this action is often pointless with many managed care carriers/contracts. Many of the accounts will likely be more than 120 days old with a low probability of collection. The doctor-patient relationship is or will be over. Collection agencies will either take a portion of what is collected or charge for their efforts without guaranteeing results. Patients sometimes threaten malpractice action against a practice that presses collections.

Finally, check the effectiveness of other practice procedures. If accounts receivable are out of control, odds are other procedures are also out of control.

K. Jeffrey Miller, DC, DABCO, is chairperson of the department of clinical sciences at Cleveland Chiropractic College in Kansas City, Mo. He is the author of The Insurance Game; Winning the Battle for Reimbursement. He can be reached through his Web site, www.examdoc.com.