"It's always a struggle to allocate resources to a process that doesn't bring cash back to the organization," says Ken Kemmish, chief financial officer of Physicians Clinic in Omaha, Neb.
But as cumbersome as resolving credit balances and refunding overpayments can be, not doing so just isn't an option. Aside from the desire to maintain ethical business practices, Medicare requires the refunding of overpayments, as do some managed-care contracts. State laws also come into play, according to Mickey O'Neal, president of the O'Neal CPA Group in Sugarland, Texas.
"Medical practices are subject to abandoned property laws, which require them to be proactive in seeking out and paying patients for overpayments, credit balances, uncashed checks, and the like," says O'Neal.
"If the individuals can't be located in a certain number of years, the practice must revert the funds to the state. Except for banks, almost nobody complies with these laws, but most states have them."
To be sure, identifying, documenting, and refunding overpayments from patients and insurers takes time and focus away from revenue-generating activities. "It's seen as a bothersome process," Kemmish adds. "But from our standpoint, it's the proper accounting that needs to take place."
One of the most common causes of overpayments is incomplete insurance information at the time of billing. "It happens when the patient is not sure of his insurance or the practice can't establish eligibility. The practice then collects full or partial payment and only later learns that the patient was covered," explains Vickie Jackson, administrator and chief executive officer of Southern Orange County Pediatric Associates in Lake Forest, Calif.
Patients also fail to make practices aware of secondary insurance. In this instance, the practice collects a deductible or copayment from a patient, only to discover later that another payer is responsible. Or, the patient files a claim separately to the secondary insurance, and the two payers fail to coordinate benefits properly.
Slow claims processing is yet another culprit. "Occasionally, when an insurance company has not paid, we assume a claim may have been lost, so we send in another. In the meantime, the insurance company pays both claims," says oncologist Cary Presant, president of California Cancer Medical Center in West Covina.
Misunderstood or unclear contract terms can also result in overpayments. Be careful with infertility treatments, for example, which may not be well-covered -- at least initially. "We've seen a trend of insurers initially denying coverage, then the practice charges the patient high, non-contract rates. Later, the insurer agrees to cover the service after the patient complains. The practice then has to pay the higher fee back to the patient and accept the lower contracted amount from the insurer," says O'Neal.
Your practice staff will do you a big favor by asking patients at each visit whether there have been any changes in their employment status or insurance coverage. Also, ask about secondary insurance coverage and whether the visit is related to an accident, to determine if there is third-party coverage.
These are questions that most practices either fail to ask or don't report, according to David Kolton, head of customer service for the Mid-Atlantic and Northeast regions of Aetna. Overpayments to and refunds from providers "are the number one drivers of our having current information on employment and insurance status. And if you look at our claims from medical practices, more than 90 percent of the time, the boxes are left blank for other insurance coverage and the service being related to an accident."
Refunds to commercial payers and patients are tricky enough, but refunds to Medicare present a double-edged sword.