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When to write it off and why
Is there a certain comfort that comes from seeing large amounts in the accounts receivable (A/R) every month? Don't be lulled into a false sense of security. Some of the dollar signs you see are probably a mirage if you don't write off uncollectable accounts.
"When you don't write off old balances, the receivables become inflated and give a false view of what's really collectible," says Sarah Wiskerchen, of Chicago-based consulting firm Karen Zupko & Associates.
Pediatrician Paul Weiner, of Bethesda, Md., agrees: "Letting old balances sit skews your numbers. That old $5,000 balance that rolls over for a couple of years makes your A/R appear high, but because the amount is probably uncollectable, at some point it's best to cut it out of the picture. That way, the A/R report contains account balances that you have a chance of really collecting."
Not only do inflated receivables give a fuzzy financial picture, they can become a problem when a third party is asked to provide a valuation of the amount. Case in point: A physician going through a divorce realized the folly of holding old accounts when the settlement was based on the practice's receivables. Wiskerchen also points out that if you plan to sell the practice or get a loan, the receivables should accurately represent what the practice is owed.
Finally, keeping old accounts can become expensive. "If you don't write them off, you'll spend a lot on statements and follow-up time," says Alexandra Babcock, administrator of Somerset Orthopedic Associates, in Bridgewater, N.J. "Let's face it, if you've sent six statements without a response, you're fighting a losing battle. Send it to collections or write it off -- do something, but don't let it loiter in the A/R."
Set clear policies
"Creating write-off policies is a critical part of having an efficient reimbursement operation," says Gary Houck, practice administrator of Murray Women's Clinic in Murray, Ky. "Without written rules, staff [members] don't always know what to do with lingering accounts. Policies also become useful when there is turnover -- collective intelligence is maintained."
The financial policy you create should delineate exactly what can be written off, when, and by whom. "It should include how to handle accounts sent to collections, small balances, bankruptcy, deceased patients, and denials for ineligibility or no referral," says Wiskerchen.
Houck drafted a policy, then discussed it and received approval from the physicians in the practice prior to implementation. "Because we have a clear set of playing rules, we don't have to approach them with every write-off issue," he says, "only when the policy needs updating or fine-tuning."
Weiner's group, The Pediatric Care Center, hasn't put pen to paper, but has discussed and agreed to unified policies. "We derived the policies from the experience of our five physicians over the years. As certain issues arose -- like when to turn an account over to collections -- we created a policy for it."
After all physicians have given their OK, distribute the policy to the billing office and put a copy in your practice's procedure manual -- and make sure everyone on the staff follows one standard. "It's inefficient for staff to apply eight different policies for eight different physicians," Houck says. "Plus, it's a bad idea from a public relations standpoint. The practice's image suffers when patients hear that their friends were given a different financial 'deal.'"
If your policies aren't yet written down, ask your office manager or billing staff to put the policies they are currently following in writing. Doing so gives you a leg up on drafting a complete list of rules. "Once you have a framework, determine how you will streamline the policies into one set of rules, and approve them," Wiskerchen says.
Don't overlook oversight
"I review each day's transaction report and randomly select accounts based on dollar amounts," says Houck. "If a write-off seems out of the ordinary, I question the billing office." This puts staff on notice that someone is watching what they do, and minimizes the opportunity for them to collect money and write off the balance without putting the money in the bank.
Physicians should randomly monitor write-offs too. In the case of a four-physician group outside Chicago, the responsibility was left to the manager -- until an outside consultant discovered a number of large write-offs that couldn't be explained.
Ask the billing office for a report that details all patient account balances that have been written off each quarter, and scan it to be sure policies are being followed. "Our managing partner reviews the write-off report monthly," Weiner says, "and the group as a whole discusses the data during partner meetings several times a year."
At Thunderbird Internal Medicine in Glendale, Ariz., accounts receivable and write-off reports are evaluated monthly on multiple levels. "The business office evaluates detailed reports, which include both receivables and write-offs," says managing partner, Brian Riveland, MD. "The information is also presented to the partners monthly."
Reviewing write-offs can also help identify preventable reimbursement errors. "Create categories such as 'missed filing deadline' and 'procedure not precertified,' so claim denials for these reasons are tracked in the computer system," Wiskerchen suggests. "Then review these write-off categories quarterly to identify reimbursement system glitches and areas that need improvement."
For instance, if no one is verifying the eligibility of patients before they are seen, that write-off category will probably contain thousands of dollars. After it began tracking these non-contractual write-offs, an eight-physician practice in Denver learned that 6 percent of its charges were being written off for denials that could have been prevented -- failure to obtain referrals and submitting charges past the filing deadline were the biggest culprits. This led the group to tighten both referral processing and timeliness of charge submission so less revenue was lost.
It's a good idea to set a policy whereby accounts are peeled off as they reach a certain age -- most managers and consultants believe six to nine months is a good time to review old balances and decide what to do. Otherwise, you could be in for a rude awakening. A four-physician practice in Charlotte, N.C. let the A/R build up to about $5 million over several years' time, and ended up writing off $500,000 in one fell swoop. "And that doesn't take into consideration wasted staff time and statement costs -- which probably reached into the tens of thousands," Wiskerchen says.
"Our business office works the accounts by sending two statements and two collection letters," Houck says. "Most patients have either paid or set up a payment plan by then. If not, the account is prepared for collections." Houck's patient representatives take the account to the physician and ask for a determination: write-off or collections?
Pediatric Care Center has a similar policy. It sends several statements and messages, with a final letter notifying the patient that inaction will result in the account going to collections.
Other practices are more lenient. Multispecialty group MedProvider in Dallas doesn't turn accounts over to collections. According to internist Amy Anderson, "we send five bills, then the patient receives a phone call. If the account is still not settled, it is given to the patient's physician, who determines whether to continue trying." MedProvider physicians treat patients regardless, unless the patient elects to seek their care elsewhere.
Somerset Orthopedic Associates takes a little different tack. "If our patients haven't paid or responded to statements after six months, the physicians determine whether the patient is a hardship case, or can be pursued in small claims court," Babcock says. If hardship is established, the account is written off to "indigent" and if not, it's written off to "small claims" and sent to court. Seventy percent of the claims are paid before the court date, she says.
If a patient truly can't pay the bill, treat it as a hardship. According to Houck, "the physician makes the call on indigence. He or she has cared for the patients and has a more intimate knowledge of who is capable of paying and who is not."
Written documentation is advised for hardship cases. Somerset Orthopedic Associates obtains information such as W-2s or paycheck stubs, then presents it to the physician before writing off the balance. "We are always careful to document hardship to the point of verifying that the patient's signature matches the original signature in the chart," says Babcock.
"However the account is ultimately handled, a physician must approve the action taken," Weiner says. He notes that physicians often have additional information about a patient's financial difficulty, or have made an arrangement with them during a visit. Riveland agrees: "All of our physicians provide direction as to when it's OK to send an account on to collections. Staff present the account history to us using a form, and we make the final approval of how to handle the balance."
Cut your losses
Making decisions about uncollectable balances is one thing. But what about the small balances that occur when copays go uncollected or an insurer pays all but $9.82? A three-physician group in California discovered that letting small balances go dormant can become costly. A review of patient statements revealed that the practice had been sending about 150 statements every month to patients with balances of $20 or less for at least two years. If you consider that the average cost to process a statement is $8, the practice had spent approximately $28,000 on these small account balances, with no appreciable results.
"We brought this to their attention, and it wasn't easy for them to accept," Wiskerchen reports. "But we did get the physicians to let go of the fantasy that these patients would pay someday, and allow the billing manager to write off the amounts to 'small balance.'"
Just how do practices define "small?" It depends. Houck's practice writes off anything under $5, although "we are soon changing that to anything under $10." Riveland's group has made $10 its small balance threshold, and Babcock writes off anything under $20-- the group's computer system makes it easy by automatically identifying all balances below that amount.
"We call [the patient] as a last resort, then write off the amount to uncollectable balance and note this on the patient's master file." If the patient comes back, he is asked to pay the amount before being treated.
If you think your write-offs need attention, review this month's statements before they are mailed, or look over an account ledger of all patient balances more than six months old. And work with your billing or practice manager to create standard policies. "The key is to get started," Wiskerchen advises. "Review the old accounts, look at the number of statements sent and phone calls made, and calculate what you've invested in accounts that probably won't be paid." Like many physicians, you'll succumb to the reality that writing it off often makes the most financial sense.
Cheryl Toth can be reached at firstname.lastname@example.org.
This article originally appeared in the November/December 2002 issue of Physicians Practice.