How to Slash Accounts Receivable

Joseph S. Eastern

Quick, what's the largest asset on your balance sheet? Almost certainly it's accounts receivable. Many physicians fail to realize that, and many fail to appreciate that aggressive management of accounts receivable is key to any practice's financial success,particularly in the current tight-money practice environment. 

Collecting balances due has always been a problem for physicians. After all, as I've pointed out many times, most of us receivewoefully deficient business training, if we get any at all. 

One result of that is that we extend more credit than any other business except banks and mortgage/finance companies. That's insane! Like every other business, we should strive to minimize the credit we extend by keeping our accounts receivable at as low a level as possible. 

This is, of course, easier said than done. The traditional advice for minimizing accounts receivable has always been that any amount collectable at the time of service should be collected. But some patients inevitably brandish the old "I forgot my checkbook" excuse and escape without paying. And some fees, in particular the patient-owed portion of most insurance plans, are difficult if not impossible to calculate at the time of service and must be billed later. 

The problem is once patients have left your office, according to one study, your bill drops to 19th out of 20 on their payment priority list. In other words, each month they'll pay their electric, water, gas, and telephone bills ... and 15 other bills ... before they get around to paying yours. 

So why not do what a growing number of businesses, including every hotel, motel, and country inn on the planet, already do: Ask each patient for a credit card, take an imprint, and bill balances to it as they accrue.

Geoff Anders, president of the Health Care Group Inc., suggested this in a talk he gave at a recent meeting, and it hit me likethe proverbial "whack on the side of the head"--Why haven't we all been doing this for years? 

After all, patients think nothing of handing a credit card to a busboy in a restaurant, with little or no concern for what he might do with it in the kitchen. They blithely shoot credit card numbers into a black hole in the Internet. So why should they object todoing the same thing with their medical bills? 

Beginning last January, every patient entering our office has been handed a letter at the check-in desk explaining our new policy of asking for a credit card number on which any outstanding balances will be billed. (See box below.) 

At the bottom is a brief consent for the patient to sign, and a place to write the credit card number and expiration date. 

Some did object initially--mostly older people. But when we explain that we're doing nothing different than a hotel does at eachcheck-in, and that it will work to their advantage as well by decreasing the bills they will receive and the checks they must write, most come around. 

This policy was optional, but we made it mandatory in January. Why? Because in only a year our accounts receivable totals dropped by nearly 50%. 

They are now the lowest they have ever been, in all categories, in my 24 years of practice. 

Credit card companies have begun to appreciate this largely untapped segment of potential business for them. Soon, you maybegin receiving help from them in setting up a system similar to mine, as well as other payment plans for your patients. 

A few credit companies are even promoting cards especially to finance private-pay portions of health care expenses. Oneexample is the HELPcard (www.helpcard.com). (I have no financial interest this enterprise.)

It's time for physicians to do more of what we do best--treat patients--and leave the business of extending credit to those whodo that best. 

DR. EASTERN is an author and lecturer on practice management issues and practices dermatology and dermatologic surgery in Belleville, N.J. 

BY JOSEPH S. EASTERN, M.D. 

What to Tell Patients: Sample Letter 

Here is the credit card policy letter that I use in my office. It is accompanied by a form requesting the patient payer's creditcard number, the expiration date, and the name that appears on the credit card, as well as a space for signature authorizationto bill the patient's card and the date. 

To Our Patients:

As you know if you have ever checked into a hotel or rented a car, the first thing you are asked for is a credit card, which isimprinted and later used to pay your bill. 

This is an advantage for both you and the hotel or rental company, since it makes checkout easier, faster, and more efficient. 

We have implemented a similar policy. You will be asked for a credit card number at the time you check in and the informationwill be held securely until your insurances have paid their portion and notified us of the amount of your share. At that time, any remaining balance owed by you will be charged to your credit card, and a copy of the charge will be mailed to you. 

This will be an advantage to you, since you will no longer have to write out and mail us checks. It will be an advantage to us aswell, since it will greatly decrease the number of statements that we have to generate and send out. The combination will benefit everybody in helping to keep the cost of health care down. 

This in no way will compromise your ability to dispute a charge or question your insurance company's determination ofpayment.

Copays due at the time of the visit will, of course, still be due at the time of the visit. 

If you have any questions about this payment method, do not hesitate to ask us. 

RELATED ARTICLE: How the Policy Works in Practice 

Here are my answers to common questions I've received from physicians about my credit card policy:

* Don't your patients object to signing, in effect, a blank check? Some objected initially--mostly older people. But when we explain that we're doing nothing different than most restaurants and online businesses, and that it works to patients' advantage by decreasing the bills they will receive and the checks they must write, most come around. And they're not "signing a blank check"--all credit card contracts give cardholders the right to challenge any charge against their account, and we remind them of that. 

* After you collect the credit card information, how do you keep it secure? We keep it in the patient's chart, guarded with thesame level of security as the rest of the patient's privileged information. Some offices prefer to store it all in one place such as a Rolodex-type container, or an Excel computer file that is protected by locked cabinets, passwords, and other precautions.

* Couldn't this be considered "balance billing" and therefore illegal? This is not "balance billing," which is asking patients topay the difference between your normal fee and the insurer's normal payment. If you have a contract with the insurer, that's illegal--or more precisely, it's a breach of your contract. What you charge to the patient's credit card is the portion of the insurer-determined payment not paid by the insurer. For example, you bill $200, the payer approves $100 and pays 80% of that. The remaining $20 is what you charge to the credit card. 

* How do you handle patients who refuse to hand over a number, particularly those who say they have no credit cards? We used to let refusers slide, but as of Jan. 1, we've made the policy mandatory. Patients who refuse without a good reason are asked, like any patient who refuses to cooperate with office policy, to go elsewhere. Everybody has credit cards in this day andage, except deadbeats with such awful credit that you don't want them anyway. My office manager has authority to make exceptions on a case-by-case basis, however. One surgeon I know asks "no credit card" patients to pay a lawyer-style "retainer"of $500 that's held in escrow and used to pay receivable amounts as they come due. When presented with that alternative, most suddenly remember that they do have a credit card after all! 

* Do you envision using this policy to enforce any no-show charges a practice might have? I had not, but now I am. Excellent suggestion! 

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