Collection Policy, Part 1: 3 Steps to a Stronger Collection Policy

A written collection policy sets the tone for how you extend credit and collect outstanding balances. It should outline the company’s procedures on a variety of topics such as what information to collect from a patient upfront and how to set up a payment plan. Most importantly, you should publish, train to and abide by the rules that the collection policy sets.

You’ll also want to think about how often you will contact a patient who has an outstanding balance and when to write off if it remains unpaid. The policy should follow the collective culture of your organization and define the workflow of who will complete which tasks throughout the process.

1. Observe the “C’s” of Patient Collections: Clear and Compassionate

Treat every patient the same way – and most importantly, provide clear details so your team can focus on their health and well-being. The conversations can be more about details surrounding co-insurance and payment arrangements.

This isn’t to say that collections of these dollars should be ignored – our goal is to urge you to standardize the way you deal with each patient – and publish the rules. Our experience over the years has shown that these types of actions will both increase your internal team’s confidence in collections and the clarity with which patients work with the organization.

2. Understand the way that Patient AR affects Days Sales Outstanding

We all know that collecting ‘more’ equals greater collections, but all HME providers aren’t affected the same way by their policy. You need to evaluate the type of business you do and the effort involved with chasing down patient balances.

Many companies use a metric called Days Sales Outstanding (DSO), which is taught in business schools everywhere.  DSO is a simple equation dividing the total amount of AR by the total credit sales.

The resulting number is DSO: how many days of sales that are outstanding. You can calculate an Overall DSO, Insurance DSO or Patient DSO.

Here’s how to create a Patient Pay DSO for yourself.

DSO Example

If you calculate your Patient DSO every quarter, you will be able to see if your DSO is trending downward.  If not, adjust your collection policy to improve your DSO.

For reference, there isn’t a lot of detail published about Patient DSO, but our prospects have an average patient pay DSO of 59 days across the board. Following your collection policy or using our collection process, will help you move to the front of the pack.

We service healthcare organizations nationwide and we have the experience to help you break this down further for your business.  If you’re having trouble with DSO, think we can help. Most importantly, our results speak for themselves.

3. Adopt Industry Standards in your Collection Policy

It can be a challenge to understand what ‘industry standard’ is but there are a few resources that can help, such as the HME Benchmarking Toolkit and data from vendors that aggregate details from many providers. This is a nice addition that has come forward recently in our industry.

You should be setting  standards for your team in your collections policy. We did a little research ourselves for this article and here’s what we figured out:

According to the HME News toolkit, in 2016 providers reported a “40% drop in (Insurance) DSOs under 45 days, while DSOs over 60 days increased by 43%.”

In summary, it’s likely that if you’ve noticed a change in your cash flow, you are not alone. With major payor cutbacks – a challenged patient collection policy can be noticeably more harmful.

Does the aging of your AR portfolio fall within industry standards? If not, you may want to review your collection policy. Our solutions and best practices help bridge the gap between your patients and the co-insurance amount they owe you.

Like what you are reading here? This article is one of a 8-part series designed to help you make collections better in your business. We have created this body of work to share some of the strategies we’ve learned over the 14 years.

You can click here to share your email with us and we’ll deliver the rest of the articles right to your inbox, so you can enjoy them one at a time.