A written collection policy is the basis of your credit policy. It should outline the company’s procedures on a variety of topics — from what information to collect from a patient upfront and how much credit to extend a patient. You’ll also want to think about how often you will contact a patient who has an outstanding balance and when to write off an account as a bad debt. The policy should establish the collection 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
The best bet is to treat every patient the same way – and provide clear details so your team can focus on their health and well-being, rather than 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. Observe the way that Patient Collections 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 a simple equation dividing the total amount of AR by the average amount of payments you receive on a daily basis. The resulting number is DSO: how many days of sales that are outstanding. You can calculate an Overall DSO, Insurance DSO or Patient DSO.
Try this equation, to create a Patient DSO for yourself. Using $133,100 of AR and $1,020,000 of patient collections:
- Total all of patient payments collected over a set period, ie, 90 days (we advise you exclude retail and cash sales).
- Divide the total payments by the number of days in the period. This is your average of daily patient collections.
- Total all outstanding patient AR and divide it by your average daily patient collections.
In this example, your Patient DSO would be 47.6 days.
The resulting number will be your DSO, or days sales outstanding. For reference – AG’s clients have an average of 55 days patient pay DSO across the board. Remember – each company isn’t equal, and we service healthcare organizations nationwide, so we have the experience to help you break this down further for your business.
3. Clearly understand industry standards
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 (http://hmenews.com/resource/hme-benchmarking-toolkit-2017 ) 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 a standard 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 HMENews benchmarking toolkit, in 2016 providers reported a “40% drop in (Insurance) DSOs under 45 days, while DSOs over 60 days increased by 43%.” If you’ve noticed a change in your cashflow, you are not alone.
Does the aging of your AR portfolio fall within industry standards? If not, you may want to review your collection policy. Our solutions are designed to combine software and best practices to bridge the gap between your patients and the co-insurance amount they owe you.
Like what you are reading here? This article is a piece of a 7-part series designed to help you review your collection policies and focuses on sharing some of the strategies we’ve learned over the 14 years we’ve been working with post-acute care providers. 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.