Beyond Receivables: Hidden Costs of Inadequate Up-Front Patient Collections

Laurie Morgan September 10th, 2012

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If your practice hasn’t mastered collecting patient payments at the time of service, you probably already know that this cuts into your practice’s cash flow.  Maybe you’re living with less revenue and ballooning receivables because it seems easier, “for now,” than getting everyone on board with better up-front collections.  But if you’ve come to consider these financial impacts tolerable “for the moment,” you should consider several other negative effects that might not show up on your books immediately, yet nonetheless undermine your practice’s profitability.

Patient non-compliance and attrition

When patients build up large, unpaid balances, their embarrassment and difficulty paying can impact their relationship with your practice. For example, patients may postpone visits to avoid a confrontation about their accounts – skipping important follow-up care or even delaying preventive care that wouldn’t carry a co-pay.

In the worst case, a patient may switch to a different practice to avoid the shame of being asked for outstanding balances on their next visit – or as a means to avoid paying altogether.  This is unfortunately common in specialties that involve many return visits, like OB and pediatrics.  Pregnancy, for example, can carry a significant patient deductible; if your practice fails to alert the patient to her payment responsibility and make arrangements for her to pay it over time, she’ll wind up with a large balance that could be psychologically daunting.  If she becomes pregnant again and is asked to pay in full prior to starting new care, she may feel compelled to ‘start over’ at another practice because she can’t afford the full balance.  (On the plus side, an OB patient has a built in nine-month schedule that is perfect for timing modest installment payments – a great way to avoid the problem altogether.)

The bottom line is, neglecting to collect from patients at the time of service or set up manageable pre-payment or card-on-file plans won’t just cost you that cash flow – you could lose future revenue from those patients as well.

Lost opportunities

When your practice cash flow suffers from poor patient collections, it limits your practice’s financial flexibility – and may even necessitate changes to important activities.  For example, if your practice has been leasing an important piece of equipment that would be more profitable to own, insufficient cash on hand could delay that acquisition.

Financial investments are not the only missed opportunities caused by poor patient collections.  Chasing receivables also cuts into staff time that could be invested more profitably.  Every extra hour that is spent attempting to collect receivables – often fruitlessly – is an hour that can’t be spent on things like marketing the practice or improving patient service.

Staff morale

Speaking of fruitless collections, few things are more demoralizing than attempting to complete an impossible task.  Many practices dedicate staff members to collections without really considering whether they’re temperamentally suited to it – or whether the returns make the investment of time worthwhile.  Collection rates for patient receivables are often below 50% – a failure rate that can be very discouraging to that are used to completing tasks successfully.  Preventing uncollectable receivables from accumulating in the first place is, of course, the best way to avoid this problem – but, if that’s not happening (or is a work in progress), be sure you’re utilizing external collections help appropriately, to avoid burning out staff and underutilizing their time.

Laurie Morgan is a management consultant with Capko & Company. She specializes in marketing, management and technology for medical practices and blogs about practice management issues at Laurie has a BA in Economics from Brown University and an MBA from Stanford. Laurie recently wrote for Getting Paid on Maximizing Your Medical Practice Revenue and Profit in the Home Stretch (Part 1 of 2), Staying on Top of Business Trends to Protect and Build Your Medical Practice, and My Receivables Are Growing: Time for a New Billing Service?

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