Cash Flow Enhancement
Cash Flow Enhancement
Mr. Shipman helps practices improve their bottom line through Improved Efficiency, Lower Taxes, Improved Collections, and Lower Lease Rates.
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Josh Shipman
Josh Shipman

Best Practices: Dental Collections

Best Practices: Dental Collections

9/11/2014 9:55:36 AM   |   Comments: 3   |   Views: 1968

When internal efforts fail to resolve patient debt, it may be time to change your approach. The question is— which approach best meets your needs? Should you use an attorney or a collections agency; a percentage based or flat fee approach? What are the pros and cons to these alternatives?

Keep in mind your office is competing with other businesses, and your bill is the only one where non-payment does not result in something being shut off, repossessed, etc.. Ask yourself why medical and dental bills have least priority in being paid? Now let’s agree on a few things:

  • Extending credit is a courtesy and should not bring financial or regulatory risk to a practice
  • Practices should be able to focus on their specialty, free from the burden of collections
  • All providers should expect to be paid on time
  • Unpaid bills negatively impact everyone
  • Late-paying patients should be held accountable to their obligations in a dignified, lawful, and respectful manner

Once you agree that you have the right to payment, it’s time to evaluate your options. Collection costs can vary depending on the average dollar amount, method, age, and volume of the accounts being submitted. Ultimately, a practice will have two options to motivate payment once service has been rendered: collections agencies and collections attorneys.

Traditional Collections

The traditional approach to collections has been through the use of licensed collections agencies that contact patients on your behalf, and then charge a percentage on what they collect (typically 30-50%).  Since an agency can call patients as a third party they can motivate payment. Collection agencies are also skilled in skip tracing—locating debtors who move across state lines, or provided invalid contact information.

While this percentage model might be appealing, agencies working on contingency often have the same problem as your staff—the lack of time and cost associated with of working smaller and older accounts. Keep in mind that these agencies have other clients who often have higher average balances. Since the agency only takes a percentage of what they recover, which accounts do you think they are going to work first? Furthermore, each day they receive new accounts from which to focus their attention. This is what is known as “skimming accounts,” and one reason why percentage agencies only return 8% of what a practice turns over. Often times, and to the frustration of your staff, agencies really only recover (and rely on) the “low hanging fruit,” which only require a single third party contact to motivate payment.  

If your portfolio of bad debt consists mainly of accounts with high balances, and you have already exhausted other means, using a collection attorney may be your best course of action.

Collections Attorneys 

Since debt collection attorneys can force a slow paying individual into court, they often exhibit more power than a collection agency. However, the costs involved can often make this prohibitive unless the balances to be collected are high—$600 or more. Most collection attorneys charge an hourly fee, collect at least one-third of the amount recovered, or both. They usually charge a minimum fee or may require a minimum amount of debt. Plus, payment to the attorney is typically in addition to any court-related fees and charges associated with a lawsuit. In most cases, this also assumes that the debtor provided a valid address or has not skipped town.

As such, most companies refer debt to a collection agency first, and then turn to an attorney if the agency is unable to make headway. Of course, the goal of most companies is to avoid these issues altogether and if a practice is dealing with smaller balances, neither option is often viable.

Flat-fee Alternative

As a cost effective solution to smaller balances ($75-600), some licensed collections agencies charge a flat fee ranging from $9-$13 per account. The benefit of this model is a much higher net back recovery since ALL accounts are worked the same regardless of balance size, and the third-party contacts generate the same response without losing 30% or more. It also gives the practice a certain amount of control since all payments are received directly from the patient—where the practice keeps 100% of the money. The national average recovery for 5,000 dental offices using this method correctly is an additional 53.07% recovery, returning $159.32 for every single account submitted. Since the average cost of account was $12.50, this translates to a cost as a percent of just 7.8%. Even pediatric practices, which typically have very low average balances of $150 or less, see an additional 39% recovery at a cost as a percent of 12%. So, the net recovery is 4-5 times more cash in hand when compared to a percentage based agency or attorney.

There are however two ways in which a flat fee approach will not work. Either you simply don’t use the accounts OR you don’t use them correctly. Let me explain what I mean by “correctly”. Often times an office feels an emotional connection to past due accounts, thinking “if only I contact them one more time, maybe they will pay”. Unfortunately it is this thinking that has enabled the patient not to pay. I sometimes use the analogy of a parent asking a child to do something. Have your ever heard of a parent counting to twenty? Who is in control, you or the child? What typically happens when the parent reaches three or five?  How many times should you ask for your money?

To use any form of collections effectively you should use your aging report NOT your emotions.  Most consultants agree that 90-120 days past due is an appropriate time frame for collections.  According to the U.S. Department of Commerce, accounts held in-house beyond 90 days will depreciate at 0.5% per day. Analysts in Dental Economics magazine have shown that overhead associated with additional billings can cost the practice $6 or more. Unfortunately, some practices don’t make this a priority until after six months or more. If you don’t prioritize your money, do you think the patient will?  How much future revenue is your current A/R costing you?

Summary

When a hammer and screws have not worked, try nails. National statistics and your numbers don’t lie. Don’t blame your patient demographic, your agency, or undermine your collection partner’s ability to collect. Their recovery depends largely on the quality of the paper YOU send. Use your aging report not your feelings to identify delinquent accounts early and regularly.  

Successful practices use a pragmatic approach to collections. No one recovers 100% of delinquent accounts; however, when applied properly you should expect a 30-50% reduction. If you want to increase NET CASH recovery use a flat fee approach. If you have neglected accounts with incorrect information use a percentage collections agency—and find a way to capture better patient information. If you only have a few large balances with known addresses you might consider a collections attorney.

Further Reading

If you are looking for a more proactive yet diplomatic option to reduce the number of patients turned over to collections, you may refer to other articles: “Receivables Don’t Equal Profits.” “Five Things to Look for in a Collections Partner”, and “Value Added Solutions for Your Practice Management Software”

 

Josh Shipman, Transworld Systems Dental Collect, collections agency, revenue cycle management, process improvement, software solutions, profit recovery, patient billing.

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