Editor’s note: This is the second of three parts on how to identify, cut, and manage bad debt. Read Part I here.

“You will never eliminate bad debt. Bad debt is not going away.”

So warned W. Christopher Johnson to a group of healthcare finance professionals at June’s annual conference of the Healthcare Financial Management Association. Johnson, vice president of revenue cycle management, regional facilities, for Carolinas Healthcare System joined Carolyn Swanson for an hour of straight talk about tracking and reducing bad debt.

According to Johnson, we are moving into a “perfect storm” of bad debt, where gross revenue is up, cash collection is up, but the percentage of collections against gross revenue is dropping. The causes?

  • Healthcare providers are buffeted by decreases in Medicare, Medicaid, managed care, and workers compensation.
  • The Patient Protection and Affordable Care Act is a wild card, but unlikely to have much impact.
  • The growth of high deductible plans are creating more financial stress. “What does that mean to us as a provider?” Johnson asks. “It means we have patients that have larger out-of-pocket expenses then they have ever had and they are not prepared to pay them and they do not understand what they signed up for.”
  • The Internal Revenue Service’s proposed 501R regulations constrain how providers interact with patients and how collections are handled.
  • Finally, “we are seeing wavering public support of hospitals,” Johnson says. In his home state of North Carolina, the public and press are painting hospitals as as “the guys that have all the money and the guys who overcharge us.

To better manage and control bad debt, Johnson walked through the best practices, business processes, and tools healthcare providers should have in place today and those that will be coming in the future:

  1. Pre-registration. According to Johnson, every organization should be pre-registering at least 98 percent of scheduled patients to zero in on their insurance status or their eligibility for financial assistance before they receive service.
  2. Point-of-service collections. In these days of higher deductibles and co-insurance, the more revenue collected up front, the better. When it comes to “self-pay after insurance,” says Johnson, “the public assumes and the politicians assume that people pay their bills after insurance pays.” Healthcare providers know differently, and the effort expended to collect balances upstream increases overall collections and reduces collection costs, he says.
  3. Registration quality measurement tool. “Patient Access is where it all starts,” says Johnson. There are numerous vendors that sell automated tools, “but if you can’t buy a tool, that’s not an excuse not to have some sort of process in place.” Even if it’s just selecting registrations by random, “you’ll identify trends” that will help you identify how to improve the registration process.
  4. Medicaid eligibility program. “In my organization, the one thing we know that has reduced bad debt is our Medicaid eligibility program,” says Johnson.


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