Providers have been historically uncomfortable in their role as collector.  Some providers are shifting to take on a more direct role and other are employing multiple strategies to intermediate their role in collecting payments for services.

To focus on their core competencies and avoid the tension between the patient provider role and the creditor debtor role, healthcare organizations often outsource their collections. 

Current realities require sophistication and excellence in collections:

• Providers typically collect but a fraction of what they charge self-pay patients.
• Bad debt as a percentage of revenues is increasing 10 to 20% per year.
• Cost of collecting is 15% rather than 2% in the regular retail world.¹ Who bears this cost –, consumers, providers, tax payers, and employers?

Three categories for unpaid healthcare receivables to help hospitals with revenue cycle management:  1) First Party, 2) Third Party (contingency collections) and 3) Debt Buyers. According to the rule of receivables purchases, they have to represent the self-pay, non-insured and charges not paid by insurance (uncovered costs).

Significant and increasing regulations govern collection practices.  Federal minimum standards were set under the Fair Debt Collection Practices Act and both the IRS and Congress are examining the billing and collection practices of non-profit hospitals.   Numerous states have addressed late payment and interest fees, charity care and discount payment policies, property liens and governance.

Simultaneously, advocates at the local level have mobilized to address the injustices they see in individuals’ bills.  Programs which train patients how to question coverage and negotiate for discounts have succeeded in reducing bills by 90%.  While these solutions do not necessarily scale to a national level, they provide an insight into the risks and opportunities created by the current system’s set of financial intermediaries.

First Party Collectors

First party collections take place under a creditor’s name, either by the creditor itself or by collection agencies working with creditors on fixed price contracts. The primary difference between first party and contingency collections is the stage at which the service occurs: first party work takes place earlier in the receivable’s life cycle, typically when a delinquent account is between 30 and 90 days past due but has not yet been charged off by the creditor. Conversely, contingency collections generally take place after a creditor has officially charged off the account.

Third Party (Contingency Collections)

Contingency collections is defined as a third party service provided by collection agencies to creditors that have delinquent or charged off receivables. The collection agency is paid on a commission basis, typically defined as a percentage of the total amount collected by the agency. Accounts, or placements, are provided to the collection agency for a finite period of time, which can range from several weeks to several months or years. Uncollected accounts are generally returned to the creditor at the end of the placement period.

 

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¹ The McKinsey Quarterly, June 2007, “Overhauling the US Healthcare Payment System”; page 2, 3

Beginning in 1973, Kadent has been providing accounts receivable management solutions to organizations seeking to bridge the gap between services rendered and payments received. Backed by private equity investors and management, Kadent processes and manages nearly $1 billion in placements annually.

Kadent is a trusted partner to nearly 800 clients nationwide, including a wide array of community hospitals and hospital systems, physician practices, municipal courts systems and utilities.

Kadent Healthcare provides first party or early stage collection services to complement provider business offices including managing select portions or all of a hospital’s pre-bad debt accounts receivable. Kadent also outsources entire business offices from billing to collections, specializing in turnaround environments.

Kadent Healthcare identifies and eliminates inefficiencies, resolves disputes, researches missing payments, and finds medical records and contracts for more than 50 U.S. hospitals. They process more than $500 million accounts receivable placements annually.

WAM is a leading accounts receivable management company that helps many of today's premier businesses and institutions maximize their return on receivables at every stage of the recovery cycle.

WAM’s third-party programs solicit immediate payment from seriously delinquent individuals and businesses. These programs are designed to increase the net dollars a provider can recover and thereby reduce their net bad debt expense.

WAM incorporates dunning letters and calling campaigns, skiptracing, credit bureau reporting, and automated follow-up to collect all portfolios, including primary, secondary and tertiary placements.

CarVal Investors purchases healthcare receivables and has invested in more than $7 billion of receivables to date. CarVal’s experience includes equity investments in servicing platforms, as well as investments in a variety of different types of healthcare receivables. CarVal claims to build long-term relationships with leading debt purchasing and servicing partners with specific healthcare knowledge and expertise, ensuring adherence to stringent servicing guidelines specific to healthcare receivables.

CarVal Investors manages investments in:

• Performing and non-performing self-pay accounts
• Insurance denials
• Workers’ compensation
• Balance-after-insurance coverage
• Third-party liens

CarVal often partners with collection agencies after they’ve purchased the debt.  Examples include MEDCLR and West Asset Management.

Assumption that collectors can profit from purchasing a debt portfolio from a hospital and collecting from patients.

Hospitals benefit from capital influx.

Hospitals risk partnering with agencies that could jeopardize relationship with patients.

In this scheme, profit for collectors comes from patients and profit for hospitals comes from collectors.

Collections has tried to maintain some integrity by instituting the following voluntary principles and guidelines: http://www.acainternational.org/images/10280/healthcareguidingprinciplesv10.pdf

Other models to consider: MedFico, innovations around Nevada law, IC Systems.

Speaks to multiple leverage points.

• Realignment of collections practices and perceptions of shared risk in system:
• Converts non-performing self pay accounts to capital for hospitals
• Hospitals reputation is linked to that of debt buyer
• Since many hospitals have little or no experience selling receivables, they risk undervaluing portfolios
• Financial risk falls almost entirely on patients – not much sharing
• Rebalancing of Intermediation and Disintermediation:
• Collection agencies acting as intermediation fulcrum between insurers, patients and hospitals
• Anticipation of out-of-pocket revenue and expenses

This is a quick way for a provider to increase capital however this practice could be lessened if a provider had a better handle of their revenue and expenses