Three Pillars of Hospital Bad Debt Management

Editor’s note: This is the first of three parts on how to identify, cut, and manage bad debt.

Your CFO comes to you and tells you bad debt is too high and you need to do something about it. Quick, what do you do?

The answer is, nothing, until you make sure you have already standing upon the three pillars of bad debt that every health provider must have in place before they even consider trying to reduce their bad debt.

At June’s annual conference of the Healthcare Financial Management Association, presenters W. Christopher Johnson and Carolyn Swanson gave attendees a value-packed session on reporting tools to track and reduce bad debt.

Swanson, corporate director of client services for Medical Data Systems, Inc., began her portion of the presentation by walking HFMA members through the three basic building blocks every revenue cycle professional charged with reducing bad debt should have in  place–before beginning any bad debt reduction initiative.

1. Know what bad debt is

If the CFO or hospital controller comes to you and tells you to reduce bad debt, do you know exactly how bad debt is calculated?

“When we talk about reducing your bad debt, if you don’t know how your bad debt got there, you can’t win,” Swanson says. “Understanding the whole bad debt flow is critical to managing good results”

Healthcare providers use different models for coming up with a bad debt calculation, but if you are not knowledgable of which model your organization employs, the changes you make may not be effective.

Some organizations, for example, may write off accounts receivable more than 180 days as bad debt; other may use a model that tracks populations separately, such as writing off self pays after 30 days, co-insurance and deductibles after 90 days, Medicare beneficiaries after 120 days, and so on,

“Go and meet with your CFO to break down where your bad debt is coming from,” Swanson says. “Spend an hour with your controller or CFO to grasp a true understanding and better communication of outcomes.”

2. Ensure accountability

Bad debt is everyone’s responsibility, not just patient financial services. According to Swanson, you not only have to hold yourself accountable, your staff accountable and your vendors accountable, but also the executive team and non-financial departments. Report bad debt numbers by department at leadership meetings, suggests Swanson.

3. Keep communication flowing

To maintain focus on bad debt, meet regularly with your CFO or finance director, usually once a month, to cover changes in bad debt.

Preparing a midmonth projection allows for true expectations of your month end bad debt number (no surprises).

Be sure to engage your staff, Swanson suggests, and whatever you do, make them aware of what the organization’s expectations are. “If your staff doesn’t know its goals, it’s a little hard to hit them,” Swanson says. And more importantly, make sure your staff are engaged with their patient accounts. “The 80/20 rule works,” Swanson says, where 80 percent of the collectable revenue rests with the top 20 percent of accounts. “Push the high dollar work list,” she says. “Call every three or four days. It works!”

Another frequently overlooked stakeholder group are the payors, she says. Hold monthly meetings to go over payor issues.