Business Solutions

Winning the A/R Game

Why collecting co-pays has become critical for HMEs and how they are leveraging software and services to collect them.

• By David Kopf
• Feb 01, 2011

In the past, providers fixed much of their attention on Medicare reimbursement and let collecting comparatively smaller payments, such as patient co-pays, go with little attention. In fact, some providersdidn’t bother with them at all.

In today’s reimbursement environment, every penny counts. Various funding pressures from Medicare have forced providers to drive as much cash flow and bring as much money back to their bottom lines as possible.

And that means collecting co-pays, which can amount to a sizeable amount of money each month. However, collecting patient co-pays represents a tricky game of balancing the effort and money expended to collect them, versus the actual return on those efforts. The tricky nature of that game is what original turned off providers from placing much emphasis on co-pays. Now they are critical. Providers must find a way to win the co-pay game.

A Quick Behavioral U-Turn

For many providers this represents a 180 degree turn from previous practice.

“When business are starting up or struggling to compete with other larger providers that are offering incentives to patients such as ‘you don’t have to pay your co-pay up front,’ or ‘we’ll bill you for your co-pay after all is said and done,’ it’s really hard to differentiate yourself from those other providers,” says Steve Andrews, general manager of reimbursement services for Brightree Billing Services, a wholly owned subsidiary of HEM software service provider Brightree LLC. “And consequently you succumb to the pressure. It’s once you’re established that you realize, ‘Hey, this was a bad move, we’re going to be saying good-bye to 10 percent to 15 percent of our revenues each month.’”

But now, co-pays are critical accounts receivables. Ultimately, the issue all comes down to margins, says Kevin Winkley, president, Strategic A/R, which provides a third-party patient payment collection services for HME providers. In many cases, the co-pay might well be the margin.

“Providers used to have such large margins in this industry that they didn’t have to go after patient balances,” he says. “Insurance would pay enough; Medicare would pay enough, but now with competitive bidding and the 9.5 percent cut on most items [due to MIPPA], CMS has consistently taken down the margins by what they will pay for these items. Consequently, providers are still trying to run their businesses with the same costs from their suppliers and they just don’t have the money in it anymore. So, they have to collect these patient dollars.”

Make no mistake that providers cannot ignore collecting co-pays. In a standard 80/20 split, Medicare covers the 80 percent, but that second 20 percent is the key. Many patients have a secondary insurance to cover that 20 percent, but the key lies in collecting it from the insurance, and then collecting the co-pay against that 20 percent. Neither is easy, and the time elapsed between when the HME provider pursues the patient’s secondary insurance and then charges the co-pay can be so long that the patient is left wondering why he or she is being billed at all.

“If you’re doing a monthly rental that amounts to $100, then you have a $20 item out there,” Winkley says. “By the time you review that, send a statement, and make a phone call to collect it, it’s just not worth it. But all of a sudden, 13 months at $20 a month, and you have some real money.

“As time passes because of complexities like secondaries … the cycle time between payors to get all the reimbursements in the door could be [for example] 75 days from date of service,” Andrews says. “Now you’re sending a patient bill 75 days later. Not only have they ‘forgotten’ that they even had the service, but you’re forced to explain a 75-day old service that they are going to question regardless.”

“Now you’ve established a standard, because you didn’t go after it early on that the patient has a feeling that ‘you know I don’t have to pay it; don’t try to bill me nine months after the fact,’” Winkley adds. “That’s what we’re trying to beat, this sense of entitlement that insurance is supposed to pay for everything. To a great degree we brought this on ourselves in this industry, we haven’t tried to collect from these patients.”

What makes this sense of entitlement doubly ingrained is the business practices that were spawned when reimbursements were more sizeable. Some providers waived co-pays as a way to attract businesses, since, at the time, their margins were so much better.

“You had companies advertising ‘We’ll provide this equipment at no cost to you,’” Winkley explains. “It’s just not legal to do that. Granted if you have a secondary insurance, it’ll be that way. But providers are in a Catch 22. If they try to collect the co-pay, then they might lose 80 percent of the revenue — what insurance would pay.”

And with hospitals and other healthcare entities sending out statements and other documents that read to the effect “pending payment by insurance; do not pay,” patients are being trained to ignore healthcarebills, Winkley adds.

Fortunately, the new funding reality should change that, Winkley adds. Since all providers ultimately face the same difficulties in terms of margins, both large and small providers cannot afford to miss those payments. However, getting patients to understand that they are expected to pay their co-pays now represents a transitional challenge.

The Challenges of Collecting Co-Pays

And providers still face the dollars and “sense” issue of trying to make collecting co-pays pencil out. Where that 20 percent is owed completely by the patient, or the patient has a secondary insurance and must make a co-pay for that secondary, the amounts are comparatively somewhat small, but the effort to collect them is a costly, time-intensive activity. Providers must generate and mail statements, review which patients are past due and alert them to that fact, make phone calls.

“It requires a lot of effort to collect these small amounts,” Winkley says. “That’s where [providers] need these efficiencies. You can’t throw too much labor at it these days since the margins aren’t in the business … All of those secondary processes are so expensive — the review time, generating that letter, reviewing every statement — all of a sudden you are into $3 or $4 an attempt to contact this patient. If you’re trying to go after $20 or $30 balances, you can’t do that for long, especially when your success rate is not so good.”

Also complicating matters is the efforts HMEs expend working with secondary insurances to collect their portion of the patient balance. That can seriously delay the process and leave the patient either confused as to why they are receiving a bill three or four months down the line, or feeling as though it is not a priority item, since he bill took so long to reach them in the first place. This leaves providers spending significant sums only to wind up collecting on 30 percent or 40 percent of their co-pays — not exactly an ideal return on those efforts.

Want to Collect Up Front? Not so Fast

For many providers, a simple solution might be to try and collect the co-pays earlier. That’s not so easy. One of the big problems is that the co-pay is largely unknown until the end of the process, so trying to avoid billing so late in the process by charging earlier up front is almost impossible, according to Andrews.

“We are noticing a change in emphasis, because of the fact that enough margin could be extracted just from the insurance payments in the past, but with declining reimbursements and a more regulated marketplace [providers] have to obtain every dollar they possibly can,” Andrews adds. “But they’re realizing it’s not an easy fix.”

Andrews says that while providers are getting more creative about trying to collect co-pays earlier in the process, they have not built the front-end, easy eligibility robustness that would be required into their businesses. Many times, the inadequacy of the insurance information the patient provides up front does not warrant an accurate calculation of what the co-pay would be. As a result, even if the provider were to collect a co-pay up front it might not be an accurate co-pay, he explains.

So the provider is faced with a dilemma: Does it simply dispense product, initiate the billing process and collect at the end of the process, or does it take a guess at what the co-pay would be, or does it charge a fl at fee up front, and then try to correct that payment through a reimbursement or additional charge at the end?

Using the Tools At-Hand

Obviously, he emphasis needs to be on driving down the cost of collecting co-pays as well as the speed at which they are collected, and one of the first place providers can do that is by looking at how their software systems can help them. Suffice it to say, why not use the tools at hand.

And true enough, provider software offers many tools to help providers collect patient co-pays. The first key tool is ensuring the right reports are there.

“Basically a software that provides a good overview of the receivables is necessary to be able to monitor and track payments going to primary and secondary, and then allowing the providers to focus on the co-pays and the deductible balances,” says Richard Mehan, president of Noble House, an industry software firm that makes the Noble Direct HME billing and management system. Mehan adds adding that reporting and the ability to monitor accounts receivable on a continual basis.

For example, Noble Direct tracks balances owed by primary funding, secondaries and patient balances. In fact, that co-pay capability was a integral part of the software from its inception, note Nobel House national sales manager Ed Bauer. So the software generates patient statements that indicate patient’s outstanding balances, or that show what has been paid as well as what is outstanding. It also sends out overdue notices with varying messages to escalatethe patient’s attention.

Also, the software system includes credit card payment capability so that payments can be taken immediately by provider accounting staff and paid against outstanding balances, Mehan explains. Ultimately if providers decide to collect co-pays on their end, the process is every bit as important — if not more — than the tools they use to carry it out, Bauersays.

“Providers should have a procedure for collecting co-pays,” He explains. “It can’t be something that changes by the day or is overly flexible. It has to be a standard procedure.”

Starting off that procedure, the provider should try to collect as much as it can from the point of services, says Andrews, who has a career history in billing and collections. That either requires a flat fee up front, with reimbursements or further bills on the back end; or create an eligibility department at the front end that almost functions like a pre-authorization to collect the correct co-pay amount. Andrews, says up front eligibility determination ultimately ends up costing less than trying to collect on the back end.

Next, the key is to skinny down the cycle time between the date of service and the final bill is as short as possible, Andrews says. This minimizes the ability of the patient to “forget” about the service. Also, Andrews says that provider’s cash applications must be smart enough to ensure that the payments coming in the front end are correctly paid against the patient’s specific co-pay amount and not against a general ledger.

However, even with the advantages provided by their technology infrastructure, providers still might find that the economy of scale for collecting co-pays on their own doesn’t work out. In those cases, providers opt to contract with a third-party service to collect the patient amounts.

Patient Co-Pay Collection Services

“They [providers] finally realize that it is a big enough problem,” Winkley says. “They see half a million dollars of A/R sitting out there and they realize, ‘We have to do something. This demands some investment and attention.’ Additionally, they start running into cash flow issues where they’re not collecting this money fast enough if they are collecting it.”

And a monthly statement is not going to cut it, Winkley says. First off, what needs to be generated, Winkley says, is an invoice as opposed to a statement. A statement gives a complete picture of the patient’s current activity (charges, payments, etc.) for a given period of time, and because it is run on monthly basis it is easier and less costly to produce than other mailings, such as an invoice.

“Unfortunately, a monthly statement is not going to cut it in this industry,” Winkley says. “You’re already behind the eight ball because you have dates of service from two months ago because the insurance took so long to pay. Now that’s finally fell to a patient responsibility on the first or second of the month. You’re getting this bill in their hands the second or third of the following month, and then it gets in the mail and gets to patient on the 10th. So 35 or 45 dayslater they finally receive the bill on it and it’s just too little too late.”

Also, because statements are complex with lots of services and past due amounts listed on them, the patient can get confused or overwhelmed and can just say “forget it,” and toss it aside. Worse yet, many statements don’t include actual due dates since the provider doesn’t want to give the patient an additional 30 days to pay.

“You have to put a stake in the ground and let the patient know when they are supposed to pay,” Winkley says. “That’s what will drive their behavior, and [collecting co-pays] is all about changing patient behavior.”

So, third party firms that specialize in collecting co-pays, such as Strategic A/R, start with an invoicing concept. As soon as insurance pays its portion of the patient-funded portion of a claim, it becomes a patient responsibility, regardless of the time of month. If they patient pays on the first of the month, the Strategic A/R will send the patient an invoice a couple days later.

And that invoice is a much simpler document. It clearly states what the patient is being billed for as a single date of service. It doesn’t contain past due information that might confuse the patient, and is written in clear messaging that says the insurance has been processed, the patient is responsible for paying the co-pay amount by a certain date, and there might be a servicing fee if they do not pay on time.

“These are the things that teach a patient that you are a company that needs to be paid,” Winkley says. “And that’s the key: changing this mindset.”

Third-party co-pay collectors buttress those timely, simplified invoices with timely and regular follow-up and follow-through. If a patient doesn’t pay off of an initial invoice, Winkley says his firm doesn’t send a statement as follow-up or reiterate previously sent information, it instead sends out a past due notice that lets them know the service, the amount and that they are past due. Again, this educates patients that they need to pay the first invoice they receive from the provider, Winkley says.

After that, Strategic A/R sends a series of past due notices that follow each other roughly every 16 days (Strategic A/R tailors those intervals to match provider accounting procedures), a late fee is then placed on the invoice, if the company allows it. The overwhelming of majority of Strategic A/R’s provider customers do not waive the late fee, Winkley says.

“Why do you pay your cable bill or electricity bill on time? Because there is a consequence involved if you don’t,” he notes. “Why don’t we do that in healthcare? All states allow service charges.

“And it’s not about collecting that ancillary amount,” he adds. “It’s about getting that patient’s attention. So these get waived. Again, this helps teach them and change their behavior.”

And this “behavior modification” works. Winkley says that on average 65 percent of patients he bills pay on the first invoice. One of his larger providers has third party auditors review their practices, and those auditors found that the provider’s average days to collect from the patient was 59 days, and after four to six months of using his service that had been reduced to 27 days. Those auditors also determined that the provider’s original effectiveness rate of its original notices was 14 percent, and the effective rate of Strategic A/R’s initial bill was 64 percent.

Of course, there comes a point where the accounts receivable line must be drawn in the sand. Whether the provider is managing collecting its co-pays or working with a third-party firm, at some point, the provider has to call out the big guns. This means possibly going into collections or worse.

In Winkley’s case, the second past due notice brings a late fee, the third past due notice threatens a collection agency or attorney, and the fourth past due notice is a final demand, and states that the patient is going to be referred to an attorney or a collections agency, and the issue might be reported to a credit bureau.

“If a patient is not going to respond to invoices and four past due notices, you’re wasting time and money to throw paper at them, so you have to take a different action at that point,” he says. “At that point, we then force our customers to make a decision before we take it further. We want the provider to give us the right to go to a collection agency, or we give them tools and reporting so thatthey can make their own phone call and try and collect this on their own.”

Winkley says Strategic A/R actually encourages the provider to make a call at that point, because it is cheaper than paying the collections agency to do that. Butif they prefer, they instruct Strategic A/R to enlist the help of its collections agency.

The way the providers is notified regarding the collections issue is through a software “dashboard” that is part of Strategic A/R’s service. Since Strategic A/R is constantly working on behalf of the provider’s accounts receivable department, it is directly tied to the provider’s software system. As it pulls information from the providers on a read-only basis it updates its dashboard, which is viewed by the provider management. This way they can see how many claims are at which stage of the process — a sort of co-pay pipeline. They can then drill down at the different steps to get more detail. Winkley says Strategic A/R has created interfaces for every major DME billing system, including web-based offerings such as Brightree.

This process should make one thing clear to providers considering a thirdparty firm that specializes in collecting patient co-pays: given the heavy level of communications being sent to the patient it is imperative that the provider work with a firm that is familiar with the industry and knows how to speak to patients. The provider wants its money, but it doesn’t want its efforts to do so ultimately undermining that patient relationship.

“The billing and collections circuit for insurance or Medicare or Medicaid is a technical bill and collect, whereas patients are an emotional bill and collect,” Brightree’s Andrews’ says. “The capabilities of the firm or the partner that you select have got to parlay well with the mission and objectives of the provider organization. I have heard of circumstances where providers have alleged that they have lost customers because of the bedside manner of the patient collection firm.”

Now Is The Time to Make a Move

Ultimately, deciding on how to pursue co-pays comes down to providers examining the cost-benefit of their efforts. Providers have the on-staff intellectual capital to file claims and ensure proper reimbursement from Medicare. Do they really want them stuffing envelopes and making calls to follow-up on co-pays?

At the very least, now is the time for providers to evaluate the resources they currently have available to them, and the options that are available to them as infrastructure and as third-party service solutions to improve their co-pay collections.

If anything these processes should have a fixed place in providers’ fundamental business processes going forward, Noble House’s Bauer notes.

“DME providers have to keep on top of their games not only in bad times, but in good times,” he says. “Why is it different now than when times were better? DME providers must keep on top of their co-pays at all times.”

This article originally appeared in the February 2011 issue of HME Business.