How Do You Fight Bad Debt?

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Baptist Health System’s Janice Ridling has a saying: Charity care represents patients who can’t pay. Bad debt represents patients who can pay but don’t.

Hospitals are swimming in a sea of bad debt that’s grown deeper over the past several years, damaging their margins and causing consternation in the finance suite. Thanks largely to bad debt write-offs that are often attributed in blanket fashion to the uninsured, for-profit hospital chains as a group have reported disappointing earnings for more than a year now.

Though nonprofit hospitals are more circumspect about what causes bad debt, anecdotal evidence suggests they face the same issues as their investor-owned brethren. But as many chief financial officers know, blaming broad economic trends like the ever-growing uninsured ranks for bad debt troubles is an oversimplified answer to a complex problem.

Baby steps

Some hospitals are attacking bad debt from several angles by first increasing their ability to track patients in real-time through their financial systems, then addressing patient intake problems. A lack of real-time tracking contributes heavily to the bad debt problem, says Ridling, vice president of revenue management in the central business office of five-hospital Baptist Health in Birmingham, Ala.

Focusing on cutting bad debt in a vacuum isn’t likely to solve the problem, she says. Many hospitals face issues with outdated legacy reporting systems that don’t allow for real-time querying of complicated patient accounts and their varied funding sources. But such facilities also get into trouble with poor training in patient access, billing and account follow-up procedures. Bad information sometimes causes many accounts to be incorrectly classified as bad debt, even though patients and their insurers may be able—and willing—to pay.

Addressing bad information while the patient is in the hospital can keep many high-dollar accounts from landing in the bad debt pile while also reducing accounts receivable days by allowing for more timely billing and better tracking of patient charges while they are in-house, says Ridling, who spent five years as a vice president at Tenet Healthcare Corp.’s western division before returning to her hometown and joining Baptist two years ago.

“The implementation of real-time technology permits us to continuously monitor trends and identify areas for improvement daily,” she says.

Largely because of a lack of training on patient access and determining funding before the fact, Baptist was struggling to track accounts until after services were rendered, when obtaining payment is much more difficult. “We have a mainframe system like everyone else,” Ridling says. “You can do queries and request info on a case-by-case basis, but in a lot of cases we were reporting after the fact.”

To help remedy the problem, Baptist decided to implement a system from Medefinance, an Emeryville, Calif.-based software vendor that would allow them to focus in real time on tracking patients and their funding.

Better information =timely payment

Although obtaining real-time visibility on operations was one key to the goal of cutting accounts receivable days at Milwaukee’s Aurora Health Care, Sandy Kiehnau says that was only one of several initiatives aimed at streamlining the system’s central business office.

First, Aurora had to improve its reporting system. Because of a number of mergers over the years, 13 hospitals worked on several different financial information systems. Consequently, the central business office was unable to get a systemwide view of financials without laboriously generating Excel-based reports.

After implementing Medefinance software to extract information from its financial system into one report, Aurora now boasts “immediate slicing and dicing, as opposed to having to do it manually based on someone’s request,” says Kiehnau, Aurora’s revenue cycle manager. Kiehnau adds that “some of what helped drive AR days down was reeling in our late charging.” For example, the system began sending medical records for coding on a timely basis and following up on outstanding claims based on insurers’ payment patterns. “If Blue Cross pays normally in 45 days, we set that follow-up on day 46. If United pays in 35 days, we set that follow-up on day 36 and focus on denials—mainly lack of information denials.”

Aurora’s AR days were at 56 less than two years ago; now they’re down to 37.1, Kiehnau says. With AR on track, now Aurora is focusing on more intensive initiatives that will contribute to cutting bad debt, such as educating patients on co-insurance and deductible payment requirements so that portion of the bill can either be collected immediately or arranged to be collected at time of service.

What creates bad debt?

Initially, Baptist’s Ridling focused on cutting AR days from almost 48 days to 42. Now the system is attacking bad debt. Both management and frontline service staff went through extensive training on how to do proper intake assessments. Managers also got insurance and point-of-service training so they could recognize where frontline staff were having problems collecting information.

With the new real-time tracking system, managers were able to back up the registration staff when the system flagged bad or missing information. Such information often sparks a back-and-forth cycle between insurer, patient and hospital, especially with low-dollar accounts that are not specifically assigned to a person in collections. If not resolved, those bills mount quickly and often end up as bad debt. With the patient still in-house, that bad data can be corrected quickly before billing, thus reducing denials, says Ridling. “We did a whole plethora of training on the front end so that we can track patients through the system.”

Similarly, managers learned how clinicians were entering information into the system to help correct errors. As part of the new software system implementation, Baptist created a patient access dashboard “with key indicators we could monitor on a weekly basis,” Ridling says. At the same time, Baptist called weekly revenue cycle meetings that included clinical directors, the unit (hospital) CFO, the director of patient access and representatives from medical records, case management and the central business office.

No surprises

CFOs’ disdain for surprises should be classified as one of the laws of physics. Baptist is trying to limit such surprises with a regular report called a “bad debt pre-list.” Individual hospital CFOs can look at that weekly report to get an early indicator of any potential spikes, says Ridling.

Baptist’s clean claim rate has gone from 81.9 percent to 90.4 percent in a year. Additionally, Baptist’s charity care and bad debt as a percentage of revenue have ticked down in the past year from 3.3 percent and 3.4 percent, respectively, to 3.2 percent for both measures. “Just maintaining the status quo would be a positive trend,” Ridling says, attributing the improvement to Baptist’s focus on improving patient access, billing and account follow-up procedures.

“We used to hear from our CFOs, ‘What did you do to me this month?’” Ridling says. “Now I don’t have those calls because we have the ability to stop bills from going to bad debt until we’ve done our homework.”

Philip Betbeze is finance editor with HealthLeaders. He can be reached at




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