The High Cost of Accounts Receivables May Be Harmful to Your Business Health

The High Cost of Accounts Receivables May Be Harmful to Your Business Health
Many practices turn to outside patient financing to reduce financial risk and improve cash flow

By Rob Morris

Practicing healthcare is a service, but running an ambulatory surgery center (ASC) is a business. With current reimbursement and self-pay conditions, more patients are overwhelmed with higher out-of-pocket costs than ever before. ASCs that provide financing options make it easier for patients to fit paying for their procedure into their monthly budget. A recent survey conducted by Inquire Market Research revealed that in the absence of financing options, 32 percent of patients are more likely to ask the healthcare provider to function in the role of a financing company by billing them.1 But when an ASC offers its patients in-house financing, the cost of providing billing or credit services can significantly impact the bottom line.

ASCs across the country have recognized the expense and risk of carrying accounts receivables (ARs) and are turning to an outside patient financing company as a solution. As facility fees range from $400 to $7,000 and an increasing number of procedures being done by ASCs are considered elective, the need for outside patient financing is quickly becoming imperative.

When a patient is faced with a $1,000 deductible and a 10 percent co-pay on a $5,000 procedure, $1,500 can be a real hardship. Studies show that the average person only has $300 available credit on their consumer credit cards and can’t write a check for more than $500 out of their monthly cash flow. Many patients find it difficult to pay the self-pay portion, co-pay or meet their deductible and may delay payment, become delinquent or even end up in collections. And for uninsured patients, the cost and risk of the ASC receiving its facility fee is even greater.

When the ASC takes on the responsibility of in-house financing, they incur the costs and risks associated with billing, collections and bad debt write-offs. Typical billing costs include administrative materials, postage and employee hours. When you consider the average total cost of sending a statement to a patient is approximately $8 to $10 per account per month, with an average of 200 statements per month per center, these costs can easily add up to more than $21,000 per year. If a patient does not respond to the ASC’s requests to receive payment, the ASC may need to invest additional staff time and effort by making collection calls, or resort to hiring a collections agency or attorney. (This will often strain the ASC/patient relationship and can lead to a negative repercussion with the referring physician.) Collection agents keep a percentage of the money they collect, which can range anywhere from 10 percent to 50 percent.

For example, if you choose an agency with a 70 percent collection success rate of total debt, and your center has a $10,000 debt with the agent charging a 25 percent commission, you would only collect $5,250 — and that’s only if the collection is successful. When all efforts to retrieve payment fail, it becomes a bad debt write-off.

Providing quality healthcare should be the ASC’s primary focus, not tracking down late or missing payments. Using a patient financing company allows ASCs to focus on what matters most—treating their patients. According to R. Thomas, MBA, facilities manager, “We were tired of being a banker and chasing down money,” and described using a patient financing company as “the easy way to get paid immediately with no risk, no worries and no hassles.” Outside patient financing can help an ASC increase cash flow and revenue, and eliminates the trouble and frustration of managing billing or collections. In fact, research shows health care providers offering patient financing through CareCredit decreased their AR aging by 37.7 percent2 and reduced their billing and collection costs. 

There are several outside patient financing plans from which to choose. When looking for a patient financing company for your center, you should consider selecting a program that provides a wide range of payment plans for the patient. When a patient financing company offers a number of different payment options, including no interest or low interest payment plans, it provides the patient the flexibility to choose a plan that fits their budget. “No interest” plans typically give patients the opportunity to make payments over time and incur no interest charges if the balance is paid in full within the specified time period. Some companies offer three-, six-, 12- and even 18-month no- interest payment plans, with payments as low as 3 percent of the balance due. A “low interest” plan will generally allow the patient to extend their payments over time at a specified interest rate. There are payments plans available at 24-, 36-, 48- and 60-month terms at competitive interest rates. These plans are ideal for patients with higher out-of-pocket fees who prefer lower monthly payments.

Another factor when considering a patient financing program is the initial cost to patients. Look for a plan with no upfront costs, annual fees or prepayment penalties. Also good to consider are financing plans that offer patients an unsecured, revolving line of credit. Unlike a term loan, this type of plan functions much like a credit card, giving patients the flexibility to access their credit at any time, without having to reapply. Patients with this type of payment plan have the added benefit of being able to ask for increases to their account limit, add additional expenses (within their limit) and use their account at different locations wherever that line of credit is accepted. Plus, with the availability of outside patient financing, the center enables their patients to reserve their consumer credit cards for household and emergency expenses.

For ASCs that receive referral patients from doctors, providing an outside patient financing option not only gives them a competitive advantage over centers without this option, it can also have a positive impact on the relationship between the ASC and the referring doctor, which can result in increased business. Offering outside patient financing makes sense for both the ASC and the patient.

Here’s how an outside patient financing program generally works. When a patient has an out-of-pocket facility fee they want to finance, all they need to do is complete an application form with that financing company. Once approved, the financial relationship is between the patient and the finance company, and removes the responsibility from the ASC. The ASC should receive their payment directly from the finance company without risk — regardless of whether the patient delays payment or defaults.

ASCs can recommend their patient financing program not only to new accounts but also to their existing accounts. By converting in-house billing accounts to your outside financing accounts, the ASC can further reduce their AR and collection costs. Some outside patient financing companies offer a high rate of approvals and credit decisions made almost instantly, so payment arrangements can be made virtually on the spot — providing ASCs and their patients with financial peace of mind.

If you find your center spending too much time and effort sending out statements and tracking down payments that are affecting the health of your financial operations, it’s time to consider a patient financing company that enables your facility to run as efficiently as it should be. With an outside patient financing program, more patients can conveniently pay for out-of-pocket healthcare expenses, while your ASC improves its cash flow — without the stress, worry or hassles encountered by in-house financing. You provide the healthcare solutions, and let outside patient financing provide the financial solution.

1. Inquire Market Research. March 2006.

2. ADCPA. July 2005.