How to manage bad debt

As health insurance premiums, deductibles and copays have risen, so has the possibility of incurring bad debt for behavioral health providers. With more patients covered under high-deductible plans or Medicaid managed care plans, the new payer mix has shifted more of the burden for payment onto the patient and collection onto the provider.

“High deductible plans have been a game changer,” says Teresa Gerard, CEO of the Guardian Group. “As those deductibles have risen, we’ve seen a lot of debt increase. People are stretching payments, if they are paying at all. In some cases, patients have to decide if they are going to keep paying their premiums or their medical bills.”

For behavioral healthcare and substance use treatment providers, this shift has presented some unique challenges. For a variety of reasons, many patients in these settings face significant financial obstacles. That can make it difficult to obtain initial payments and to collect later.

Behavioral healthcare providers have always had some level of bad debt or write offs.

“What has been significant over the last several years is as states have moved to managed care, that uninsured funds or other grant-based funds have been decreased or removed from the payer mix,” says Michael Flora, senior operations and management consultant for MTM Services. “Many consumers who had been eligible for grant aid or other funding have moved to managed care coverage or other plans through the Affordable Care Act. That has shifted the burden to the consumer and to the provider.”

Good faith efforts

Providing hardship exceptions or writing off debt is also more complex in the changing healthcare landscape.

“The federal government has been aggressively enforcing waste, fraud, and abuse statutes, such as the False Claims Act and the Criminal Health Care Fraud statute,” says Michael Barnes, managing partner at DCBA Law & Policy and former director of the Center for Lawful Access and Abuse Deterrence (CLAAD). “Providers who accept public or private insurance should recognize they could face scrutiny if they are writing off services for some patients but not others. Unless a patient is part of a provider’s need-based assistance policy, providers typically should make good faith efforts to collect.”

These trends have had a big impact on revenues in the healthcare space overall. McKinsey and Company estimates that providers collected just 50% to 70% of an insured patient’s balance after treatment in a 2009 report. In fact, patients are only 40% likely to pay after the leave the treatment facility. A 2012 Greenway Health study of 500 private practices found as much as $100 million in uncollected patient-owed balances.

While providers can pursue these payments using aggressive collections practices, or outsource to collections agencies, many avoid doing so because they don’t want to damage their patient relationships—especially when those patients are part of a particularly vulnerable population. In some cases, these patients may be struggling with severe mental illness, homelessness or addiction, and aggressive collection practices could jeopardize their recovery. They also might not fully understand complex insurance coverage terms or self-pay commitments.

And now, with Congress retooling health policy, it’s unclear exactly what type of coverage may be available for many patients. In states where patients with severe mental health issues or substance use issues were included in Medicaid expansion, those benefits remain up in the air.

Challenges of bad debt

What can behavioral health providers do to better manage the possibility of bad debut resulting from patents not handing over their deductibles or co-pays? One of the industry’s biggest challenges is managing against the level of write-off or potential write-off for these underinsured patients.

“Many of these providers are safety net providers, so they can’t turn anyone away,” Flora says. “They need to manage clinical risk and financial risk at the same time, and it’s a real balancing act. They may have to assist consumers with making a payment plan, and that may or may not be written off down the road. They have to manage that on a monthly and aggregate basis.”

In some states, treatment centers can forgive copays or deductible charges in cases of hardship. According to Gerard, there are even practices that have gone as far as paying their patients’ premiums to ensure they don’t lose coverage during treatment. However, insurers are increasingly insisting on proof of out-of-pocket collections, and penalizing providers that don’t follow a consistent needs-based assistance program.

Avoiding bad debt

According to the experts interviewed for this story, the best strategy for managing bad patient debt is to avoid accruing it in the first place. Develop clear policies regarding deductibles, co-pays, and self-pay procedures. Communicate policies to patients, and make collecting those payments part of the day-to day operations of the practice.

“Pre-service, you have to look at admission eligibility and verify the payer prior to service being delivered,” Flora says. “Make sure they are working with an appropriately credentialed provider, and that they have behavioral healthcare benefits that will reimburse the provider. Look at the services on their treatment plan and their benefits.”

Ask for payment. In most cases, patients are willing and able to pay. If they can’t, work out a payment plan and make sure you follow-up on those obligations regularly. Establish policies and scripts so that staff are verifying payer information when the patient arrives and asking for any deductible or copay amounts at that time, experts say.

For many practices, this will require a cultural shift.

“Your staff have to be comfortable with executing the process,” Gerard says. “Not everyone is comfortable with talking about financial obligations. You have to have the right policies and procedures in place, along with the infrastructure and technology to support it.”

Optimally, much of the preparatory discussion will happen prior to treatment rather than at the time of service. Patients should know their obligations before they arrive, so that the billing process doesn’t detract from the value of the care.

Accommodate patient preferences for billing and payment (including cash, check, credit card and savings account options), and help them establish realistic payment arrangements. If you have a practice management system with the right capabilities, use automated reminder calls, texts or e-mails to prompt patients for outstanding balances.

“Once organizations start asking for money, they are often surprised that consumers are paying it,” Flora says. “Many consumers value the services we provide, and they don’t have a problem giving you a payment. You let them know what the payment is, what their deductible is, and work with them on the front end to manage that.”

Post-service, there should be procedures and workflows in place for billing, denial management, bad debt write-offs, cash collections, and follow up.

Managing write-offs

The practice should also have a clear needs-based assistance, charity care, and write-off policy. Following that written policy will help manage debt, and avoid any accusations of fraud from payers.

Depending on the organization, the percentage of write-offs recommended can range from 10% to more than 60% . Not-for-profits tend to shoulder a higher percentage because of their mission and philanthropic funding. In some cases, you may simply need to reduce a percentage of the patient’s debt to make it more feasible for them to pay the balance.

Establish a write-off policy and track those write-offs over time to help avoid incurring additional bad debt unknowingly.

“You have to know how much you plan to write off as charitable care and then manage to that figure,” Flora says. “It varies by provider, budget size and community. There has to be a leadership and a board decision around that.”

Timing is important. Some agencies might write-off debt too soon; others wait too long to do so. But keeping bad debt on the books for years is usually a bad idea.

“I had a client collect a bit on a bill that was six or seven years old, and they were celebrating that fact,” Gerard says. “You’ve been trying for seven years to collect on this? How is that an effective use of your time? Having that uncollectible asset on your balance sheet can skew what your books look like.”

Again, though, write-offs can often be reduced through better pre-service planning. “I work with providers all over the country, and many of the reasons for write-offs are avoidable,” Flora says. “They didn’t have authorizations, or there wasn’t a credentialed physician, or they ran out of units of service. Managing the utilization review process can eliminate a large percentage of those write offs.”

Healthcare organizations some times pass bad debts to third-party collections agencies, but Barnes says this practice is rarely used in behavioral health because of the detrimental effect it can have on patients.

“They also know that financial hardship can contribute to a recurrence of the patient’s most problematic symptoms,” Barnes says. “Nevertheless, given federal fraud and abuse laws, providers are typically well advised not to write bad debt off without first making meaningful efforts to collect payment. Ideally, providers would collect as much payment up front as possible. Providers may also seek an insurer’s consent to waive the debt.”

Insurer requirements vary

Before debt can be written off, however, providers have to ensure they have followed their legal and contractual requirements for collections. Providers must attempt to collect copayments and coinsurance in accordance with their contract. If, after several attempts, payment is not received, they can determine whether to write it off or not.

The Centers for Medicare and Medicaid Services has stated that, under certain circumstances, such as indigence or financial hardship of a patient, rather than as a matter of routine, co-pays and deductibles may be legally waived. Some private plans may also allow for these waivers.

“However, proving financial hardship requires more than a patient stating that he or she cannot afford the services,” Barnes says. “Most third-party payers require significant documentation to justify the hardship. For these reasons, developing a need-based assistance policy is advisable.”

There might also be special requirements related to payment plans. Providers should confirm that commercial, federal and state contracts allow for balance billing or patient liability for the individual case before establishing an accounts receivable.

There are software systems that can automate some of these functions, as well as third-party companies to which practices can offload some or all of the billing/collections functions (including deductible/co-pay verification). While these might add costs to operations, they can provide a return on investment through higher collections/payments. However, the practice should be careful not to damage the personal connection to the patient. There should still be processes in place so that your own staff are initiating the conversation about how much and when payments will be collected, experts say.

Providers can also refer patients to organizations that help people with mental health or substance use disorders to appeal unjust insurance denials and violations of law, such as the Insured Consumer Access Network, which offers scholarships to help pay for out of pocket costs, and Legal Action Center.

Some practices also offer financial counseling/navigation services, or partner with other providers who can help. Patients in long-term care may risk losing coverage, for example, if they aren’t working. Others may be eligible for benefits they don’t know about. That confusion is likely to increase in the future as changes are made to federal and state health policy.

In general, the best approach for managing bad debt is to follow standard practices for pre- and post-service operations. Do you best to verify the patient’s ability to pay, to collect funds, to work with consumers to establish payment plans, and to follow insurance or other payer rules and obligations. Providers have to be proactive and advocate for consumers, Flora says.

“We have to make sure we’re not turning anyone away that is in need of care,” he says. “Prioritize those high-risk consumers and make sure that anyone who has the ability to pay is getting service, along with those who may not have that ability. Do everything you can do as a safety net provider to make sure there is no wrong door for care.”

Brian Albright is a freelance writer based in Ohio.