How much should I spend to collect old receivables?" a reader of our newsletter recently asked. "Isn't hiring extra staff to follow up on these accounts just throwing good money after bad?"
It's a good question, and it's one we've encountered hundreds of times in our consulting work for physicians.
"We had a bad manager last year who let our accounts receivable fall into a horrible state," the doctor goes on. "Bills weren't sent, unpaid claims were not followed up, and when payments were recorded they got posted to the wrong accounts or dates of service. Since our manager wasn't supervising the staff, they flaked off and didn't make the insurance adjustments when they posted payments. Now if a patient calls to ask how much he owes, it takes our new manager two hours to figure out the answer.
"She tells me it's all our staff can do to keep up with the current work and she wants me to hire a couple of collectors to work the old accounts. There's more than $100,000 over a year old. What would you recommend?"
Another physician approached us with a similar story after a talk in Boston on financial controls. What made her report shocking was her proposed solution. She said she had told her staff to book no patients for two weeks this coming June to "work on the mess." She allowed that she would have to do some surgery those two weeks, but wanted the staff to have uninterrupted time to attack the problems created by a botched computer conversion. This is a great example of what economists call opportunity cost.
Opportunity cost is the extra cost you must assign a project due to foregone work on other projects. In this case, our ophthalmologist's opportunity cost of applying her office staffers to correcting the problems is the lost productivity of closing the office while they work on previous problems. Big cost!
What these practices need is a "special weapons and tactics team" of pros, in addition to their regular staff, to tear into this inventory of money just out of reach. The special weapons and tactics: uninterrupted time and expert-level skill in sorting out billing messes and collections. The manager needs to hire a couple of billing specialists, preferably with experience on the practice's computer system, to straighten out the accounts and collect the money. They should be given the accounts in disarray and access to the computer system and medical records, plus telephones and desks.
This raises the question: When and where can these extra workers work? Evening hours, say 5 p.m. to 8 p.m., will give them vacant desks and computer terminals and easy access to patients. But they won't be able to contact insurance carriers during those hours, so they need some "prime time" office availability, too. That may mean relocating some of your regular staffers away from their regular work areas for a few weeks. If that's not practical, you could rearrange the staff's hours so the regular people start (and finish) the day later, giving your commando squad access to work areas on some mornings.
One more tactic for your billing "green berets": a money incentive. This "turnaround" work can be tedious and exacting. Attracting these individuals and stimulating them to work the accounts aggressively may be easier if they are paid a commission instead of a flat hourly rate. We think 30 percent of what they bring in is reasonable. That's probably a bit less than you would pay a collection agency, and those folks can't do this work. The 70 percent the practice keeps is pure profit — the overhead on these accounts was paid long ago.
So, to answer the initial and cogent question, is hiring this extra squad an extra cost or an investment in recovering a languishing asset? That's pretty easy to assess. Just compare the recovery of accounts with the cost of the squad. Give it a month, then tote up what the effort has collected against what the squad has cost to see if it's worth continuing the effort. Tell the team at the outset how you are going to evaluate them.
After the first monthly review, check your results each week. As soon as the costs of paying your task force are greater than the old accounts recovered, it's time to abandon the effort and send the accounts to a collection agency. With this write-off, you rid yourself of the accounts receivable "baggage" and start fresh. But this time, take extra care not to let things get in a state that requires such drastic measures.
Where do the specialists in "old accounts resolution" come from? Your 'SWAT' team might be made up of workers from a variety of sources. Consider these: