As a medical practice, you understand the importance of cost control for your business. That’s why you take precautions to ensure that your expenses don’t exceed your monthly income from patient billing and other services. However, even with tight controls in place, you may find that your operating costs are increasing. One area where this is happening is with accounts receivable for your medical practice.
Practice accounts receivable refers to money that patients owe you for services rendered. There are many costs associated with collecting on those accounts, so it’s important to track them carefully and implement strategies to reduce the amount owed. In this blog post, we’ll look at what practice accounts receivable is and why it matters so much to a medical practice. We also provide some best practices that will help reduce or even eliminate bad debt in your practice.
What is Practice Accounts Receivable?
Accounts receivable is the term used to describe money that patients owe your medical practice. It reflects the balance in your “patient accounts” ledger, or the amount that patients have paid toward their medical bills. That includes charges for things like office visits, lab work, procedures, and any prescriptions that your patients may have filled at your practice. If you provide any type of ongoing service to your patients, like an on-site pharmacy, the money your patients pay toward those services is also considered accounts receivable. For example, if your patients are prescribed a particular medication, you charge them for that prescription. That’s one part of your accounts receivable. If your patients receive lab work through your office, they pay you either up front or through an insurance claim. The money they pay you for those lab services is another part of your accounts receivable.
Why Does Accounts Receivable Matter to Your Medical Practice?
In order to stay in business, every medical practice needs to collect payment for the services it provides. That’s because every dollar you spend on patient care has to be repaid through billing. However, collecting payment is expected to take time. Practice accounts receivable refer to the amount of time patients have to pay their bills. You’ll have to extend credit to all patients who don’t have the money at the time of their visit or appointment. You’ll also extend credit to patients who require a deposit before scheduling a procedure. Those who pay their accounts on time will see a credit balance on their next statement. But patients who take longer than expected to pay their bills will put a dent in your business’s accounts receivable.
The amount of money patients owe you, and their payment terms, are outlined in their insurance policies or contracts with your medical practice. However, the amount they actually pay you can be less. This difference is referred to as bad debt. Bad debt is a loss that every medical practice experiences. The amount a practice can expect to incur varies based on the type of practice and the area in which it is located. As a medical practice, you have a couple of options for dealing with bad debt. You can attempt to collect the full amount owed, but this may be unlikely. You can also write off the amount as a loss and move on.
If you’re like most medical practices, you have payment terms that allow your patients to pay their bills within a certain period of time. That period may be as short as 30 days, or it may be more like 90 days. It all depends on the type of patients you see in your practice and the amounts they owe you. Regardless of the payment terms you offer, it’s important to track your accounts receivable and collect the money that’s owed to your practice. If you don’t collect the money your patients owe you, your business will have to make up the difference.
Strategies to Manage Your Accounts Receivable
Since the bad debt in your practice will be reflected in your accounts receivable, it’s important to keep that figure low. You can do that by offering credit options that are tailored to your patient population. Bad debt can also be caused by a miscommunication about payment. That’s why it’s important to be clear with patients about the exact payment terms. Some practices are strict with payment terms, while others are more lenient and will allow patients to pay on a payment plan. Your billing and collections policies should be fair and consistent across patients. That will help you avoid any miscommunication. It’s also important to have a reliable billing and collections process in place.
There are a few strategies you can employ to reduce the amount of accounts receivable in your medical practice. These aren’t quick fixes, but they will help you significantly reduce your bad debt over time.
Bad Debt Reduction Strategy #1: Make Sure Your Billing Is On Point
This is the first thing you should check when you notice an increase in accounts receivable. Is your billing system working well for patients? Is it generating accurate bills? If your billing system is working properly and generating accurate bills, you can cross that off the list of potential causes for the increase in your accounts receivable.
Bad Debt Reduction Strategy #2: Get Patients to Pay on Time
If your billing system is working properly and you’re still experiencing an increase in accounts receivable, that may be because your patients are not paying their bills on time. That’s something you can fix by implementing one or more of the following strategies:
- Send collection letters to patients who are behind on their bills.
- Offer payment plans to patients who are struggling to pay their bills.
- Ask patients to pay a deposit when they schedule appointments.
- Offer your patients the option to pay with cash.
- Install a computerized reminder system.
- Negotiate payment terms with your patients.
- Ask your patients to help you to help you stay current.
- Ask your patients to put their payment terms in writing.
Bad Debt Reduction Strategy #3: Collect Money from Third Parties
If your patients have health insurance, they may have been billed directly by their insurance company. If that’s the case, the money your patients owe you may be in their insurance company’s possession.
Bad Debt Reduction Strategy #4: Get the Money the Insurers Owe You
If your patients have health insurance, your medical practice may have been billed directly by the insurance company. If that’s the case, the money your medical practice owes the insurance company may be sitting in your accounts receivable. There are two ways you can get that money into your hands:
- Get the insurance company to pay you directly.
- Use a medical billing company to collect the money from the insurance company on your behalf.
Limiting the Amount of Bad Debt in Your Practice
To help reduce the amount of bad debt in your practice, you should regularly send out reminder letters and phone calls to patients who are behind on their payments. You should also be proactive about scheduling appointments with patients who are behind. You may also want to consider hiring a collections agency if you have a high amount of bad debt. You can also adopt policies that will help to reduce bad debt. For example, you can require patients to provide proof of insurance before receiving services to avoid billing a patient who does not have coverage. Ultimately, managing your accounts receivable is an important part of running a successful medical practice. Poorly managing accounts receivable can lead to less profits, a lower cash flow, and even greater expenses due to bad debt. Understanding the factors related to accounts receivable and adopting best practices will help to keep your medical practice’s accounts receivable balanced and under control.
Bad debt has the potential to cause serious financial problems for your medical practice. The best way to avoid those problems is to keep bad debt to a minimum.
Bad Debt Reduction Strategy #5: Make Sure that Your Billing Is Accurate
If your billing system is generating inaccurate bills, you may be billing patients for more services than they received. You may also have been billing patients for services they didn’t even receive. Those types of billing errors will increase your accounts receivable.
Bad Debt Reduction Strategy #6: Pay Attention to Your Patients
If your billing system is accurate and your patients are still not paying their bills on time, you’ll want to investigate. What are those patients telling you about why the are not paying their bills?
Bad Debt Reduction Strategy #7: Follow Up with Your Patients
If your patients still aren’t paying their bills, it’s time to take action. Follow up with them to find out why they are not paying their bills. Ask them about their financial situation. What type of insurance coverage do they have? Can they pay anything? What can they do to help you stay current?
Medical Practice Debt
As a medical practice, your accounts receivable and bad debt matter greatly. They’re important metrics that can help you understand your business. The tighter your controls are on accounts receivable and bad debt, the better your business will perform. Most businesses experience some level of bad debt. The important thing is to have a strategy in place to reduce it. By implementing the strategies we’ve outlined in this blog post, you can reduce or even eliminate bad debt in your practice. If you want to run a profitable medical practice, it’s important to control costs and collect payments on your accounts receivable. Accounts receivable play a major role in the overall health of your business, so make sure you’re tracking it closely and taking steps to reduce it.
Accounts receivable is an important indicator of business health. It reflects the total amount of money that patients owe to your practice and is a key indicator of your cash flow. In order to stay in business, every medical practice needs to collect payment for the services it provides. That’s because every dollar you spend on patient care has to be repaid through billing. Unfortunately, not all patients will pay their bills on time. The term used for this is bad debt. Bad debt can be reduced by offering patients affordable payment options, encouraging them to pay their bills early, and making sure that your billing process is efficient.
Accounts receivable is the amount your patients owe you for the services they have received. It’s important that you actively manage your accounts receivable to keep them as low as possible so you don’t have to worry about going out of business. Bad debt can wreak havoc on your business, but it’s something you can avoid. By following these strategies, you can reduce the amount of bad debt in your medical practice and keep your business running smoothly.