Collections are one of the most critical functions of any business, yet for many medical practices, it often goes unmeasured.
Many medical professionals don’t have a clear picture of how well they are doing in this critical area, and don’t realise the effect on their cashflow and profitability. Fortunately, there is a report known as an Age Analysis, which provides a useful snapshot. It shows a breakdown of how old your patient accounts are – also known as Accounts Receivable (AR), or money owed to a practice.
The Age Analysis groups accounts into 30-day increments of elapsed time (30, 60, 90, 120 days). All invoices aged over 120 days fall into the inclusive AR >120 day category. We investigated the financial health of a sample of private GP practices across South Africa by aggregating their age analysis data, as at the end of April 2017.
Here were our findings:
The graph shows that almost 50% of all money owed is in the 120+ days category. Eli Atie, CEO of Tradebridge, says the generally acceptable timeframe for practices to collect their debt is between 0-45 days. Any money not accounted for above 45 days should have a red flag.
By the time ARs have aged to 120+ days, they are very hard to collect and risk turning into a bad debt.
See table below:
Probability of Collection of Outstanding Payments*
Past due – 0 to 30 days
Past due – 31 to 60 days
Past due – 61 to 90 days
Past due – 91 to 120 days
Past due – 121 to 150 days
Past due – 151 to 180 days
Past due – 181 days onwards
*Based on Healthbridge’s collection risk model.
Three possible reasons why the sample practices have old, uncollected debt:
- Ineffective collection processes
Patients need to be reminded upfront about the amounts they owe. This will not necessarily harm the doctor-patient relationship, so long as it is done with empathy. After a defined period, say 60 days, you could hand over the account to a collection agency, which has the advantage of removing the practice from the process. It is important to brief the agency on the tone they should use, and how frequently you want them to follow-up for payment.
- Ineffective reconciliations
If you’ve received payment for your invoices, but these amounts have not been reconciled back into your system, they will continue to age in the Age Analysis report. This affects the usefulness of the Age Analysis report, and makes it difficult for you to predict your cashflow.
- Ineffective admin processes
The admin process of the practice may not be aligned to industry standards. For example, practices that are treating chronic patients should ensure their patients’ condition is registered with their medical aid; otherwise, the claim might become a patient cost. Another example of ineffective admin processes is when a practice avoids claiming for procedures and consumables, opting instead for a larger consultation fee. This has the effect of increasing patient costs and as patient costs are harder to collect, cashflow will be affected.
The Age Analysis report is a crucial measurement tool that provides insight into the efficiency of your revenue cycle management processes, and can help to speed up the payment of money owing. Whether you outsource your billing or manage it in-house, the Age Analysis also gives insight into the performance of the team responsible for your collections. With the right software and the correct processes, this proactive monitoring exercise could take as little as a few minutes.