Does Your Practice Have More Debt Than You Think?

By Michael Carroll on March 29, 2018

It’s a familiar scenario. You sit down to review financials for your practice, but there’s always a caveat. Your billing staff explains the revenue and debt shown is not completely accurate because of unapplied credits. Whether we’re talking about a small medical practice or large corporation, it’s impossible to gauge financial health without accurate reporting, and unapplied credits are one of the huge culprits. Modern Medicine says getting paid is number four on its list of Top 15 Challenges Facing Physicians. Unapplied credits stand in the way of determining just how much you are getting paid. What’s the difference between unapplied credits and debt, and do you have more debt than you think?

Unapplied Credits vs. Debt

Unapplied credits refer to monies that have been collected by the practice but not applied to a particular account. There are a wide variety of reasons why this may happen:

  • A payment may come in without an invoice or reference number.
  • An insurance carrier might make a duplicate payment.
  • You may receive a payment to a physician that no longer works within the practice.
  • You might have a billing program that does not allow payments to be credited until an invoice is generated.

If a patient pays in advance, this presents a problem since the funds cannot be credited to his or her account. In short, many practices have a process which allows staff to include these monies as unapplied credits until they can be researched and credited to the right account.

Debt, on the other hand, is money that is not collected at all. NPR reported on a survey from the Medical Group Management Association which found bad debt went up by 14% between 2008 and 2012 for multi-specialty practices. The economic downturn and the rise in the use of high deductible plans has greatly increased patient responsibility for medical care. At the same time, it has increased the burden of the physician to be a bank, collection agency and health care provider. Therefore, it’s imperative that office managers and physicians have a transparent view of the practice’s financial health. Debt, money not collected at all, must not be clouded by unapplied credits.

What’s the Big Deal?

In a world of ICD-10 conversion, HIPAA compliance, Meaningful Use requirements and the constant prospect of more health care legislation in the future, unapplied credits are simply not at the top of the priority list for most offices. Here’s why they should be.

  • Inaccurate reports. Accounts receivable, aging and physician productivity reports are just a sampling of the reports affected.
  • No clear view of debt. It’s impossible to get a clear view of a practice’s total debt when unapplied credits are distorting revenue aging reports.
  • Money lost. When primary carrier payments are not posted, secondary carrier and patient invoices are usually not even sent, further delaying the billing process and adding to the practice’s debt.
  • Incorrect patient statements. If a patient has submitted a payment that is sitting in the unapplied account, they continue to receive statements that don’t reflect that payment, resulting in a bad impression and wasted staff time answering calls about incorrect bills.
  • Duplicate claims. When monies go unapplied, paid claims are likely to be resubmitted to private payers and government entities. In addition to more administrative work to fix duplicate claims, Medicare views double-billing as fraud.
  • Wasted administrative time. Reconciling the unapplied account is time-consuming for staff, especially if it’s overdue.

Get a Handle on Your Debt

A key measure in determining debt is Days in A/R, another reason unapplied credits create an obstacle to transparent reporting. Days in A/R refers to how fast the practice can convert receivables to cash, thus lowering debt. While this ratio may vary by practice and sector, it’s important to keep an eye on it, looking for increases and identifying problems quickly. Simply put, the ratio is obtained by dividing accounts receivable by revenue then multiplying by 365. It does get a bit more complicated than that, however. Learn more about calculating your Days in A/R from the American Academy of Family Physicians.

Tracking Days in A/R should also be done by payee. Know which carriers, government entities or other payees take longer, pay on time or are habitually late. This reporting will help tighten the proverbial belt. It all goes back to getting receivables in the door, posted to the right account and bringing down total debt. An increase in the Days in A/R ratio will identify other lapses in processing that may have resulted in unapplied credits. Has a certain carrier changed its requirements? If patients are the problem, can you make changes to payment methods/processes that reduce the chance of credits coming in with no identifying information? Or, if they are not paying at all, can you restructure payment plans or offer credit card processing? Monitoring this ratio will raise a red flag, enable you to fix the process during claims submission and avoid the unapplied credit down the road.  

We Can Help

If reporting and constant monitoring of calculations and ratios seems overwhelming, you are not alone.  Forbes recently reported that physicians are already wasting over two-thirds of their time on paperwork. Medical billing services designed for your practice can increase productivity, eliminate wasted time and avoid pitfalls. Avoid the crisis of unapplied credits with billing software that allows for easy identification. Get accurate reporting to gauge the current financial health of your practice and plan for future cash flow. Agnite Health LLC, an affiliate of Advantage Administration, Inc., can help your practice do just that. With over 25 years in ophthalmology billing, their team of medical billing specialists can free up your time from crunching numbers and chasing payments so you can focus on patient care and grow your practice. Contact us to learn more.