Claim Processing, Payments, and Collections

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Medical Billing Cycle Steps

Step 1 -- Preregister patients.
Step 2 -- Establish financial responsibility.
Step 3 -- Check in patients.
Step 4 -- Review coding compliance.
Step 5 -- Review billing compliance.
Step 6 -- Check out patients.
Step 7 -- Prepare and transmit claims.
Step 8 -- Monitor payer adjudication.
Step 9 -- Generate patient statements.
Step 10 -- Follow up payments and collections.

Medical Administrative Assistants and Claims

Clean claims increase the probability of being paid in full and on time. Claims that payers pay late, decide not to pay, or pay at a reduced level have a negative effect on accounts receivable (AR). Likewise, patient balances that fail to be collected affect revenue. To follow up on claims and patient balances, medical administrative assistants need to understand the process that payers follow to determine payments and the subsequent collection process involving patients.

Adjudication

Health plan process of examining claims and determining benefits.

When the payer receives claims, it issues an electronic response to the sender showing that the transmission has been successful. Each claim then undergoes the adjudication process. The adjudication process is made up of five steps designed to judge how it should be paid: (1) initial processing; (2) automated review; (3) manual review; (4) determination; and (5) payment.

Initial Processing

Each claim's data elements are checked by the payer's front-end claims processing system. Paper claims and any paper attachments are date-stamped and entered into the payer's computer system, either by data-entry personnel or by the use of a scanning system. Initial processing might find such problems as the following: (1) the patient's name, plan identification number, or place of service code is wrong; (2) the diagnosis code is missing or is not valid for the date of service; and (3) the patient is not the correct sex for a reported gender-specific procedure code.

Claims with errors or simple mistakes are rejected, and the payer transmits instructions to the provider to correct errors and/or omissions and to rebill the service. The medical insurance specialist should respond to such a request as quickly as possible by supplying the correct information and, if necessary, submitting a clean claim that is accepted by the payer for processing.

Automated Review

Payers' computer systems then apply edits that reflect their payment policies. For example, a Medicare claim is subject to the Correct Coding Initiative (CCI) edits. The automated review checks for the following:
(1) Patient eligibility for benefits: Is the patient eligible for the services that are billed?
(2) Time limits for filing claims: Has the claim been sent within the payer's time limits for filing claims?
(3) Preauthorization and referral: Are valid preauthorization or referral numbers present as required under the payer's policies? Some authorizations are for specific dates or number of service, so these data will be checked also.
(4) Duplicate dates of service: Is the claim billing for a service on the same date that has already been adjudicated?
(5) Noncovered services: Are the billed services covered under the patient's policy?
(6) Valid code linkages: Are the diagnosis and procedure codes properly linked for medical necessity?
(7) Bundled codes: Have surgical code bundling rules and global periods been followed?
(8) Medical review: Are there charges for services that are not medically necessary or that are over the frequency limits of the plan? The payer's medical director and other professional medical staff have a medical review program to ensure that providers give patients the most appropriate care in the most cost-effective manner. the basic medical review edits that are done at this stage are based on its guidelines.
(9) Utilization review: Are the hospital-based health care services appropriate? Are days and services authorized consistent with services and dates billed?
(10) Concurrent care: If concurrent care (medical situations in which a patient receives extensive care from two or more providers on the same date of service) is being billed, was it medically necessary?

Development

Process of gathering information to adjudicate a claim. The term used by payers to indicate that more information is needed for claim processing.

Manual Review

If problems result from the automated review, the claim is suspended and set aside for development. These claims are sent to the medical review department, where a claims examiner reviews the claim. The examiner may ask the provider for clinical documentation to check: (1) where the service took place; (2) whether the treatments were appropriate and a logical outcome of the facts and conditions shown in the medical record; and (3) that services provided were accurately reported.

Claims examiners are trained in the payer's payment policies, but they usually have little or no clinical medical background. When there is insufficient guidance on the point in question, examiners may have it reviewed by staff medical professionals -- nurses or physicians -- in the medical review department. This step is usually followed, for example, to review the medical necessity of an unlisted procedure.

Determination

Payer's decision about the benefits due for a claim. For each service line on a claim, the payer makes a payment determination -- a decision whether to (1) pay it, (2) deny it, or (3) pay it at a reduced level. If the service falls within normal guidelines, it will be paid. If it is not reimbursable, the item on the claim is denied. Or, the examiner may decide that the procedure code assigned is at too high a level for the diagnosis, and assign a lower-level code, called downcoding.

Downcoding

Payer's review and reduction of a procedure code. Downcoding may occur because the procedure's place of service is an emergency department, but the patient's problem is not considered an emergency. Claims may also be downcoded because the documentation fails to support the level of service claimed.

Downcoding by the payer may result when the coding or medical necessity are called into question, reducing the payment.

Upcoding

Use of a procedure code that provides a higher payment. For example, if the physician has coded a high-level evaluation and management service for a patient who presents with an apparently straightforward problem, this is considered upcoding, and the claims examiner is likely to request the encounter documentation. The medical record should contain information about the type of medical history and examination done as well as the complexity of the medical decision making that was performed. If the documentation does not support the service, the examiner downcodes the E/M code to a level considered appropriate.

Upcoding by the practice may lead to requests for additional documentation and delay payment.

Electronic Remittance Advice (ERA)

Transaction that explains payment decisions to the provider.

If payment is due, the payer sends it to the provider along with a remittance advice (RA), also known as an electronic remittance advice (ERA), a transaction that explains the payment decisions to the provider.

Overdue Claims

Just as medical offices are required to file claims within a certain period of time, health plans have contractual or legal agreements to pay claims within a period of time from receipt. Claims must be monitored until payments are received. Monitoring claims during adjudication requires two types of information. The first is the amount of time the payer is allowed to take to respond to the claim, and the second is how long the claim has been in process. Payers also have to process clean claims within the claim turnaround time as specified by the participation contract or governed by state or federal rules. The other factor in claim follow-up is aging -- how long a payer has had the claim. The PMP is used to generate an insurance aging report that lists the claims transmitted on each day and shows how long they have been in process with the payer. A typical report lists claims that were sent fewer than 30 days ago, between 30 and 60 days, between 60 and 90 days, and between 90 and 120 days.

Aging

Classification of accounts receivable by length of time.

Insurance Aging Report

Report grouping unpaid claims transmitted to payers by the length of time they remain due.

Claim Status Inquiry

Medical offices use a HIPAA transaction called the "claim status inquiry" to electronically follow up with payers. The payer responds with the status of the claim.

Explanation of Benefits (EOB)

Document showing how the amount of a benefit was determined.

Processing the Remittance Advice

The RA sent by the payer to the medical office summarizes the determinations for a number of claims. The document the patient receives -- called an explanation of benefits or EOB -- covers just the patient's determination. The RA shows the claim control number, patient name, dates of service, types of service, and charges, along with an explanation of the way the amount of the benefit payment was determined.

RAs cover claims for a number of patients, and payments may not be made for every service line on a particular claim. Payers use standard types of HIPAA administrative codes to explain their adjustments -- situations where the payment is different than the amount billed.

Remittance Advice (RA) codes

Access the website www.wpc-edi-com/codes for updated lists of the HIPAA administrative codes reported on RAs.

For example, the adjustment code PR indicates that the amount can be billed to the patient/insured, and code PI means payer-initiated reduction, which might result from the payer's downcoding an E/M code.

Review Procedure for Remittance Advice (RA)

An RA repeats the unique claim control number that the provider assigned to the claim when sending it. This number is the resource needed to match the payment to a claim. To process the RA, each claim is located in the practice management program -- either manually or automatically by the computer system. The remittance data are reviewed and then posted to the practice management program (PMP).

The following procedure is followed to double-check the remittance data: (1) check the patient's name, account number, insurance number, and date of service against the claim; (2) verify that all billed CPT codes are listed; (3) check the payment for each CPT code against the expected amount, which may be an allowed amount or a percentage of the usual fee. Many practice management programs build records of the amount each payer has paid for each CPT code as the data are entered. When another RA payment for the same CPT is posted, the program highlights any discrepancy for review; (4) analyze the payer's adjustment codes to locate all unpaid, downcoded, or denied claims for closer review; (5) pay special attention to the RA for claims submitted with modifiers. Some payer's claim processing systems automatically ignore modifiers, so that E/M visits billed on the same date of service as a procedure are always unpaid and should be appealed; and (6) decide whether any items on the RA need clarifying with the payer, and follow up as necessary.

Adjustment Code

Explains an adjustment on the insured's account.

Posting Procedure

Many practices that receive RAs authorize the payer to provide an electronic funds transfer (EFT) of the payment. Payments are deposited directly into the practice's bank account. Otherwise, the payer sends a check to the practice, and the check is taken to the practice's bank for deposit. Regulations mandated under the Affordable Care Act (ACA) as of January 1, 2014, require a trace number to appear on both the EFT and its ERA, so the documents are easy to match up electronically.

Electronic Funds Transfer (EFT)

Electronic routing of funds between banks.

Applying Payments

Payment and adjustment transactions are entered in the practice management program. The data entry include: (1) date of deposit; (2) payer name and type; (3) check or EFT number; (4) total payment amount; and (5) amount to be applied to each patient's account, including type of payment. Codes are used for payments, adjustments, deductibles, and other specific types.

Some PMPs have an autoposting feature. Instead of posting payments manually, this feature automatically posts the payment data in the RA to the correct account. The software allows the user to establish posting rules, such as "post a payment automatically only if the claim is paid at 100 percent," so that the medical administrative assistant can examine claims that are not paid as expected.

Autoposting

Software feature enabling automatic entry of payments on a remittance advice.

Reconciling Payments

The process of reconciliation means making sure that the totals on the RA and EOB check out mathematically. The total amount billed minus the adjustments (such as for allowed amounts and patient responsibility to pay) should equal the total amount paid. Any difference between what the provider charges and the amount paid may be considered a write off.

Reconciliation

Comparison of two numbers.

Overpayment

Improper or excessive payment resulting from billing errors. Part of the compliance plan is a regular process to self-audit and discover any overbilling situations -- and then to send the payer a refund.

Handling Overpayments

From the payer's point of view, overpayments (also called credit balances) are improper or excessive payments resulting from billing errors for which the provider owes refunds.

Examples are: (1) a payer may mistakenly overpay a claim; (2) a payer's postpayment audit may find that a claim that has been paid should be denied or downcoded because the documentation does not support it; or (3) a provider may collect a primary payment from Medicare when another payer is primary.

In such cases, reimbursement that the provider has received is considered an overpayment, and the payer will ask for a refund (with the addition of interest for Medicare). If the audit shows that the claim was for a service that was not medically necessary, the provider must also refund any payment collected from the patient. Most often, the procedure is to promptly refund the overpayment.

Denial Management -- Rejected Claims

A claim that is not paid due to incorrect information must be corrected and sent to the payer according to its procedures.

Denial Management -- Procedures Not Paid

If a procedure that should have been paid on a claim was overlooked, another claim is sent for that procedure.

Denial Management -- Partially Paid, Denied, or Downcoded Claims

If the payer has denied payment, the first step is to study the adjustment codes to determine why.

If a procedure is not a covered benefit or if the patient was not eligible for that benefit, typically the next step will be to bill the patient for the noncovered amount.

If the claim is denied or downcoded for lack of medical necessity, a decision about the next action must be made. The options are to bill the patient, write off the amount, or challenge the determination with an appeal. Some provider contracts prohibit billing the patient if an appeal or necessary documentation has not been submitted to the payer.

Improving the Rate of Paid Claims

To improve the rate of paid claims over time, medical administrative assistants track and analyze each payer's reasons for denying claims. This record may be kept in a denial log or by assigning specific denial-reason codes for the PMP to store and report on. Denials should be grouped into categories, such as: (1) coding errors (incorrect unbundling, procedure codes not payable by plan with the reported diagnosis codes); (2) registration mistakes, such as incorrect patient ID numbers; (3) billing errors, such as failure to get required preauthorizations or referral numbers; and (4) payer requests for more information or general delays in claims processing.

The types of denials should be analyzed to find out what procedures can be implemented to fix the problems.

Appeal and Appeals Process

Request for reconsideration of a claim adjudication. An appeal is a process that can be used to challenge a payer's decision to deny, reduce, or otherwise downcode a claim. A provider or a patient may begin the appeal process by asking for a review of the payer's decision.

When a claim has been denied or payment reduced, an appeal may be filed with the payer for reconsideration.

Each payer has consistent procedures for handling appeals. These procedures are based on the nature of the appeal. The practice staff reviews the appropriate guidelines for the particular insurance carrier before starting an appeal and plans its actions according to the rules. Appeals must be filed within a specific time after the claim determination. Most payers have an escalating structure of appeals, such as (1) a complaint; (2) an appeal; and (3) a grievance. The claimant must move through the three levels in pursuing an appeal, starting at the lowest and continuing to the highest, final level. Some payers also set a minimum amount that must be involved in an appeal process, so that a lot of time is not spent on a small dispute.

A claimant can take another step if the payer has rejected all the appeal levels on a claim. Because they license most types of payers, state insurance commissions have the authority to review appeals that payers reject. If a claimant decides to pursue an appeal with the state insurance commission, copies of the complete case file -- all documents that relate to the initial claim determination and the appeal process -- are sent, along with a letter of explanation.

Late Filing for Medicare

A claim that is denied because of untimely submission (submitted after the Medicare deadline) is not subject to appeal.

Medicare Appeals

Medicare participating providers have appeal rights. Note that there is no need to appeal a claim if it has been denied for minor errors or omissions. The provider can instead ask the MAC to reopen the claim so the error can be fixed, rather than going through the appeals process.

The Medicare appeal process involves five steps:

(1) Redetermination -- The first step is a claim review by an employee of the Medicare carrier who was not involved in the initial claim determination. The request, which must be made within 120 days of receiving the initial claim determination, is made by completing a form or writing a letter and attaching supporting medical documentation. If the decision is favorable, payment is sent. If the redetermination is either partially favorable or unfavorable, the answer comes as a letter called the Medicare Redetermination Notice (MRN). The decision must be made within 60 days; and the letter is sent to both the provider and the patient.

(2) Reconsideration -- The next step is a reconsideration request. This request must be made within 180 days of receiving the redetermination notice. At this level, the claim is reviewed by qualified independent contractors (QUCs).

(3) Administrative law judge -- The third level is a hearing by an administrative law judge. The amount in question must be over $130, and the hearing must be requested within 60 days of receiving the reconsideration notice.

(4) Medicare Appeals Council -- The fourth level must be requested within 60 days of receiving the response from the hearing by the administrative law judge. No monetary amount is specified.

(5) Federal court (judicial) review -- The fifth and final Medicare appeal level is a hearing in federal court. The amount in dispute must be at least $1,350, and the hearing must be requested within 60 days of receiving the department appeals board decision.

Patient Billing and Adjustments

Effective patient billing begins with sound financial policies that are clearly communicated to patients so that they understand their responsibilities for payment. The process continues throughout the medical billing cycle, as patients' eligibility and benefits are verified, charges are carefully posted to the practice management program, clean claims are submitted, and RAs are received. At this point, the PMP is updated.

The payer's payment for each reported procedure is entered. The amount the patient owes for each reported procedure is calculated. If any part of a charge must be written off due to a payer's required adjustment, this amount is also entered. The PMP uses this information to update the day sheet, which is a summary of the financial transactions that occur each day. The patient ledger is also updated. These data are used to generate patient statements which are called patient ledger cards when billing is done manually rather than by computer. Patients may owe coinsurance, deductibles, and fees for noncovered services.

Day Sheet

Report summarizing the business day's charges and payments.

Patient Ledger

Record of a patient's financial transactions.

Patient Statement

Shows services provided to a patient, total payments made, total charges, adjustments if any, and balance due.

Patient Statements

Statements are mailed (or sometimes emailed) to patients for payment. They must be easy for the patient to read, and they must be accurate. They contain all necessary information so that there is no confusion about the amount owed.

Cycle Billing

Type of billing which divides patients with current balances into groups to even out monthly statement printing and mailing.

Guarantor Billing

Grouping patient billing under the insurance policyholder.

Cycle Billing Versus Guarantor Billing

Instead of generating all statements at the end of a month, practices follow some kind of billing cycle to spread out the workload. Cycle billing is used to assign patient accounts to a specific time of the month and to standardize the times when statements will be mailed and payments will be due. If the billing cycle is weekly, the patient accounts are divided into four groups -- usually alphabetically -- so that 25 percent of the bills go out each week.

Practices may send statements to each individual patient, or they may send one statement to the guarantor of a number of different accounts, called guarantor billing. For example, if a patient is responsible for his own bill as well as the bills of his wife and children, all of the family's recent charges can be categorized and sent together on one statement.

Patient Advocacy

Patients often have complaints and problems with their health plans that they become aware of when they receive their bills. The medical administrative assistant may serve as a go-between to contact the carrier and get questions answered. Handling these situations with expertise and objectivity can build good will for the physician's office by using problem-solving and communication skills to fulfill this role.

The first step in answering patients' inquiries about claims is to find out exactly what the problem may be. Ask the patient whether he or she has (1) contacted the health plan; (2) talked to the service representative; and (3) reviewed and understands the policy. Often, the answer is no. The patient may not understand the insurance policy or may be confused about the rules, such as in-network and out-of-network billing. On other occasions, the payer has made an error, and the patient is correct.

Difficult Conversations

Do not take negative conversations personally; patients may be frustrated and upset with the situation.

Understandably, patients get upset when they receive unexpected large bills or incorrect payments or when payments are delayed. The medical administrative assistant is the patients' advocate with the health plan. Sometimes the problem is just a misunderstanding because the patient does not know the right questions to ask, does not understand the answers, or is unaware that benefits have changed. In other situations, the patient may accuse the office staff of billing incorrectly. In these cases, try to listen carefully for the facts without letting feelings interfere.

If the patient has already called the health plan but is still upset or confused, the medical administrative assistant should call again and listen carefully to the explanation. The patient may have been too stressed to understand it. Explaining the solution again to the patient may help clear up misunderstandings.

Techniques For Explaining Insurance Issues to Patients

Volunteer to explain. Speak slowly and calmly. Use simple language. Try to avoid insurance jargon. Explain more than once when necessary. Ask the patient "Do you understand?" or say "Perhaps I can explain that better." Remember, patients are under stress. Use respect and care.

Patient Refund

Money owed to a patient.

Nonsufficient Funds (NSF) Check

Check written from an account that does not have adequate funds to cover the check.

Credit Balances, Refunds, and NSF Fee Posting

Some situations require adjustments to the patient's account using the practice management program. The medical office focuses on accounts receivable, but at times the practice may need to issue patient refunds. Refunds are made when the practice has overcharged a patient for a service and the patient has a credit balance, so the extra amount needs to be repaid. Note that the balance due must be refunded promptly if the practice has completed the patient's care. However, if the practice is still treating the patient, the credit balance may be carried forward -- that is, noted on the patient's statement and account to be applied toward the copayment or other charges for the next visit. The amount may be listed as a credit on the statement.

Another adjustment to patient accounts occurs when a patient makes a payment by check, does not have adequate funds in his or her checking account to cover the check, and it is not honored by the bank. These checks are referred to as NSF checks, for "nonsufficient funds." They are also commonly called "bounced" and "returned" checks. A bank may also not honor a check if the account has been closed. When a practice receives an NSF notice from a bank, an adjustment is made in the patient's account, since the patient now owes the practice the amount of the returned check. In addition, most practices charge a fee for a returned check. The maximum amount of the fee is governed by state laws.

Collections

All activities related to patient accounts and follow-up.

Collecting Outstanding Patient Accounts

The term collections refers to all the activities that are related to patient accounts and follow-up. Collection activities should achieve a suitable balance between maintaining patient satisfaction and generating cash flow. While most patients pay their bills on time, every medical practice has patients who do not pay their monthly statements when they receive them. Many simply forget to pay the bills and need a reminder, but others require more attention and effort. A patient may not pay a bill for several reasons: 91) the patient thinks the bill is too high; (2) the patient thinks that the care rendered was not appropriate or not effective; (3) the patient has personal financial problems or just does not plan to pay the bill; (4) the bill was sent to an inaccurate address; and (5) there is a misunderstanding about the amount the patient's insurance pays on the bill.

A great deal of accounts receivable can be tied up in unpaid bills, and these funds can mean the difference between a successful and an unsuccessful practice.

Fair Debt Collection Practices Act (FDCPA) of 1977

Laws regulating collection practices.

Telephone Consumer Protection Act of 1991

Law regulating consumer collections to ensure fair and ethical treatment of debtors.

Regulations for Collection Activities

Collections from patients are classified as consumer collections and are regulated by federal and state laws. The Federal Trade Commission enforces the Fair Debt Collection Practices Act (FDCPA) of 1977 and the Telephone Consumer Protection Act of 1991 that regulate collections to ensure fair and ethical treatment of debtors.

Guidelines that apply include:
(1) Contact patients once daily ONLY, and leave no more than 3 messages per week.
(2) Do not call a patient before 8 a.m. or after 9 p.m.
(3) Identify the caller, the practice, and the purpose of the call; do NOT mislead the patient.
(4) Do not discuss the patient's debt with another person, such as a neighbor.
(5) Do not leave a message on an answering machine that indicates that the call is about a debt or send an e-mail message stating that the topic is debt. Instead just ask that the patient call your office.
(6) If a patient requests that all telephone calls cease and desist, do not call the patient again, but instead contact the patient via mail.
(7) If a patient wants calls to be made to an attorney, do not contact the patient directly again unless the attorney says to or cannot be reached.

State law may not permit contacting debtors at their place of employment, so this aspect needs to be checked. In addition to state and federal laws, the practice's policies for dealing with patients needs to be followed. If the practice chooses to add late fees or finance charges to patient's accounts, it must do so in accordance with these laws. Often, it is required to disclose these at the time services are rendered.

Equal Credit Opportunity Act (ECOA)

Prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because a person receives public assistance.

Truth in Lending Act

Law requiring disclosure of finance charges and late fees for payment plans.

Credit Arrangements and Payment Plans

A practice may decide to extend credit to patients through a payment plan that lets patients pay bills over time, rather than in a single payment. The Federal Trade Commission (FTC) enforces the Equal Credit Opportunity Act (ECOA), which prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because a person receives public assistance. If the practices decides not to extend credit to a particular patient, while extending it to others, under the ECOA the patient has a right to know why. Factors like income, expenses, debts, and credit history are among the considerations lenders use to determine creditworthiness. The practice must be specific in answering such questions.

Both the patient and the practice must agree to all the terms before the arrangement is finalized. Patients agree to make set monthly payments; if no finance charges are applied to the account, the arrangement is not regulated by law. However, if the practice applies finance charges or late fees, or if payments are scheduled for more than four installations, the payment plan is governed by the Truth in Lending Act, which is part of the Consumer Credit Protection Act. Patients must sign off on the terms on a truth-in-lending form that the practice negotiates with the patient.

Time Frames and Minimum Payment Amounts for Payment Plans

Practices have guidelines for appropriate time frames and minimum payment amounts for payment plans. A sample schedule may be:

$50 balance or less -- Entire balance due the first month
$51-$500 balance due -- $50 minimum monthly payment
$501-$1,000 balance due -- $100 minimum monthly payment
$1,001-$2,500 balance due -- $200 minimum monthly payment
Over $2,500 balance due -- 10 percent of the balance due each month

The practice works out payment plans using patient information such as the amount of the bill, the date of the payday, the amount of disposable income the patient has, and any other contributing factors.

Patient Aging Report

Report grouping unpaid patients' bills by the length of time they remain due.

Procedures for Overdue Bills

The medical office tracks overdue bills by reviewing the patient aging report. Like the insurance aging report, it is analyzed to determine which patients are overdue on their bills and to group them into categories for efficient collection efforts. Aging begins on the date of the bill. The patient aging report includes the patient's name, the most recent payment, and the remaining balance.

Information is divided into categories based on the statement's beginning date.

Current or up-to-date: 30 days
Past due: 31-60 days
Past due: 61-90 days
Past due: More than 90 days

Each practice sets its own procedures for the collection process. Large bills have priority over smaller ones. Usually, an automatic reminder notice and a second statement are mailed when a bill has not been paid 30 days after it was issued. Some practices telephone a patient with a 30-day overdue account. If the bill is not then paid, a series of collection letters is generated at intervals, each more stringent in its tone and more direct in its approach. Some practices use small claims court or outside collection agencies to pursue significant unpaid bills.

Posting Collection Agency Payments

A collection agency that is hired by a practice transmits monies it has collected according to the terms of its business associate (BA) contract. The payment is made up of amounts collected from various patients with various account ages. The agency includes a statement showing which patient accounts have been paid.

Payments are processed and posted. Each patient account is located and the payment posted to the correct charge. The PMP then subtracts the amount due from the account. Often an amount less than that which is due is accepted as payment in full, and the uncollected difference will be written off.

Uncollectible Account

Money that cannot be collected and must be written off.

Bad Debt

Account deemed uncollectible.

Writing Off Uncollectible Accounts

After the practice has exhausted all of its collection efforts and a patient's balance is still unpaid, the account may be labeled as an uncollectible account, also called a write-off account. Uncollectible accounts are those with unpaid balances that the practice does not expect to be able to collect and that are not worth the time and cost to pursue. Also, accounts over a year old have little chance of collection.

The practice must determine which debts to write off in the PMP and whether to continue to treat the patients. PMPs can be set to automatically write off small balances, such as less than $5.00. After an account is determined to be uncollectible, it is removed from the practice's expected accounts receivable and classified as bad debt.

Common Types of Uncollectible Accounts

The most common reason an account becomes uncollectible is that a patient cannot pay the bill. Under federal and state laws, there are means tests that help a practice decide whether patients are indigent. The patient completes a form that is used to evaluate ability to pay. A combination of factors, such as income level (verified by recent federal tax returns) as compared to the federal poverty level, other expenses, and the practice's policies, are used to determine what percentage of the bill will be forgiven and written off.

Another reason that an account is uncollectible is that the patient cannot be located, so the account must be written off.

Accounts of patients who have died are often marked as uncollectible. Large unpaid balances of deceased patients may be pursued by filing an estate claim or by working -- considerately -- with the deceased patient's family members.

Another reason for a write-off is a patient's bankruptcy. Debtors may choose to file for bankruptcy when they determine that they will not be able to repay the money they owe. When a patient files for bankruptcy, the practice, which is considered to be an unsecured creditor, must file a claim in order to join the group of creditors that may receive some compensation for unpaid bills. Claims must be filed by the date specified by the bankruptcy court so as not to forfeit the right to any money.

Practices only rarely sue individuals to collect money they are owed. Usually, unpaid balances are deemed uncollectible to avoid going through the expense of a court case with uncertain results.

Avoiding Fraudulently Writing Off Accounts

Practices must follow strict guidelines and the established office policy for write-offs. Both Medicare and Medicaid require a practice to follow a specific series of steps before an account can be written off. Writing off some accounts and not others could be considered fraud if there are discrepancies between charges for the same services.

Terminating the Provider-Patient Relationship

A physician has the right to terminate the provider-patient relationship for any reason under the regulations of each state. The doctor also has the right to be paid for care provided. The physician may decide to dismiss a patient who does not pay medical bills. If the patient is to be dismissed, this action should be documented in a letter to the patient that: (1) offers to continue care for a specified period of time after the date of the dismissal letter, so that the patient is never endangered; (2) provide suggestions of services that provide referrals to other physicians and offer to send copies of the medical record; and (3) does not state a specific reason for the dismissal -- the letter must be tactful and carefully worded.

The letter should be signed by the physician and mailed certified, return receipt requested, so there will be proof that the patient received it.

Locating State Regulations

Each state's insurance commission has regulations on handling terminating the provider's relationship with the patient that must be observed.

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