Don’t stop with primary collections: the value of a secondary bad debt placement strategy

In today’s environment, hospitals simply cannot afford to leave money on the table. With margins tightening under revnue-dampening pressure from various angles, providers are having to adapt and find tenacious, comprehensive solutions to keep operations running smoothly and recover every potential dollar of net revenue.

For many leading hospitals, a major component of that adaptation has involved adopting best practices around their revenue cycle processes, specifically, secondary debt placements.

How it works

Secondary agencies take over bad debt collection efforts after uncollected accounts have already run their course through the hospitals’ 120-day internal efforts and six to 10 months (typically) with a primary agency — or multiple agencies working simultaneously. Many hospitals simply stop after primary collection efforts; in times of wider margins and fewer external pressures, this take-what-we-can-get strategy may have served their needs. Ending the process here, however, means that hospitals are potentially neglecting millions in subsequent revenue/cash recoveries.

The natural churn of primary collections is where so much revenue can get missed. It is within this dynamic that the value of secondary placements lies.

Though vendors taking secondary placements will typically charge higher fees — they are, after all, taking on debt that has languished uncollected for a year or more — these companies are able to play a much longer game. As a result, they can take time and devote more resources to working with patients. To be clear, secondary placements aren’t correcting a mistake in primary collections’ model; they’re merely the next step in the fully realized revenue cycle. In fact, many successful primary agencies also take secondary placements.

The benefit of time

By the nature of their position, primary collection agencies are incentivized to be front-end loaded. Each month, as fresh accounts roll in from their customers, they deploy finite resources to collecting on those new accounts. And, as they well should. The greatest conversion will always come from those new accounts and, in the name of keeping their clients happy, it is wise to focus their efforts accordingly.

What this strategy misses, however, is the benefit of time. A great deal can happen in patients’ lives over the first year of internal and primary collections, as well as the ensuing 10 to 24 months. Remember that almost none were in the hospital by choice, and few want to abandon their debt entirely. By the time secondary placements enter the picture, finances may have stabilized enough for teams to work with patients to close out accounts that primary collections had to ignore or simply were unable to contact.

Partnerships that add value

In healthcare, you either provide direct patient care or support those who do. Revenue cycle vendors who do not understand this dynamic and treat primary or secondary collections as a zero-sum endeavor can exacerbate patient difficulties and potentially reinforce negative association with the facility.

Conversely, vendors who understand the partnership aspect of these engagements can help patients have a positive experience and find a clear path to resolving outstanding debt. As with primary collection placements, finding a full-service revenue cycle partner familiar with your patient population can help you work through potentially difficult financial issues and help the health system improve net revenues and lower expenses related to uncompensated care.

Secondary collection efforts tend to be steady and can mean hundreds of thousands of dollars per month (millions per year) for the hospital’s bottom line. On top of this, by following the full revenue cycle through to the end, secondary placements can also help hospitals identify performance issues in primary collection agency efforts or even within internal operations. If steady secondary collections suddenly spike, it can sometimes be a red flag that primary collections have begun letting too many accounts fall through the cracks. By serving as a check on primary collections, secondary placements are a vital component of any hospital’s collection efforts.

With so much upside in seeing collections through, it’s surprising that so many hospitals stop after efforts from internal collections or with primary collection agencies. However, hospital finance teams and revenue cycle leaders no longer have a choice: They must take advantage of secondary collection strategies and a full suite of delinquent-account-resolution options to reduce uncollectible write-offs and increase margins.