How healthcare providers can streamline A/R through partnerships  

The efficient management of accounts receivable (A/R) is essential for maintaining the fiscal health and operational effectiveness of any healthcare organization. Finance leaders are increasingly recognizing the benefits of leveraging strategic A/R partnerships to improve revenue cycle operations, decrease costs and boost liquidity. It is imperative, however, that they take a systematic approach to understand which A/R partnerships, if any, are the right fit for them.

When to consider A/R partnerships

Healthcare providers that have identified inefficiencies or opportunities for improvement in their A/R processes may want to consider A/R partnerships. Challenges with any of the following may indicate a reason to seek support:

• Substandard and/or declining A/R key performance indicators (e.g., cash, A/R days, aged A/R, bad debt)
• Unsustainable and/or increasing collection costs (e.g., staff, technology, overhead)
• Difficulties consistently maintaining adequate revenue cycle staffing levels
• Trouble hiring staff with specific or costly skill sets
• Technology that is insufficient to support A/R teams
• Administrative overloads that detract from patient care
• Patient satisfaction issues that are related to billing
• Regulatory compliance concerns in the collections department
• The need for an immediate or near-term cash injection

It should be no surprise, then, that A/R partnerships are usually formed with at least one of the following goals in mind:

• Improving revenue cycle operations/metrics
• Reducing costs
• Increasing cash flow
• Boosting patient satisfaction

Recognizing a general need is just the beginning, however. Before engaging a potential partner, organizations should follow a series of systematic steps to see if a strategic A/R partner is right for them, beginning with identifying a more specific need.

Identify a need

Breaking A/R down into segments like the ones below will help isolate account populations that are most worthwhile to offload. To review their organizations’ A/R in greater detail, finance leaders should consider these components.

Payer. Differentiate between insured balances and self-pay balances. Billing challenges, recovery rates and partnership options will vary based on this simple division of accounts.

Complex/specialty claims. Separately analyze any populations deemed complex. Complex claims can loosely be defined as any population inherently more difficult to process. They typically require a specific skill set to work and often take longer to resolve. Common examples include Veterans Health Administration, workers’ compensation and motor vehicle accidents.

Denials. Categorize and review denied accounts. Some denials require more specific time and expertise to resolve. When the cost of collecting for a specific type of denial outweighs the cash gained from collection, consider alternatives.

 Balance. Group outstanding accounts into balance tiers (e.g., $1K+, $10K+, $100K+). This step is a prerequisite to establishing thresholds — explained in more detail below. The exercise should be combined with the other breakouts detailed below to find ideal candidates for offloading populations.

After classifying and bracketing the A/R, individually assess collection metrics like A/R days, work-in-progress and A/R aging for each segment to identify specific problem areas and backlogs. Once identified, always first consider what changes can be made in-house to solve root causes of subpar metrics. If that internal evaluation is lacking in any way or requires a material investment, it’s time to better understand the organization’s costs.

Understand the costs

Cost to collect is commonly used to measure the efficiency and effectiveness of collections. The calculation requires a detailed analysis of direct and indirect expenses including, at a minimum, salaries and benefits, equipment, technology and overhead. The existing data from this calculation should be leveraged to determine the cost, on average, per collections team member.

If the situation and data allow, employee cost for each segmented area should be calculated separately. Consider how much it costs to have a nurse write a time-consuming clinical appeal. Now consider how much it costs to have a follow-up representative quickly check a claim status online. These cost calculations will play a primary role in establishing A/R thresholds.

Establish thresholds

In nearly every circumstance, there is a dollar amount at which the costs associated with collecting a balance begin to exceed the amount of money collected. At this point, the organization is losing money when trying to collect the balance. To compute this threshold, organizational leaders should assign appropriately qualified finance and revenue cycle resources to run detailed analyses, factoring in A/R volumes, expected reimbursement, productivity and touches-to-resolution alongside any previously calculated costs. If the situation and data allow, thresholds for each identified A/R population should be separately allocated. Unless the cost to collect can be reduced, each threshold will serve as a strategic starting point for considering other collection options.

Refine the scope

Once segmented, threshold-based A/R groupings have been determined, the populations should be further refined to identify the number of accounts likely to pay without intervention. The most common way of doing so is to transfer A/R only after a certain number of days from claim submission. Once again, segment-specific analyses should be run separately to determine strategic cutoff times for each population.

To this point, financials have been mostly used to determine which A/R subsets to offload. There are, of course, many other reasons to seek outside collections support. At this point, the organization should consider which other challenges may be solved through A/R partnerships. Difficulties staffing qualified individuals, patient dissatisfaction with billing, the inability to implement necessary technology, tactics to offload compliance risk or the need for a quick cash injection all may be reasons that supersede financial thresholds.

Finally, the organization should be prepared to clarify whether the assistance being sought is a one-time, periodic or ongoing transaction. Whether these needs are likely to persist should be evident following a review of prior analyses paired with conversations with leadership.

4 partnership options to consider

Healthcare leaders have four main options when it comes to A/R partnerships:^a

Outsourcing.  A transfer of responsibilities to the partner

Factoring with recourse. A sale of A/R to the partner, where the partner has the right to sell uncollectible A/R back

Factoring without recourse. A final sale of A/R to the partner (often offered for self-pay segments, but rarely, if ever, for insured A/R populations)

Financing. A loan with A/R as collateral and with no transfer of A/R responsibility/ownership

To determine which option is best, every organization must weigh its operational needs, revenue opportunities and cost structures. Organizations should pursue financing deals only if they have the operational means to maintain responsibility over the A/R.

Operational need and accountability with accounts receivable (A/R) partnership options

A/R partnership option	Responsibility over A/R	Ownership of A/R	Risk
Outsourcing	Partner	Provider	Shared/provider
Factoring (with recourse)	Partner (transferrable)	Partner (transferrable)	Shared/provider
Factoring (without recourse)*	Partner	Partner	Partner
Financing	Provider	Provider	Provider

Outsourcing arrangements typically offer the highest rate of return (as a percentage of A/R) in part because they do not deliver cash up front. Factoring or financing should be considered as the means for an immediate injection of cash.

Revenue opportunity with each A/R partnership option

Outsourcing or factoring with recourse should be pursued to align financial incentives with the selected partner. The organization should seek a financing deal only if the financial need is temporary because it will be expected to be paid back in full.

Cost structure for each A/R partnership option

A/R partnership option	Common terms	Type	Timing
Outsourcing	Periodic inflow of cash	Variable	Aligned with collections
Factoring (with recourse)	One-time returnable inflow of cash	Fixed	Upfront
Factoring (without recourse)*	One-time permanent inflow of cash	Fixed	Upfront
Financing	One-time temporary inflow of cash	Fixed	Upfront

Performing these steps upfront will help significantly in filtering potential partners and streamlining the selection process. Some vendors may even withdraw from consideration based on the type or amount of A/R that is brought to the table.

Choose strategic partners

First — as with anything in healthcare — security and compliance standards are table stakes. Healthcare organizations should not engage with any prospective partner that lacks proper credentials. Second, it is imperative to follow through on prospective partners’ promises, ideally through referrals by trusted sources.

The following are key considerations under each approach.

Financing. When entering a financing deal, numbers should be the driving factor. The organization should expect a fair A/R valuation, low interest rate and desirable term/duration. In this structure, the provider maintains ownership over the accounts and thus also maintains the relationships and interactions with patients. Because a financing partner has no role in collections or patient satisfaction, little else needs to be considered.

Factoring (without recourse). Similarly, financials should drive the conversation when factoring without recourse, with one important addition: patient satisfaction. Even though ownership might change hands, patients will forever associate their debt and all associated collections with the healthcare organization — not the partner. Making sure any factoring partner will treat patients in alignment with the organization’s values therefore is imperative.

Outsourcing and factoring (with recourse). When outsourcing or factoring with recourse, selection of an A/R partner should be a much more involved process. Financial terms and patient satisfaction still play major roles alongside yet another addition: collection success rate. In these arrangements, revenue/costs are directly tied to the partner’s ability to successfully collect debt. Healthcare organizations should seek an organization that has the right team, expertise and technology to make the most of the organization’s A/R. In such ventures, regular interactions should be expected, and the partners should be considered an extension of the organization, which should ask of them everything it would expect of its own team. Expectations should be set around productivity, quality, communication and reporting. And the specific aspects of collections that will be shared and those that will not, should be explicitly documented to ensure everyone’s responsibilities are clear. 

Conclusion

The decision to strategically offload A/R is multifaceted and requires careful planning and execution. Institutions that follow a systematic approach to refining needs and assessing opportunities are likely to secure beneficial strategic A/R partnerships that will help them reach their financial and organizational goals. 

Footnote

a. Terms used here and in accompanying exhibits are based on commonly accepted terms. Individual contract terms may differ and should always be reviewed and considered independently.

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What led to the rise in A/R partnerships

Over the past five years, several major events have contributed to significant growth in the healthcare managed services market. Like many great innovations, much of the change was born out of necessity. The perfect storm, in this case, resulted from a combination of the following factors.^a

1 COVID-19. As with many things in recent history, it’s easy to point to COVID-19 as a catalyst for change. Its impact on healthcare’s rise in managed services is no exception. In 2020, COVID affected healthcare providers everywhere. They quickly became short on cash and short on labor — two of the most common reasons organizations seek accounts receivable (A/R) partnerships.

2 Labor challenges. Recruiting in healthcare has been especially difficult in recent years. Cross-industry competition to hire skilled workers has driven labor prices through the roof and approval to work remotely has become an expectation. An increase in investments in offshore labor, primarily by managed services vendors, has unlocked more cost-effective and available labor sources._^b

3 Increase in denials. During these difficult times there was an uptick in payer denials, ballooning A/R and the associated need for a workforce to manage the growing populations.^c

4 Technology investments. In 2020 and 2021, venture capitalists and private equity firms recognized this growth in demand and began funding healthcare technology ventures at a historical rate. Providers were quickly presented with an overwhelming number of options. Exciting advancements in automation and exponentially AI-enhanced solutions, along with the increased acceptance of web-based and cloud-based solutions, streamlined integration and implementation.

Seemingly overnight, healthcare providers were low on cash and short on labor, while payers doubled down on delays and denials. Meanwhile, armed with new funding, managed services and technology vendors began to expand and enhance their offerings.

These events conspired to increase both demand and supply more than ever. This confluence of events has brought a meteoric rise in managed services and created an environment rife with options for strategic A/R partnerships.

Footnotes

a. “Revenue cycle management market size, share & trends analysis report, 2024-2030,” Grand View Research.
b. Hut, N., “Amid positive signs financially, hospitals continue to grapple with high costs in labor and other areas,” HFMA, Oct. 17, 2023; and Hut, N., “Healthcare labor union activity gains steam: The consequences for hospitals and health systems,” Oct. 10, 2023.
c. Muoio, D., “Payers’ increasing claims denials, delays ‘wreaking havoc’ on provider revenue cycles,” Fierce Healthcare, Dec. 14, 2023.