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Four Factors Help Hospitals Manage Bad Debt

Crowe Horwath LLP suggests changes that may increase hospitals' cash flow

Oct 05, 2011, 09:57 ET from Crowe Horwath LLP

CHICAGO, Oct. 5, 2011 /PRNewswire/ -- Higher out-of-pocket costs and flexible spending plan restrictions have increased patients' healthcare liabilities, such as deductibles, co-pays and co-insurance. Healthcare organizations then accumulate debt from patient liabilities that are not collected, known as bad-debt expense. Crowe Horwath LLP, one of the largest public accounting and consulting firms in the U.S., looks at operational control points that can help hospitals manage and reduce their bad-debt expense.


According to Francis Hollweck, a senior manager in Crowe's Healthcare Advisory Services group, if these payments are not identified or collected in advance of a procedure or at the time of check-in, it becomes much harder for the hospital to recoup the payment. "If a $20 co-pay is not collected right away, the billing department may have to mail multiple invoices, coordinate with the insurance carrier and eventually involve a collection agency," he said. "If hospitals put procedures in place to identify and secure patient liabilities upfront, they can reduce their bad debt, which for large hospitals can add up to millions of dollars."

Hollweck said Crowe recently worked with a 300-bed community hospital whose bad debt was about 3.5 percent of its annual revenues, which is above the national average of 3 percent. "By implementing an enhanced point-of-service interaction and a technology tool to confirm the accuracy of patient data, we were able to help it reduce bad debt to 2.9 percent, or by nearly $4 million, in just 18 months."

Hollweck notes that hospitals should focus their efforts on collecting co-pays from the patients who have the ability to pay, not those who meet charity guidelines, as there are state and federal programs designed to help the uninsured and underinsured.

According to Hollweck, to help minimize bad debt, hospitals should focus on monitoring and implementing the following operational control points:

  • Pre-service management. For scheduled procedures, hospitals should implement a process to validate all patient demographic data, including insurance information. Ideally, these out-of-pocket costs should be collected ahead of time, or at the minimum, on the day of the procedure.
  • Financial advocacy. Hospitals should have standard questions and electronic tools to quickly determine the most appropriate path for payments related to a patient's clinical services. For patients who may be financially compromised, it is most comfortable for them to immediately understand the charity or payment reductions available to them. This provides a hospital with more focused discussions with those patients who have the ability (including insurance coverage) to pay for their care. Segmenting patients along these lines not only reduces the prospect of bad debt, but studies have shown that it also increases patient satisfaction.
  • Department accountability. In this economy, conversations that involve asking for co-pays can be tough, particularly if the treatment was unexpected or severe. Hollweck suggests that all departments with points of patient entry – emergency, surgical check-in, outpatient radiology, etc. – follow an approved, standardized process designed to identify and clarify patients' financial liabilities. "Many organizations fear patients' responses to this kind of interaction. Most patients I've talked to are glad to have these discussions prior to service, rather than be surprised with a large bill later," he said.
  • Management reporting. Hospitals should monitor, track and manage uncompensated care performance metrics at all of their service sites. By tracking activity by patient type, service line and payor level, hospitals can better assess workflow productivity and determine which operational points to focus their efforts on moving forward.

For more information on Crowe's healthcare advisory services, please visit

About Crowe Horwath

Crowe Horwath LLP ( is one of the largest public accounting and consulting firms in the United States. Under its core purpose of "Building Value with Values®," Crowe assists public and private company clients in reaching their goals through audit, tax, advisory, risk and performance services. With offices coast to coast and 2,400 personnel, Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest networks in the world, consisting of 150 independent accounting and management consulting firms with offices in more than 580 cities around the world.

SOURCE Crowe Horwath LLP

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