Slash Accounts Receivable the Way Hotels Do
Wednesday, September 06, 2006
We recognize that the credit card strategies described in Dr.
Eastern's commentary may not apply to all countries in which credit
cards are used.
The largest asset on your balance sheet is almost certainly,
believe it or not, accounts receivable. Collecting balances due has
always been a problem for physicians. After all, most of us receive
woefully deficient business training, when we get any at all. As a
result, many physicians fail to appreciate that aggressive
management of accounts receivable is key to any practice's
financial success, particularly in the current tight-money practice
Managing accounts receivable is, of course, easier said than
done. The traditional advice for minimizing accounts receivable has
always been to collect everything collectable at the time of
service (including, obviously, fees for all cosmetic services). But
some patients inevitably brandish the old "I forgot my checkbook"
excuse and escape without paying. And some fees, in particular the
patient-owed portion of most insurance plans, are difficult if not
impossible to calculate at the time of service and must be billed
But once a patient has left your office without paying, good
luck getting your money. According to one study, a physician's bill
ranks 19 out of 20 on the average consumer's payment priority list.
In other words, each month they'll pay their electric, gas,
telephone, and 15 OTHER bills before they get around to paying
So What's the Solution?
A growing number of businesses, including hotels and car rental
agencies, ask each customer at the beginning of the transaction for
a credit card, take an imprint, and bill balances to it as they
Geoffrey Anders, president of The Health Care Group, suggested
this in a talk he gave for my Office Efficiency course at the
American Academy of Dermatology (AAD) summer meeting last year, and
it struck me as one of those ideas we all should have thought of
After all, most people think nothing of handing a credit card to
a busboy in a restaurant, with little or no concern for what he
might do with it in the kitchen. Those same people blithely shoot
credit card numbers into a black hole on the Internet. So why
should they object to covering their medical bills the same
For a year and a half now, every patient who enters our office
has been handed a letter (see Figure 1) at the check-in desk
explaining our new policy: We will ask for a credit card number on
which any outstanding balances will be billed. At the bottom is a
brief consent for the patient to sign and a place to write the
credit card number and expiration date.
Figure 1. Letter for patients
To Our Patients:
As you know if you have ever checked into a hotel or rented a
car, the first thing you are asked for is a credit card, which is
imprinted and later used to pay your bill. This is an advantage for
both you and the hotel or rental company, since it makes checkout
easier, faster, and more efficient.
We have implemented a similar policy. You will be asked for a
credit card number at the time you check in and the information
will be held securely until your insurances have paid their portion
and notified us of the amount of your share. At that time, any
remaining balance owed by you will be charged to your credit card,
and a copy of the charge will be mailed to you.
This will be an advantage to you, since you will no longer have
to write out and mail us checks. It will be an advantage to us as
well, since it will greatly decrease the number of statements that
we have to generate and send out. The combination will benefit
everybody in helping to keep the cost of health care down.
This in no way will compromise your ability to dispute a charge
or question your insurance company's determination of payment.
Co-pays due at the time of the visit will, of course, still be
due at the time of the visit.
If you have any questions about this payment method, do not
hesitate to ask.
The Belleville Dermatology Center, PA
I authorize The Belleville Dermatology Center, PA to charge
outstanding balances on my account to the following credit
Visa MasterCard American Express Other:_______________
Account number ____________ Expiration date
Name on card (please print) _____________________________
Signature ____________________ Date____________________
For the first year it was optional, but starting this past
January, it became mandatory. Why? Because in only a year our
accounts receivable totals dropped by nearly 50%. They are now the
lowest they have ever been, in all categories, in my 24+ years of
And by the way, this is also an excellent way to enforce any
no-show charges your practice might impose.
Handling Patient Objections
I know what you're probably thinking: Don't your patients object
to signing, in effect, a blank check? Some did object initially -
mostly older people. (Nowadays a wide chasm seems to have formed in
financial philosophies, right around age 35. If you're older than
that, for example, when you receive your checking account statement
each month, you probably say, "Thank goodness they still include
copies of my cancelled checks." If you're younger, you probably
say, "Why do they send all this PAPER with each statement?")
But when we explain that we're doing nothing different than most
hotels and car rental agencies, as well as most restaurants and
online businesses, and that it will work to their advantage by
decreasing the bills they will receive and the checks they must
write, most come around.
And they're not "signing a blank check" - all credit card
contracts give cardholders the right to challenge any charge
against their account, and we remind them of that.
Keeping It Secure and Legal
You may also be wondering how we store the credit card
information we collect, and how we keep it secure. We keep each
patient's credit information in that patient's chart, where it is
guarded with the same level of security as the rest of his or her
Some offices prefer to store it all in one place - a
Rolodex-type container, or an Excel (or QuickBooks, or similar)
computer file, for example - protected by locked cabinets,
passwords, and any other precautions that might be necessary.
I have been asked if this process should be considered "balance
billing," and therefore illegal. "Balance billing" is asking
patients to pay the difference between your normal fee and the
insurer's normal payment. If you have a contract with the insurer,
that is indeed illegal - or more precisely, it's a breach of your
But what we charge to the patient's credit card is the portion
of the insurer-determined payment not paid by the insurer and is
therefore not "balance billing." For example, we bill $200, the
payer approves $100 and pays 80% of that. The remaining $20 is the
patient's responsibility, and that is what we charge to the credit
card rather than sending the patient a statement for that
I have also been asked how I would respond to queries from
patients or insurance companies regarding the legality of such an
arrangement. First, legality is not an issue. I would ask any
patients who questioned the practice (none have so far) if they
question the legality every time they check into a hotel or rent a
As for insurers, my response would be that it's none of their
business. You have every right to collect the patient-owed portion
of your fees, and insurance companies have no say in how you do
No Credit Card?
Finally, there is the inevitable question of how to handle
patients who refuse to hand over a number, particularly those who
claim they have no credit cards. We used to let refusers slide, but
as mentioned, our policy is now mandatory. Patients who refuse
without a good reason are asked, like any patient who refuses to
cooperate with any standard office policy, to go elsewhere. Life's
And "I don't have any credit cards" does NOT count as a good
reason. Everybody has a credit card in this day and age, except
deadbeats with such awful credit that you don't want them anyway.
My office manager does have the authority to make exceptions on a
case-by-case basis, however.
One surgeon I know asks "no credit card" patients to pay a
lawyer-style "retainer" of $500, which is held in escrow and used
to pay receivable amounts as they come due. When presented with
that alternative, most suddenly remember that they do have a credit
card after all.
Credit card companies have begun to appreciate this largely
untapped segment of potential business for them. Soon, you may
begin receiving help from them in setting up a system similar to
mine, as well as other payment plans for your patients.
A few credit companies are even promoting cards specifically
meant to finance private-pay portions of healthcare expenses. One
HELP card. (I have no financial interest in HELP card or any
other credit company.)
It's time for physicians to do more of what we do best -
treating patients - and leave the business of extending credit to
those who do that best.