I thought this an interesting topic for this missive. In the scheme of the overall revenue cycle (RC), credit balances receive little attention though they are an important cog in the financial well-being of a healthcare enterprise. If not managed, credit balances can haunt clinics both financially and (potentially) legally. That is, if you don’t remedy outstanding balances, you can end up in Dutch (see Raising Arizona) with federal/state (Medicare/Medicaid) and commercial payers. And worse, if you know that you have a credit balance problem, and don’t address it, the Feds can come down hard on you (e.g. better to identify and remedy/self-report than for payers to find out on their own).
Lastly, if you’re planning an event like sale to a private equity (PE) firm or a health system, outstanding credit balances must be resolved before a transaction can occur. For groups with multi-million dollar credit balances (which I’ve seen) and cashflow issues, this can be…challenging.
Let’s take a deeper dive. While chatting with a colleague I learned about an enterprise that had several million dollars in patient credit balances. Yes, several million dollars. So that we’re on the same page, credit balances occur (generally) when the patient has paid more than what is due for the service provided. Let’s take an overly simplistic look via figure 1 below.
Figure 1
You’re a new patient and you have an appointment with Dr. X. Dr. X’s office collects $100 up front against your visit. Dr. X performs the service, a fairly comprehensive new patient visit (99204), and he charges your insurance company, InsCo1, $500. Now, InsCo 1 only pays Dr. X $285 for the visit[i], the contracted “allowable.” Dr. X must then “discount” or adjust off the remaining $215 balancing out the account to $0. Dr. X cannot “balance bill” you for the $215 and cannot collect that difference; he has an agreement with InsCo1 to get paid $285 for a 99204.
Getting in Dutch
Now arrives the problem. You’ve paid Dr. X $100, he has collected the $285 allowable from InsCo1, so theoretically Dr. X collected $385 for the service. (Your $100 plus $285 from InsCo1.) Technically, if not remedied, Dr. X is in violation of his contract with InsCo1 where they agreed to pay him, and he agreed to receive, $285 for a 99204. He’s effectively been overpaid for your visit. Thus, you have a credit account balance with Dr. X of $100.
While minor in the instant case, poor systems, policies, and claims adjudication processes can turn this mole hill into Mount Everest (but with legal vs. physical peril).
Some clinics simply stumble into this issue unintentionally due to poor oversight. Some, however, have a terminal problem and do not address the issue (since more dollars in the door means more pay for the shareholders). It seems after reaching the bottom of the hole, some clinics continue to dig.
Clinicians are obligated to reimburse credit balances. Many may take the approach that “…we’ll hold the credit and apply it to the patient’s follow up care.” (Which, in 35 years in the business, I’ve heard more than once.) What if there’s no follow up visit? This simply is untenable and possibly illegal.
In Dutch – State/Federal
Clinicians must adjudicate claims and remit patient credit balances as soon as practicable. If clinics can’t locate patients and/or the patient is deceased, there are state laws that dictate the course of action (e.g. escheat or unclaimed property laws).
And while credit balances on Medicare/Medicaid patients are a no-no, a federal statute speaks to clinics/health systems returning credits to commercial payers, as well (e.g. BC/BS, United, etc.). Vis-à-vis commercial payers, this statute indicates that when a person or organization “…knowingly….without authority converts to the use of any person other than the rightful owner, or intentionally misapplies any of the moneys, funds, securities, premiums, credits, property, or other assets of a health care benefit program…” (18 U.S.C.§ 669) they may be in jeopardy (my bold/italics above).
The challenge for clinics is that since they’re generally on “cash basis,” a dollar in the door is one that can be spent on expenses and/or shareholder compensation. So in Figure 1 above the clinic is (erroneously) recognizing the $385 in revenues even though that actual revenue should be $285. If not detected, the $385, less expenses, drops to the bottom line as profit. So noodle that in the multi-millions of dollars. If credit balances are endemic to the enterprise, we’ve conceivably overpaid our shareholders millions of dollars. Who wants to be the person to tell the doctors they now owe millions in patient credits? (Let’s just say that’s a hard conversation.)
This isn’t rocket science but it does entail a thoughtful approach to the entire RC; not just billing and collecting. As I’ve said before, the RC begins at the front desk. But it also includes accurate remediation[ii] of credit balances and a process to manage those in kind. While I’ve not heard much about Medicare chasing clinics for credit balances, there is a first time for everything. (Remember: Qui Tam [Whistle Blower] lawsuits can and do happen and “reporters” are entitled to up to 30% of what the government captures.)
[i] See my Forbes.com article Price Transparency Again: Eating the Elephant in Little Bites which discusses allowables
[ii] Financial controls, reconciliations, updating allowables/contractuals and reconciling to them, proactive action, holding back shareholder pay and possibly “reserving”
Read the full article here