Billing out of house can boost cash flow

Consultants who have outsourced their billing and collection have seen bad debts fall to less than 0.5% and revenue increased by up to 25% – plus a consistent weekly cash flow. Garry Chapman sets out what he sees as the plusses

Coping with billing and collection has become increasingly complex over the past few years – as my articles in Independent Practitioner Today over the last four months have shown.
The consultant or secretary or practice manager has to spend an increasing amount of time ensuring every aspect is carried out correctly and efficiently.
But the current recession, the longest in living memory, means ensuring your finances are in order has become of paramount importance.
The focus must be on seeing that:

  • I nvoices are raised in a timely manner;
  • Every procedure is billed correctly, taking into account the nuances of each private medical insurer;
  • Invoicing has the correct CCSD codes combined with the correct fee schedule for each private health insurer.

Once you get all this right, the money still needs to be chased in the correct manner and collected quickly to avoid bad debts.
Typically, the above will be left to the secretary – who is often the busiest person in the practice and is frequently expected to be a medical secretary, receptionist, PA, sales ledger clerk, insurance guru as well as a debt collector.

Rare breed
The person with the skill set required to complete all of these tasks as well as fit them all into a working week is either a very rare breed or simply does not exist.
It is an impossible task for one person to cope with once the practice grows exponentially from what is typically a slow start. No surprise then that I find, as the practice continues to grow, the secretary is so busy dealing with the medical side of the practice that the billing and collection gets frequently neglected.
Even if the secretary manages to do all of the above, doing it cost effectively within the practice has become almost impossible due to the continued increase in running costs, the latest being an increase in postage costs from the Royal Mail of between 30-40% depending upon class of post used.
If you add bad debts into the above equation, then the cost of doing it in-house really escalates.
From our experience, when consultants do the billing and collection in-house, they can have bad debts running at between 5% and 20% of the annual turnover. That is an awful lot of money to give away.
And the complexity of managing all of the above is likely to increase as pressure mounts on healthcare systems due to factors such as the ageing population – which continues to increase due to advancements in technology and treatment – and the insurance industry, which is likely to introduce stricter regulations on payments and claims.
Another factor to consider is that HM Revenue and Customs continues to target consultants in private practice and is currently doing so under its Tax Health Plan. So if this critical area is not well documented with a system which is easily auditable, then if you get selected for an investigation, it could end up a very costly and time-consuming experience.

Financial audit
In order to determine the current cost of doing your billing and collection within the practice, you should carry out your own financial audit:

  • Establish how much time you and your secretary spend each week on all aspects of raising invoices, reconciling payments, chasing outstanding invoices and deal ing with queries from patients/insurers that relate to outstanding invoices – then work out the cost of the time based on the salary paid.
  • Check how much you spend on postage a week that relates to the billing side of your practice.
  • Establish how much you spend on phone calls a week and calculate what percentage of that relates to the billing side of the practice. And take into account all of the associated stationary costs.
  • If you take payment using credit and debit card, then establish how much your monthly bill is for your practice and then add to that the cost of your banking.
  • Calculate how much bad debt you have incurred over the past four years and then divide this by four to provide an average cost of bad debts.

Although some costs will vary dependent upon your location and circumstances, I have provided an example of a financial audit on a practice with a turnover of £150,000 (see box on the left).

What’s the alternative?
If you outsource your medical billing and collection to a specialist organisation, all aspects of this critical area are carried out by specialists who work full-time on behalf of your practice.
If consultants want to maximise their time with patients, leave their secretaries free to focus on the patients without the finance issues clouding the relationship, to have steady cash flow and minimal bad debts, they need to let professionals perform their billing and collection tasks.
Using a specialist organisation means the practice receives the maximum amount they are entitled to for the patients’ treatment and also keeps the administrative costs as low as possible.
The consultant will also not have to spend valuable time learning and keeping abreast of the changes in the private medical insurance schedule – allowing them to maximise time for their patients, which, in turn, generates further income.
Typically, the fee charged for this service includes all of the associated labour, phone calls, stationary and postage, so not only do you get all the benefits listed in the box above, but you save money by reducing running costs.
Garry Chapman is managing director at Medical Billing and Collection, which has 20 years experience helping consultants new to private practice and prominent group practices

Ouch! The true cost of DIY billing

  • It was established in one practice that I dealt with that the secretary spent a minimum of one day a week on the billing and collection, meaning the annual cost was £4,500 a year
  • The postage relating to the above was calculated at 25 documents a week, which included invoices, chasing letters and receipts. This equated to £598 a year and will shoot up to £780 following April’s Royal Mail postal increases, with the minimum cost of first class up from 46p to 60p per letter – a 30% rise
  • The administration cost of phones and all related stationary costs attributed to the billing and collection process were calculated at £10 a week: £520 a year
  • Payment of £385 a week was taken by credit card (£20,020 a year), which – with a transaction fee of 3% – resulted in an annual cost of £600. Added to this was the annual fee of £240, giving a total cost of £840. Bank charges for handling all of their other cheque payments amounted to £510 a year, giving an annual total of £1,350
  • The debt for this practice was running at an average of 9.8% over the last four years, which amounted to £14,700 a year. So even allowing for the tax write-offs, this still represented a minimum loss of over £8,000 annually
  • Adding all of the above costs together produced an annual figure of just over 10% of turnover, resulting in an annual cost of £15,150 a year

The Benefits of outsourcing

  • The relationship between the consultant and the patient is kept
    purely at the medical level, which ensures relationships are untainted
    regarding the commercial aspects
  • Expertise in the nuances of the rules of each private medical insurer
    about how the CCSD codes should be used ensures that billing is
    correct for each insurer and so the right revenue is achieved
  • The expertise in ensuring that all the relevant information is present
    and correct when raising the invoice means there are no delays in the
    insurer or the self-payer accepting the invoice
  • There are no delays in raising the invoice, so invoices can be chased
    in a timely manner ensuring the practice enjoys consistent cash flow
  • There is an efficient process in place for chasing unpaid invoices,
    following up on shortfalls and dealing promptly with any problems
    with claims, which results in vastly improved cash flow combined with
    minimal bad debts
  • A variety of management and tax reports are available that can be
    tailored to the requirements of each practice, including having online
    access to your own data
  • Any practice disruption caused by a secretarial absence for sickness
    or holiday does not affect the all-important billing and payment
    collection, so continuity is assured

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