The Pros and Cons of Hiring a Collections Agency

As reimbursements continue to decline, healthcare providers of all disciplines—including PTs, OTs, and SLPs—are feeling the pressure to step up their patient collection efforts. In a perfect world, patients would pay their bills in full and on time (as would payers), but that’s not always the case, which brings up the question: should your practice hire a medical debt collection agency to help you collect past due accounts? Or, would it be better to keep your collection efforts in-house? To help you make this very important decision, I’ve put together some pros and cons of bringing in an outside firm:

The Pros

1. It can help you collect money owed.

According to this QuickBooks article, an Ernst & Young study found that “third-party collection agencies recovered approximately $44.6 billion in post-commission debt in 2010.” That’s money that many “businesses would have written off...if it weren’t for the collector’s efforts.” To determine the dollar amount you may be leaving on the table by handling collections internally, audit your books to see what you’ve written off as bad debt over the past few years. You also may want to figure in the time and resources you’re currently devoting to debt collection efforts. As Barney Zeng—senior vice president and general manager of Transworld Systems—said in the above-cited article, “Contacting slow-paying accounts means sending letters and making phone calls.” And you may have to make a lot of phone calls, which eats up a lot of time that you and your staff could otherwise spend treating patients or bringing in new ones.

2. It can help with challenging accounts.

According to this Medical Economics article, “using a collection agency is different than other services.” That’s because “if the practice’s internal processes are well-designed and followed, then the collection agency should need to collect very little.” In other words, if you’ve implemented—and enforced—a clear patient payment collection policy that includes explicit expectations regarding payment and outlines how your staff should go about handling past due accounts, then you may only need an outside collection agency to step in and help with the really tough cases.

3. It can help take the heat off of your therapists—and your billing staff.

Reaching out to patients about their overdue balances can put a strain on the provider-patient relationship, which is why the Medical Economics article recommends that patient collection letters “go out on practice letterhead, but not under the doctor’s or staff member’s signature.” Instead, the third-party agency that’s “sending the letter should sign it.” Handling things this way can “help direct a patient’s unhappiness away from the doctor or the person ultimately handling the phone call.” Just be sure that everyone answering your phones knows how the letters are signed. That way, if patients call in response to receiving one, your staff will know where to forward their inquiries.

The Cons

1. It can be expensive.

According to the above-cited Medical Economics article, “The cost of employing a collection agency is significant, generally ranging from 20% to as high as 50% of the amount collected.” In other words, depending on the amount of debt you’re writing off each year, paying for a collections agency may not be worth the price tag—especially if you can tune up your internal processes to increase your collections. That being said, Zeng cautions providers to think about more than the fee: “You should look at the return on your investment, references and referrals for the collection agency, and the amount of convenience it offers.” After all, “a lower fee rate on zero dollars collected is zero,” he said.

2. It could cause some hard feelings.

As we’ve discussed in the past, most patients want to pay their medical bills; some simply can’t afford to (which is why we recommend establishing payment plans). And receiving a call from a collections agency can put a bad taste in a patient's mouth, especially if that agency uses tactics that are anything less than polite and professional. The author of the Medical Economics article explains that “because an agency represents the practice in the eyes of the patient, it is important to know what the agency will say to patients and what actions it may take to collect outstanding accounts.” The last thing you want is to be associated with an agency that may unnecessarily bully your patients or push legal boundaries.

3. It may not be as fruitful as you want it to be.

As I wrote in this post, the ACA International reported that once healthcare practices turn bad debt over to a third-party, they recover less than $14 for every $100 owed. Now, that could be because—as mentioned above—many practices only turn over their toughest collection cases to agencies. Or, it could be because once the situation gets to the point that the provider decides to rope in a collection agency, patients are considerably less willing to cooperate. Either way, to get the most bang for your collection buck, be sure that you’re not only enforcing your patient payment policy, but also taking the time to fully train your staff on how to:

1. handle financial conversations with patients, and
2. set clear expectations from the get go.

That way, you’ll minimize the amount of bad debt you have to deal with.

4. It may be too soon.

In the above-cited post, I also shared this alarming stat from Greenway Health: “Only 32% of patients who owe money ever receive a collection letter from the practice.” That means 68% of patients may not even know they owe a dime. With that in mind, it makes sense to take a really thorough look at your own collection processes (and fill in any gaps, like missing collection letters) now—before you turn to a third party for help. According to the Medical Economics article, “Collection agencies can play a role in effectively managing accounts receivable. However, practices frequently turn to collection agencies prematurely.” That’s because many providers don’t realize that “the proper role of a collection agency is to handle outstanding accounts receivable that have gone through the practice’s established internal processes without success.”

(To learn the secret to collection letters that work—and snag two free collection letter templates that you can use in your practice today—check out this post.)

The Bottom Line

There’s no one-size-fits-all answer to the collections agency debate; some practices will benefit from bringing in outside help, and some won’t. However, once you know you’re running a tight ship in-house—one with a comprehensive collection policy that addresses bad debt—you’ll be in a much better position to decide whether bringing in a medical collections agency is the right solution for your practice. Should you go that route, the Medical Economics article suggests giving two agencies “a similar blend of accounts [to] see which one collects more.” Then, go with that one for the long haul. And, while we’re on the topic of agency selection, as the QuickBooks article points out, be sure any collection agency you’re considering is licensed in the area in which it will be collecting.

Does your practice use a collections agency? If so, do you feel the benefits of having an agency outweigh the drawbacks? Share your thoughts in the comment section below.