We explore the challenges of managing debt in two ways. Firstly, from the point of view of managing a small business; secondly some of the issues peculiar to general practice .

• Part One – A small business perspective
• Part Two – Issues peculiar to specialist practice
• Checklist

Part One – A small business perspective

Managing debt focuses on receiving cash from patients as quickly as possible. Prompt collection of cash is critical to the financial health of your practice.

You should aim to collect payment from patients at the time of consultation. There will always be patients who do not pay immediately. These patients then become known as debtors. Bad debts arise when patients (who do not pay at time of consultation) never pay. The aim is to minimise or if possible, eliminate bad debts. Useful strategies to encourage patients to make swift payments include:

• Issuing an invoice a with a list of the service provided and the fee charged to each patient immediately after the consultation;
  
  
• Offering a discount for immediate payment (i.e. consultation fee of $100 if paid now or $110 if paid later).
  
  
• Mailing the invoice to the patient the same day if they leave without paying. Don’t leave it until the end of the month when you send out your statements.
  
  
• Providing an electronic payment option – supply your bank account details when issuing an invoice to patients to allow them to pay electronically. It makes life easier for your practice and your patients.
  
  
• Communicate your credit terms to your patients by way of notices in prominent places in the practice and detail any standard terms for payment on the invoice. For example “Payment is required within seven days of consultation”.  Refer to Credit Terms.
  
  
• On a weekly basis, a list of overdue amounts owed by patients should be prepared. If a patient has not paid seven days after the consultation, then the most effective way to chase up the arrears is by making a quick phone call to the patient.
  
  
• If payment has not been received 15 days after the consultation, then a statement should be sent to the customer indicating the overdue amounts with a big “overdue for payment” sticker on the statement.

Example
Imagine the annual consultation fee income for your practice is $1 million. If half your patients pay immediately ($500,000), the other half ($500,000) become debtors. Assume the average time to receive cash from patients is 45 days. If you have to borrow money to cover the delay in receiving these payments the additional interest cost (at 10%) to the practice is over $6,000 a year. This does not take into account any patients who will never pay (bad debts). If bad debts are 3% of total fees ($30,000), the total cost of patients not paying on time or not paying at all is over $45,000 per year. If you want to increase your profit by $45,000 per year, it is easier to manage patient debt rather than trying to see more patients.

Part Two – Issues peculiar to Specialist Practice

How do you juggle the ethical and social obligations of seeing patients versus the patient’s ability to pay their bill?  It is important to remember there is a person behind the outstanding account, so respect, diplomacy and firmness are some key approaches when managing debt.

There is no doubt that some people cannot afford to pay their account on the day, but if you make it easy for them to make regular payments or provide other arrangements to pay, then you are likely to receive payment, albeit a little later than anticipated.

Some patients will be up front with you and tell you that they can’t pay today; others may leave the surgery without paying or taking an invoice with them. A dose of prevention can be better than trying to retrieve the money in 60-90 days time.

In addition to patient debt, there may be debt owed to you by government agencies such as HealthPAC and ACC or private insurers. This debt can easily get out of hand if not actively managed. Make sure all payments are receipted in your PMS software, and any variations recorded. Any debt owed by these agencies after 30 days should be followed up until it is paid. Payment can be held up for many reasons and it is easier to supply additional or missing information when the debt is fresh rather than months down the track.

Internal credit control processes

• Upskill staff on how to ask for payment without creating offence.
• Document your credit control procedures for staff.
• Give one person the overall responsibility for following up patient debt.
• Promote a variety of payment methods or instalment plans.
• Overdue accounts to be cleared before patient is seen again (this is dependent upon the health status of the patient).
• Report on aged debtors at the end of each month as part of your management report procedures. See Management Reporting.
• Be up front with your patients – if there are extra charges for extra services you need to provide, i.e. an ECG, or a service in addition to the consult, then let them know. Put yourself in your patient’s shoes – no-one likes these types of surprises!
• Be vigilant – your front desk staff manage the receipt of money, ensure they are aware of how important it is for people to pay and to follow up with patients when they present for their appointment, if they have outstanding debt.

Too late – they are overdue!

An example of a standard process for recovering debt in specialist practice–

Date patient seen - 5th of month	Invoice given to patient – terms of credit printed on the invoice
End of the month	Statement sent to patient
14 days after end of month	Phone call to patient to request payment
30 days overdue	Letter to patient advising of debt collection process offering them the opportunity to make full payment within 7 days.
7 days after letter	Put in hands of the debt collector.

55 days before they go to the debt collector!  While this credit control example may be typical of a specialist practice, due to the nature of the relationship with its patients, it is not typical of most businesses who would be taking steps much sooner to recover debt.

Anecdotal evidence gleaned from experienced credit controllers and debt collection agents tell us that debt older than 90 days is very seldom recovered.  See Analyse your cashflow.

When sending a debt collection advice, some practices do so in the name of the Principal, and some do it in the name of the practice manager – it really is up to you as to who signs the advice. Make sure the doctor is aware of the steps you are taking to recover debt from his/her patient as they can also be of assistance here. Conversely, due to personal circumstances the doctor may also decide to write off the debt – again communication internally is the key.

Download the HealthyPractice®   examples of standard debt management letters. These letters are downloadable as a Word document and are subject to the following disclaimer.

They Just Won’t Pay!

There comes a time when the doctor or the practice manager (or both) need to decide if it is worth keeping this patient (a habitual non-payer) on the books.

The last straw, and a decision that we suggest you do not take lightly, is to ask the patient to leave the practice. On the rare occasions where this happens, a letter is written to the patient stating that:

• Due to the breakdown in trust as part of the patient/doctor relationship, you can no longer provide medical care to that person (or family);
• The outstanding account is with the debt collection agency; and
• Please advise as to which doctor they would like their medical records transferred.

See example of Last Resort Letter.

Checklist

How is your practice managing patient debt?

Work through the checklist below – your aim is to answer “yes” to all the questions below. For any questions that you answer no, consider using the strategies above.

Last Resort Letter

Dear Patient

Despite numerous requests for payment, your account still remains unpaid. As previously advised we have put this debt in the hands of our debt collection agency.

As a result of this breakdown of trust in our professional relationship, we can no longer provide medical care to you. Please advise our receptionist to which General Practitioner you would like copies of your medical records sent to, within 28 days.  Your General Practitioner may be able to refer you to alternative specialist.