'Finding the Bleed' to Cut Bad Debt

Editor’s note: This is the third of three parts on how to identify, cut, and manage bad debt.

Back in the “good old days” of healthcare, many providers considered that any bad debt converted into positive revenue as “gravy.”

W. Christopher Johnson is from North Carolina, and there, “as in much of the south, gravy makes everything better.” But bad debt, if it ever was gravy, can no longer be considered that. “We can’t take that stand,” Johnson says. “We have to have a management process in place for bad debt much as we have a management process for accounts receivable.”

At June’s annual meeting of the Healthcare Financial Management Association, Johnson, vice president of revenue cycle management, regional facilities, for Carolinas Healthcare System, co-presented an educational session on bad debt tracking tools and processes with Carolyn Swanson, corporate director of client services for Medical Data Systems, Inc..

One of the key takeaways from that session that was repeated by both speakers was “find the bleed,” as in identify where the bad debt is coming from.

Swanson pinpointed two individuals who can make finding bad debt much easier — a healthcare information management specialist and a financial analyst. Your HIM department “should be your best friend” and a financial analyst “is worth their weight in gold,” Swanson says. The first controls the data and the latter analyzes it for trends and trouble spots.

There are numerous analyses that can be conducted to find bad debt. “You’re going to find patterns and this will find you some revenue,” says Swanson.

One obvious place to begin is by department. While in most hospitals most of the bad debt originates from the EMD, there might be surprises about which departments come in second or third, all of which may present an opportunity for staunching the flow.

Swanson described one hospital where she found a considerable amount of bad debt was being generated by the surgery department. Upon investigation she found that many of the nurses were calming patients who were upset about their medical expenses by advising them that they didn’t have to pay. Now the nurses know to put patients in touch with patient financial services staff “rather than taking the patient out the back door.”

While broad examinations of bad debt by department can turn up trends, it also helps to become granular in approach. To address bad debt originating from an emergency room, the hospital analyzed the amount generated by physician and found some physicians were ordering radiology procedures based on admitting diagnosis yet other physicians (using the same diagnosis) were not.   This was a training pattern for use of best practices within the physician group.  A hit to bad debt was a concern as many of the procedures might have been avoided if using best practice. With this information, Swanson further analyzed the bad debt by procedure, even diagnosis, to identify patterns.