Jack Stout/Alan Jameson

JEMS Magazine

April 1983

 

 

Billings. Collections and Accounts Receivable

 

Before we dig in, let me stress the point that every strategy and technique discussed in this series has been utilized successfully in a real world application, sometimes in several different systems. In each case, we developed the strategy to assist a manager in solving a difficult financial problem which, if left unresolved, would have seriously impaired that manager’s ability to do his job… to furnish the factors of production essential to high performance field operations.

 

In each of these cases, the situation initially looked impossible, a perfect garden spot for growing excuses. And I can almost guarantee that every one of these techniques will, from some important person’s point of view, be impossible to apply to your situation.

Just keep in mind that it is management’s job to find a way, and when a manager thinks it’s impossible, then for that manager, it usually is.

 

We have been called in to assist EMS provider agencies with improving billing, collection, and accounts receivable management practices a number of times, and in every case, we found the existing billing and collection operations to be either nonexistent, handled poorly and unprofessionally by the agency itself, handled more poorly and more unprofessionally by some other department of local government that “already had a computer,” or handled ineffectively in conjunction with a related hospital billing activity. We have also seen a few cases where a private firm was contracted on a percentage basis to handle billing and collection activities for the EMS organization.

 

We have been successful in establishing effective billing and collection operations in two different ways; we either designed, installed and debugged the entire billing and collection operation that was then housed within the EMS management agency itself; or we contracted on a negotiated flat-rate per billable run, to provide all billing, collection, data processing, statistical reporting and accounts receivable management services ourselves.  (We have not and will not contract to provide such services on a percentage basis, for reasons we shall discuss later.)

 

In several cases, we have advised our clients that in order to justify, politically and commercially, a more cost-based rate structure and more aggressive billing and collection policy, the equipment, response times, quality of care, and professional conduct must first be improved. That meant that we were forced to find a way to finance substantial system upgrading before we could install the rate structure and billing system that would eventually pay for it. Our work in Fort Wayne was an excellent example of this strategy in action.

 

This presents a sort of chicken and egg problem. How can one convince commercial lending institutions that the new and improved ambulance service will perform both operationally and financially as predicted? In one case, we were able to assist the city government in borrowing, using a municipal lease, the expansion capital (i.e.,$2,500,000), and in turn the equipment was subleased at cost to the ambulance authority. The ambulance authority makes the lease payments from fee-for-service revenues, and if all goes as planned, the city government will pay nothing. It’s kind of like guaranteeing the loan on your kid’s car, except that in this case, the “kid” had damn well better make the payments.

 

 

We have only found it necessary to use the city’s borrowing power in one case. Elsewhere, we have managed to develop sufficiently detailed and persuasive cash flow projections to convince commercial lending institutions that the entire business structure makes sense and will be sufficiently well-managed to succeed. In these cases, the city government was not involved directly in the financing arrangements, and is not legally liable in the event of default. As you might expect, working this kind of a deal takes more time, energy, and consulting costs on the finance side, but saves about as much time, money and consulting costs on the political side.

 

Make It Worth the Price

 

I will discuss capital financing arrangements more thoroughly later in this series, but for now just keep in mind that sharp looking equipment, rapid response times, good clinical care, and professional courtesy and conduct are prerequisites to a successful billing and collection operation. If your service is not already excellent, then you will have to make it excellent before you can expect to charge and collect the kinds of prices that go with relatively unsubsidized high-quality service.

 

Humane But Effective

 

Take your pick: Survivors who grumble about the size of their ambulance bill; or heirs to the estates of dead customers, perhaps impressed that the ambulance fee took so small a bit of their inheritance. It is not the job of the EMS administrator to cater to the expectations of a public that is, and probably must remain, largely uninformed about both cost and value of high performance ambulance care. It is the job of the EMS administrator to do what is necessary, to take the heat when necessary, to meet the needs of the system’s patients – not the expectations of popular opinion.

 

It is not humane to allow a tradeoff of fast response times and superb clinical performance for a cheaper rate structure. It may be more popular, but it is not more humane. But that does not mean that the “good guy” approach to revenue management must be replaced by cold-hearted collection practices.

 

To guide our work in developing or operating billing and accounts receivable management services for high performance ALS systems, we follow a set of standards and assumptions which our clients must agree to accept. We will not assist with the development of an ALS billing and collection system unless we are allowed to work within the following general framework:

A.  ALS is Part of Health-Care Industry

 

     We assume that fee-for-service is not the best way to finance ambulance services, nor is it a very good way to finance America’s health-care industry in general. However, for reasons discussed in Part I of this series, given the choice of trying to finance the ambulance industry from local tax sources versus casting our lot with the rest of America’s health-care industry, we will view ALS ambulance service as part of the health-care industry—not as part of a vast framework of loosely connected local services.

 

B.  High Performance Required

 

    Substandard or mediocre service and response time performance cannot be justified in any sense, and certainly cannot furnish justification for a rate structure carrying more than token fees. High performance must precede the rate structures that support such performance.

 

C.  Efficiency Must Improve

 

     Revenues collected from fees must not be used to support inefficient operations, or even inefficient operations capable of high performance. It is not uncommon to find a well-respected ALS system, capable of delivering high quality service, attempting to employ a more professional and more aggressive billing and collection system mainly as a means of preserving a status quo of enormous inefficiency, top-heavy administration, and management practices left over from the last decade. If a system is already so heavily subsidized from local tax sources that better management could provide equivalent service without fee-for-service revenues, then neither high fees nor more aggressive collection practices can be justified. (I will discuss questions of efficiency and cost containment in greater detail in Part 4 of this series.)

 

D.  Full Cost Based Rates

 

     Assuming that performance is excellent and system costs are not bloated with inefficiencies, then the rate structure should be established at full system costs, including all direct operational and administrative costs, scheduled equipment replacement costs, debt retirement if appropriate, reasonable losses from uncollectibles, a modest contribution to a growing operating capital reserve and, up to a point, to a growing net worth (or the equivalent of net worth in terms of governmental enterprise fund accounting).

 

E.  Some Uncollectibles Are Good

 

     As long as America’s Medicare and Medicaid programs are structured as they are today, the rate structure of an ALS ambulance service should include a minimum cost factor of at least 30 percent of total receivables generated. And, except under unusual conditions in the local economy, it should not be necessary to sustain losses from uncollectibles in excess of 40 percent of receivables generated. That is,  if your system is collecting more than 70 cents of every dollar billed (before any accounting adjustments), then chances are your system is collecting money from people who have slipped through the cracks of America’s health care finance programs, who truly needed the service, and who truly cannot afford to pay. On the other hand, if your system fails to collect at least 60 cents out of every dollar billed (again, before adjustments are made), then chances are your billing, collection and accounts receivable management program needs to be overhauled.

 

F.  Zero Subsidy Rates Made Clear

 

    The only justification for pricing service below full actual cost is a decision on the part of local government to reduce price deliberately through the introduction of subsidy. If such a decision is made by local government, it should be made in the clear light of day, with EMS management presenting multiple optional rate structures showing the effects of various levels of subsidy upon the rate structure, including the rate structure which would be in effect without any local subsidy. As men and women sharing the same industry, we must all recognize that below-cost rate structures depress reimbursement levels for both the subsidized systems and their unsubsidized neighbors as well.

 

G.  Different Deals for Different Cities

 

     EMS administration should possess sufficient sophistication to allow different rate structures to be charged in different political jurisdictions served by the same system, primarily to accommodate different local philosophies concerning subsidization of service. That is, inflexible billing and collection systems must not be allowed to stunt the regional growth of ALS systems.

 

H.  Minimize Cost to Patient

 

    Rate structures and administrative procedures should be designed to maximize revenues from third-party payers, while minimizing out-of-pocket expenditures by patients and their families.

 

I.  Neutralize Bad Incentives

 

   Either the rate structure or the financial structure of the system itself should be designed to neutralize financial incentives to overserve or underserve any individual patient or neighborhood.

 

J.  Prepare Reimbursement Claims for the Elderly

 

    Billing procedures should include automatic and routine preparation of Medicare, Medicaid, and private insurance claim forms for all billings related to elderly patients.

 

K.  Offer Fixed Fee Pricing of Uninsured Costs

    Some provision should be made to allow elderly people, as well as younger people with chronic health problems requiring frequent ambulance usage, to pay a single annual fee to cover the uninsured portions of ambulance service charges. (e.g., the senior citizen “Lifecare” subscription program which we recently developed for Fort Wayne’s Three Rivers Ambulance System.) Of course, any such prepayment program must include checks and controls to curb abuse and over utilization of the service.

 

L.  One Clinically Oriented Run Report Form

 

    A single comprehensive ALS run sheet, primarily with a clinical orientation and linked to an integrated dispatch record, should be employed to collect all required data for billing and collection purposes. This single form should include patient history, event information, clinical conditions, procedures rendered, and supplies utilized-all necessary to a professional billing and collection system. (In our own EMS billing operation, we also utilize this same data to support the inventory control procedures, equipment maintenance procedures, and medical audits; this also provides the raw data we use to produce the extensive operating statistics available from the American Ambulance Abstract Service.)

 

M.  Paramedics Aren’t Collection Clerks

 

     Under no circumstances should field personnel be involved in any billing or collection activity.

 

N.  Serve First, Ask Questions Later

 

     Under no circumstances should dispatch personnel or field personnel be involved in any way in making determinations as to patient’s ability to pay.

 

O.  Reduce Vehicle Downtime

 

     Under most circumstances all patient-related information necessary for effective billing and collection can be done at the scene or at the hospital by field personnel. However, provision must be made to accommodate those circumstances in which the collection of certain patient information is not practical at the scene, and is unavailable at the hospital at the time the patient is delivered. Such provision should minimize the downtime of field crews involved in data collection activities. (It is not unusual to find ALS providers, even well-run private providers, making extensive use of paramedic field crews to collect difficult-to-get information which could be more economically obtained in other ways. The average total cost of a unit hour of ALS coverage ranges from about $35 to $50. If the unit isn’t needed on the street, then it shouldn’t be there in the first place. If it is needed on the street, then it shouldn’t be out of service for extended periods collecting administrative information. )

 

P.  Keeping Everyone Straight

 

     The entire billing, collection, and accounts receivable structure should be established and monitored by some form of not-for-profit oversight board. The company or organization responsible for actually managing the billing and collection system should not, under any circumstances, be paid a percentage of collections or per account collected.

 

This is a very important point, and it is a difficult point to get across. When we accept a contract to manage billings and collections for an ALS system, we do not assume that we are hired to collect all that we can, no matter what. Rather, we consider that we are hired to process and manage each account in strict accordance with the detailed billing and collection policies approved by the board established to oversee our work.

 

Readers who are not intimately familiar with a full-blown ALS billing and collection system are usually very surprised at the complexity of details inherent in the process. There are literally hundreds of different paths an account can take through the collection process, depending upon the patient’s financial classification, nature of service rendered, and upon the various responses we may receive throughout the various stages of the collection process. (see Figure 1)

 

We believe that it is important that every single step of these processes be understood and approved by the board which oversees our work, since a very important purpose of these procedures is to identify as early as possible those patients who truly needed service, and who for whatever reason are truly unable to pay without experiencing unreasonable financial hardship.

 

Q.  Precision Uncollectibles

 

    The first job of a good billing and collection system is to filter out that 30-40 percent of the business that should, by any reasonable standard of humanity, be written off. The second job of the billing system is to collect the rest. In a way the first job is harder, requiring full knowledge of all relevant third-party payment mechanisms and billing practices designed to tap third-party payers whenever possible. Finally, there is no substitute for having intelligent and concerned people making the actual collection contacts.

 

Recently a particularly difficult city councilman asked us if we couldn’t improve the collection performance of a billing system we operate for his city. Our answer was that we sure could improve the collection rate, but we wouldn’t recommend it, since the system was already collecting every dollar that could be collected without causing unreasonable hardship. Collecting any more would mean that we would be squeezing money out of people who shouldn’t be asked to pay in the first place. This particular elected official is the type of fellow who feels if you can’t pay for something that you desperately need, it’s your own fault and to hell with you.

 

When our answer didn’t satisfy him, we invited him to go over our current board-approved collection practices in detail. We explained that eventually such a question comes down to  something like making the third late notice more nasty or more scary, or changing our policy of accepting assignment on the accounts of deceased patients. (There is just something about hassling a widow about her dead husband’s ambulance bill that most of our patient-accounts managers find distasteful.)  We prefer—no, insist upon—remaining in a position where our own employees are allowed to employ a detailed range of approved collection practices specifically designed to ensure that the losses from uncollectibles, when they occur, are allocated among the patients and families who have the greatest need. In fact, you can tell a lot about a billing system by finding out who, when the dust has settled, got out of paying. It is sometimes easier to intimidate the truly poor out of their money than it is to stick with the collection effort on an account owed by a well-to-do financial escape artist.

 

 

R.  Miscellaneous

 

    On a more detailed level of administration, there are a variety of additional standards we like to see in any ALS billing system. For example: trip tickets should be processed within 24 hours after the run was made; trip tickets and dispatch records should be routinely compared to locate missing records; the provider should be penalized financially for failure to submit records suitable for billing purposes; office procedures must be designed to provide tight accounting controls and audit checks; bills should be out within 72 to 98 hours after service was rendered; and so forth.

 

Unless local government just gets a kick out of paying for ambulance services, there is no good reason for an ALS system, even a very high performance system, to derive more than one-third of its revenues from local tax sources. Furthermore, totally unsubsidized ALS systems of very high performance capability do exist, and by their very existence, present a challenge to the rest of the industry.

 

However, as the rate structure of a high quality ALS provider with superb response time reliability approaches full actual costs of service delivery, then it becomes increasingly important for the service to perform with even greater precision and professionalism, and for the efficiency of that system to approach the state of the art. Sometimes it is necessary to arrange for financing of massive system upgrading and perhaps a major overhaul of everything from union contracts to vehicle maintenance in order to fully justify a more aggressive rate structure and collection policy.

 

Effective and humane ALS billing and collection practices always require specialized and professional day-to-day administration, the use of highly refined and tested office practices, forms, and procedures, and usually, extensive automation of data processing procedures. We are not aware of any case where an agency of local government has managed to operate an effective ALS billing system for a system of any financial size, say over $1 million in gross billings annually. Similarly, most attempts to employ the computer facilities and staff of a nearby hospital, service bureau, or sister department of local government (e.g., water department, etc.) have proven to be ineffective, usually because the complexity of ambulance related accounts receivable management is thoroughly underestimated by everyone involved.

 

The rate structure or the system’s own internal financial structure should be designed to neutralize fee-for-service incentives to overserve or underserve any individual patient or neighborhood, and dispatch personnel as well as field personnel should not be involved in any way in billing or collection activities, or in any screening of patients regarding ability to pay.

 

The billing system should be capable of collecting between 60 and 70 percent of all receivables generated (before adjustments), although it must be kept in mind that the growth curve of cash receipts from newly initiated billings climbs slowly and does not level off until the seventh or eighth month of the new practice. In fact, income will climb slowly even a year or more after initiating a new billing system.

 

Although it depends upon the economy, systems which collect more than 70 percent of receivables generated are probably overly aggressive, while systems which collect less than 60 percent may need some tuning up. In addition to the percentage of uncollectibles, there still remains the question of, “Who isn’t paying?” The goal is to allocate those uncollectibles among the people who truly deserve a break – not just among those who present the greatest collection difficulty.

 

Some provision should be made for offering fixed price annual coverage of uninsured costs to the elderly and to younger persons with chronic health problems requiring frequent use of ambulance service; when such a program is offered, controls must be instituted to guard against abusive over-utilization.

 

Finally, we must realize that America’s entire health care financial structure is in turmoil and is moving away from fee-for-service finance and toward various forms of prepaid coverage. It makes no more sense to finance top-quality ambulance service from the pockets of the victims than it does to finance America’s health care system from the financial resources of the sick and injured. Eventually, third-party payers (whoever they may be) and prepaid provider organizations will probably move toward prepaid ambulance service for their various client populations. Of course, this cannot happen unless a provider exists in the area capable of providing full-service ambulance coverage to the population in question.  To those who may feel that such talk of prepaid EMS coverage is a pipe dream,  I would point out that when we did some preliminary work with the New York Health and Hospital Corporation (HHC) several years ago, we found the New York Medicaid Program purchasing prepaid ambulance service from HHC to the tune of about nine million dollars per year—no billing, no collections, and a savings of thousands of dollars in administrative costs.

 

We do not advocate conversion to fee-for-service financing of ALS systems. Rather, we recommend such conversion at this time because it works better than the alternatives presently available to EMS managers. If our experience with ALS systems over the last three years has shown us anything, it is that the financial management of ALS systems in general is maturing very rapidly in a number of increasingly publicized systems, turning by contrast some of the premier EMS systems of the 1970s into financial dinosaurs left over from the wild and woolly days of an industry’s birth.