Risky Business: The Collection Percentage Guarantee

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If you’re a government agency that is going to issue an RFP for ambulance bill collection, demanding a collection percentage guarantee may seem like a good idea. And in some ways, it is: a guarantee requires little thought as to how to develop a better, mutually beneficial partnership with a vendor. While the guarantee is a defined benefit for the agency, it is a risky proposition at best for ambulance billing companies.

Agencies include a collection percentage guarantee in their RFPs thinking that it translates to a guaranteed amount of revenue. Seems logical  –  if the billing company agrees to a certain benchmark, it has an extra incentive to collect as much as possible, right?

Wrong. For the billing company, this requirement may have the opposite effect.

One way to increase revenue for an agency is a recommendation to raise ambulance fees. While this will likely increase revenue, it may also decrease the collection percentage. Let’s say a billing company collects 100% of a $400 claim. If the agency increases its rate to $1,000 and the billing company now collects only 50%, they increase collections by $100 but cut the collection percentage in half. This is an extreme example, but it makes the point: If a billing company is expected to maintain a minimum percentage or be penalized, it is actually being discouraged from doing everything it can to maximize collections.

The billing company then has two choices: Ignore the risk of reducing revenue by focusing on the collection percentage, or face penalties for not holding up its end of the deal. This assumes, of course, that the billing company doesn’t put the agency at risk by up-coding claims – billing a level of service higher than what is medically necessary, or showing all adjustments as contractuals – to meet the agreed upon percentage.

A collection percentage requirement will scare off some bidders who could otherwise handle the job well. Reason? The vendors most willing to risk the penalties of underperforming are those who have the legal resources to fight those same penalties. Are you hiring a billing service or a law firm? Or are you looking for a company that collects the minimum for the maximum profit without looking to become a true consulting partner? In either case, your agency could be unknowingly cheating itself out of superior service.

Any way you slice it, a required collection percentage guarantee is a certainty that the vendor/client relationship becomes either a little bit dishonest or not mutually beneficial. If your goal is to maximize revenue with the help of a trusted partner, steer clear of percentage guarantees. Any company willing to enter into such an agreement does not have your best interests at heart.

1 thought on “Risky Business: The Collection Percentage Guarantee”

  1. Dead on! I try to teach my clients and investors about this nearly every day. Most have no real understanding of current healthcare reimbursement and cost shifting.

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We hope that this blog will help Digitech serve as a resource to the ambulance service community and open up discussions about the nuances of the industry. So while you're here, read, absorb, consider, and comment! We look forward to the conversations.

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