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collection percentages

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.

Apples and Oranges: The Problem with Comparing Collection Percentages

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In completing over 500 responses to RFPs over the past 10 years, Digitech has encountered the requirement of a collection percentage guarantee multiple times. The municipality’s goal in including this requirement, we suspect, is to identify the agency with the higher collection percentage because that agency will collect more money. While intuitively this may seem inevitable, in reality and where medical billing is concerned, it is not.

Experience has shown us that collection rates for ambulance transports are dependent on several factors: the payer mix and demographics of the area, the speed of claims processing, the agency’s rates, treat-no-transport billing or not, and a number of other inputs that are variable across different types of agencies and different geographic locations. What applies to one emergency transport provider may not apply to the next. Even with reasonably accurate carrier mix data, using collection percentages as a means of comparing billing companies can be misleading. Comparing one service’s collection rate to another’s is often a futile attempt to make the apple taste like the orange.

Given the relationship between actual collections and collection percentages, a collection percentage guarantee is often not advantageous to the provider agency. Think about it: Would you prefer a vendor that collects 100% of a $400 charge or 50% of a $1000 charge? Increasing collections often means suggesting that you bill higher ambulance fees that will generate more revenue and, in the process, lower collection percentages.

On average, Digitech collects approximately 99% of the Medicare and Medicaid allowed amounts, between 80% and 93% of insurance, and anywhere from 1% to 8% of private pay. The overall collection percentage depends on the client’s payer mix. For instance, if all claims were Medicare claims, Digitech’s overall collection percentage would be 99%. If the payer mix is comprised completely of private pay claims, our collection percentage would be 8% or below. These are obviously extreme examples, but they illustrate the impact of carrier mix on overall collection percentage.

So if collection percentage analysis is not the best way to compare vendors, what is the alternative? We recommend looking at collections per transport (CPT) because it is generally a clearer measure of collections as it removes variance due to volume. This makes it easier to compare vendors’ performance. Ask the billing companies you’re considering for examples of where they have taken over from other companies and compare CPT. Then call those entities and ask specific questions.

Another way is to look at the technology that each prospective billing company is using and dig into its capabilities. Superior technology is the most significant determinant of success in ambulance billing. The best companies will have mature, well-conceived, customizable software that is specifically designed for ambulance billing.

Finally, references should be at the heart of any evaluation. In many cases, clients have gone from one billing company to another. Ask the clients about the circumstances under which they left their previous vendor. Who collected more? Who responded better? How did their implementations compare? Whose reporting was better? Answers to these questions paint a much more complete picture of prospective companies than collection percentages will.