We typically like to receive refunds, not give refunds. It is inevitable that your medical practice will collect too much money for some of its services. Managing these overpayments effectively is good for business.
In this article, you will learn how to:
- Recognize the laws and regulations that affect your practice’s protocols regarding credits
- Develop policies to guide your practice’s efforts to manage credits
- Identify and address the root causes of excessive credits
- Implement effective protocols to review accounts before processing refund checks
Although it may seem ironic, it’s inevitable that your practice will collect too much money for some of its services. These extra funds are a result of a multitude of factors, but there is one clear outcome: a positive balance on accounts. The sum of these over-collections is known as your “credit balance” – and it can run into tens of thousands of dollars, and even more.
Holding on to these monies instead of refunding them to the appropriate party – or just turning a blind eye to a mounting credit balance – can lead to major legal and financial problems. With recent regulatory changes generated by the Affordable Care Act, credit balance management must be an essential component of your practice’s compliance plan.
Consider also that credits actually offset receivables. What’s wrong with that? If your practice carries a high credit balance, your management reports will present a false portrait of accounts receivable performance – making it appears much rosier than the reality. All is not lost; here’s how to tackle the credit balance challenge.
Calculate the problem. Every month-end report should include a current credit balance and a credit aging report. Determine how your practice management system handles credits. Does it automatically ‘age’ them just as it does with receivables, or does it maintain credits in the ‘current’ category, regardless of how long ago they were created? Next, determine if the credits in your system include pre-payments for services. Collecting money prior to the service is obviously beneficial, but some practice management systems treat pre-payments as credits. Without an understanding of what your reports say about credits, you cannot hope to effectively manage them. Depending on how your system calculates credits, consider setting broad goals to keep the total credit balance to less than five percent of your receivables, and at an age of less than 180 days.
Focus on causes. Credits can be generated when front office staff mistakenly collects a copayment from a patient whose insurance doesn’t require one, or when a patient’s secondary insurance pays more than the primary insurer’s allowable. Credits also may occur when someone in your front desk or business office fails to link a copayment to the charge, which means the copayment is entered as a credit on the account but the full charge remains outstanding. Avoid getting tied up in the many nuances, but do make sure there is a procedure in place to review the entire account before processing a refund check. Require that a supervisor also double-check all refunds before mailing any checks.
Establish guidelines. Create a policy for refunding patients and another policy for giving overpayments back to insurers. Although the amounts and timing of patient refunds are not mandated by law, it is common to see medical practices set thresholds – such as $9.99 or $4.99 – for refunds to patients. Smaller amounts are not processed but, rather, remain in the system to credit against the patient’s future balance. For amounts above your threshold, process the refund when it has been outstanding for more than 120 to 180 days and no debt exists on the account. The exceptions are patients whose care is paid by government insurers. For Medicare and Medicaid patients, plan to process refunds those patients after 60 days, and for any amount down to $0.01. Credits to private insurance companies may be batched in monthly or quarterly amounts but many insurers will just subtract outstanding credits from your future reimbursements via a recoupment process. Check your insurer participation contracts and applicable state laws to see what options you have.
Stay informed. The Affordable Care Act mandates that physician practices report and return a Medicare overpayment to the government within 60 days of identifying it. Failing to do so leaves your practice open to significant monetary and administrative penalties. A procedure for returning overpayments within 60 days is a long-standing industry-recommended guideline. Now it is required for Medicare.
The Affordable Care Act requires that you report overpayments and return them to Medicare by “the later of — (1) the date which is 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due, if applicable.” Refunding overpayments within a reasonable timeframe has always been a smart business practice; now, it’s the law when dealing with government insurers, such as Medicare.
Know unclaimed property laws. Understand how to comply with your state’s escheats law – a fancy term for “unclaimed property.” Small balances that cannot be returned – often because the patient cannot be located – must be turned over to the state. Some states require unclaimed property to be handed over five years following the date the credit was created; others set longer timeframes. Some states have procedures and forms that must be completed annually. Check with your state to determine whether you have to include small balances as well.
Avoid internal fraud. Credits create tempting opportunities for would-be embezzlers. Because a credit requires funds to flow out of your bank account, a dishonest employee may try to create a false credit and then issue the refund check to himself (or a friend or family member). Prevent embezzlement by establishing tight internal controls, including requirements for multiple approvals, for credits.
Establishing a policy for handling credits is not just about adding red tape to your practice; it’s business critical for financial and regulatory compliance, avoiding internal fraud, and improving the integrity of your receivables management reports.
Many practices require that each refund be “touched” by four different staff members before a check is issued:
- The payment poster who flags the account
- The account representative who reviews the account and fills out a check request and other paperwork
- The supervisor who reviews the account and paperwork
- And the bookkeeper who reviews the paperwork and processes the check.
While this is a lot of "cooks in the kitchen," refunds are a key area of internal fraud. Having a process that incorporates separation of duties combined with checks and balances can prevent embezzlement.
Some practice management systems age credits just as receivables are aged, but others maintain credits in the “current” category regardless of how long ago they were created. Some systems also treat pre-payments for services as credits, which will produce an inflated view of the credits owed to patients. Discuss this matter with your vendor so that you understand the true nature of your credits.
How Low Will You Go?
Many medical practices set a threshold, $9.99 for example, on refunds to privately insured and self-paying patients. Amounts below the threshold are maintained in the system to credit on the patient’s future balance, while amounts above the threshold are processed between 120 and 180 days if there is no debt on the account.
Credit Masked Performance
Because credits offset receivables, a high credit balance distorts receivables management reports, possibly making receivables appear lower and less aged than is actually the case. Don’t let credits mask performance – make sure you report your receivables with and without the current credit balance.