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Practice Manager’s Guide: How to Choose a Collection Agency

 If you’re at the point where your patient payments are down and you need a collection agency to step in, you need to consider your choice carefully. The quality of the collection agency can make a huge difference in getting you paid and maintaining a good relationship with your patients. And of course you want to avoid any sky-high pricing. Afterall, you’re just trying to boost that bottom line.

Here are a few tips on what to avoid and look for in a collection agency. Plus, I’ve included an essential list of questions you can use to interview a collection agency and make sure they’re on the mark.

What to Watch Out for When Choosing a Collection Agency

Skimming – Unless your balances average well over $1,000, they are going to get skimmed by contingency (%) agencies and attorneys.

Over-Charging – Most of the money collected by agencies and attorneys is collected by mail. Industry sources say it may be as much as 88% of all collected dollars. Make sure you are not paying a full contingency fee for letter collections.

Good Money After Bad – Be cautious of attorneys and agencies that have add-on fees for skip-tracing, court costs, attorney’s fees, credit checks, etc. Your collection fee should cover all of these expenses.

Compliance – It’s tough to be a collection agency. There is a myriad of regulations and laws that dictate nearly every move an agency makes to collect your money. Hiring a non-compliant agency or attorney puts a practice at substantial financial risk. Do your homework before hiring an agency.

What to Look for in a Collection Agency

Tiered Pricing – Some advanced agencies have ”a la carte” pricing plans. If an account can be collected with a reminder or a simple written collection demand, they do not charge a full contingency percentage.

Diplomatic Approach – Find an agency that will give you alternatives on their approach. If you know the agency has a gentler option, you may feel more comfortable placing a sensitive account.

Robust Reporting – A respectable agency should be able to tell you your recovery rate, your net collections, your total assignments, etc.

Online Interface – If you are using a collection agency that requires you to fax paperwork or provide copies of patient files, it is time to say goodbye. It’s 2015.

A Heathcare Speciality – Your practice should use an agency with a proven approach for healthcare collections. They should be able to offer reports and testimonials that demonstrate that expertise.


The Collection Agency Test

There are over 4,000 collection agencies in the U.S. Only a few can pass this test.

When hiring a collection agency, ask these questions:

  • Do you specialize in healthcare collections?
    Is the agency you are employing a leader in the healthcare space? Do they know how to communicate with your patients?
  • Do you have diplomatic and intensive options?
    Not all debtors are the same. Having an option of using a diplomatic or intensive contact may mean the difference between collecting the money and retaining the patient or losing them completely because of harsh tactics.
  • Do you offer fixed fee service options?
    Percentage based collections is an archaic method. Progressive practices use a flat fee option to recover accounts and save money.
  • Do you have an online collections interface?
    If you are working with an agency that requires you to make copies and fax or scan files to submit accounts, it’s time to find another agency; It’s 2015. Work with an agency that has the technology to make it easy to use their service.
  • Do you offer First Party services for clients?
    Many accounts can be recovered by making the contacts in your name. Does your agency offer this choice to help you save money internally and recover many accounts before they even become an issue?
  • Are you fully compliant with HIPAA, FDCPA, and TCPA?
    This is not a yes/no question, they should be able to provide additional information including how often their collectors are re-tested for compliance and how their performance is monitored for compliance.
  • How are cell-phone calls handled?
    If they don’t maintain a separate policy for handling cell phone calls, that’s a red flag to you to find another vendor. You could be held liable if you hire an agency that is not compliant with TCPA.
  • Are you recommended by industry experts?
    Talk to an agency that is backed by associations like the American Dental Association, American Medical Association, Medical Group Management Association and Healthcare Facilities Management Association. Often these groups have already evaluated and vetted that agency as the best choice for their members giving you the assurance that they will maintain the standards you expect.
  • Do you know what PHI is? What steps do you take to ensure its security during storage as well as communication with our office?
    Ask how they receive data from their clients.  Do they have a method to receive secure electronic encrypted data or do they expect you to fax or mail patient files which are more easily compromised?  Do they offer you a secure website to view collections status and if not, do they have the ability to encrypt emails when attaching a list of status updates which include PHI?
  • Is your company licensed to collect in all states where necessary?
    If your patients are primarily local to your office, sometimes they move out of state and your agency will have to be compliant with the laws that govern the patient’s new residence.
  • Are you bonded and insured?
    Ask for copies of the documents verifying bonding and insurance to make sure your money won’t vanish if your agency goes out of business, either as a result of poor performance or as a result of a fatal class action suit.
  • Do they have a liability policy to cover your business in the event something goes wrong?
    Your agency should provide you a Hold Harmless agreement that protects you in the event that something they do triggers a law suit.

1 out of 3 American adults is in some form of collection. No one wants to use a collection agency, but the best run businesses recognize when they need an expert. The concept of debt collection goes back to at least 600 BC. Don’t make the mistake of thinking that you’re alone, or that this is a new thing. It is a long-standing fact of business.

There are right ways and wrong ways to go about dealing with slow-paying patients. Ask questions and make sure you’re working with one of the Good Guys.


Wally Schmader, Transworld Systems, Inc.
Karen Cooper, Transworld Systems, Inc.

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