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KEY TAKEAWAYS
- Observing billing instances where patients received 90+ days worth of billing communication, we calculated that 12% of payments were received after the 9th statement.
- Using a combination of digital billing channels and traditional escalated letter statements (omni-channel billing), practices can expect to see a 9% improvement in collection rate, a 17% reduction in days to pay, and 27% more write-off risk recovery.
- When deployed consistently and with the right language, we discovered that pre-collections letters collect $9.10 for every $1.00 spent.
Table of Contents
- The Classic Patient Billing Problem: Statement Frequency
- The Late-Statement Effect
- The impact of combining digital and traditional billing methods
- Is there a benefit to sending pre-collection letters?
- What happens when patient balances aren’t collected?
- What are Pre-Collection Letter Best Practices?
- Equipping your dental practice with pre-collection letters
The Classic Patient Billing Problem: Statement Frequency
When it comes to patient billing, frequency matters. More than timing, more than tone, more than billing channel, getting consistent statements in front of patients until they make a payment is the fundamental key to billing success.
The problem is that most practices and dental groups don’t have the bandwidth or the tools to achieve this. More than that, most practices don’t have the structured process needed to maintain consistency.
The Late-Statement Effect
This is a bigger problem than most practices realize. We looked at the average billing cycle length for practices that use Pearly billing software and discovered that the average workflow duration for aging balances greater than 90 days past due requires 9 statements across email, SMS, and mail to collect. And that’s the average–many delinquent accounts require far more than that.
Practices that are billing patients who have received over 9 statements see that on average 12% of their payments come after that 9th statement.
12% can often represent over $100k of production for practices. It’s a sizable chuck that needs to be collected because, hey, you can’t deposit production.
So if you’re doing a good job with consistent billing to service each of those balances with frequent statements, what is the best way to set up a billing workflow to more effectively collect these aging balances?
The impact of combining digital and traditional billing methods
In a previous dental industry report, we looked at over 550,000 instances of patient portion billing across 1,200 practices to see if combining digital notifications with traditional mailed statements (i.e.using omni-channel billing) nets better collection results. The key findings from that report included that:
- Collection rates were over 9% greater for practices that used omni-channel billing
- Days to pay were reduced by 18% for omni-channel billers
- 27% more write-off risk was collected for DSOs that use omni-channel modalities
Along with the findings of this study, we recently discovered that specifically incorporating a pre-collection letter in a billing workflow further improves the chances of payment for these difficult-to-collect balances.
Is there a benefit to sending pre-collection letters?
When used independently, sending only mailed pre-collection letters and statements is an inefficient and costly way to bill patients. We expounded on this topic when breaking down the cost of a manual billing process.
When incorporated in an omni-channel billing workflow that uses both digital and traditional methods, pre-collection letters improve collection rates and billing cost ROI.
Here’s how.
We observed over 50,000 instances of mailing pre-collection letters over a 90-day period and compared them to an equivalent number of instances without them. Considering the percentage of balances collected, the cost of the mailed letters, and the fees associated with sending balances to collects we calculated that:
For the balances in workflows with 10+ digital notifications, there is an 8% improvement in balances collected when adding pre-collection letters.
For every letter sent, $9.10 was collected. If your letters cost $1.00 to send (after materials, labor, and postage), you’re looking at a 9x ROI for those letters.
On the other side of the equation, let’s consider what would happen with the balances represented by that 8% collection rate difference.
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What happens when patient balances aren’t collected?
The average size and number of balances represented in this uncollected cohort was $186 and and 46, respectively. This equates to over $8.5k per practice for which collections are required when pre-collection letters would have helped to recover.
A typical collections agency will charge a fee per account (usually around $25) and/or an additional 20-40% take on collected balances.
On the low end of this example, the average practice is spending $2,861 in agency fees and take ($1,150 for accounts and $1,711 in contingency percentage) and recover $6,845, netting $3,984.
On the high end, the average practice is spending $4,572 in agency fees and take ($1,150 for accounts and $3,422 in contingency percentage) and recover $5,134, netting $562.
It should be noted that this is assuming 100% success rate of collections agencies, which self-report to be ~90% successful.
Comparing to the pre-collection cohort, if only $50 was spent on well-timed and phrased letters with the appropriate escalation, the agency fees and cut would not be impacting practice profitability.
Let’s talk about how to best incorporate this tool into your patient billing process.
What are Pre-Collection Letter Best Practices?
Practices that use Pearly have the option to incorporate pre-collection letters in their billing workflows at minimal cost. Our templates and optimized workflows follow industry best practices, including:
- Follow the Rule of 9s for billing. Sending a pre-collection letter after 90 days with digital billing reminders sent every 9 days until then and even after.
- Get the tone right. Use a respectful, professional tone, rather than a harsh one. Compassion will work better than aggression, as the letter itself escalates the situation. Be sure to acknowledge the guarantor’s situation and offer understanding.
- Illustrate clear consequences: The tone can be casual, but the consequences should be clear. Uncomplicated terms that explain what happens in the instance of non-payment. Refusal of services, late fees or use of a collection agency are common and effective.
- Offer alternative payment options: For balances over $250, our research has found that offering customized payment options (like installments or payment plans) increases collection rate. Patients are more likely to take action if you provide an affordable monthly option for smaller balances as well. Give them the carrot instead of the stick here.
- Compliance considerations: Ensure your pre-collection letters comply with all relevant regulations and laws, including the Fair Debt Collection Practices Act (FDCPA). Their website and regulatory standards can be found here.
Equipping your dental practice with pre-collection letters
Is your practice set up to guarantee that every eligible patient balance will:
- Receive frequent digital statements every 9 days
- Receive billing reminders with dynamically changing tone that escalates with age
- Be issued a pre-collection letter after 90 days of delinquency
- Be tracked and triaged by balance size and age for manual follow-up
If the answer is no to any of the above, then consider integrating a patient billing automation tool to handle this part of your revenue cycle. With billing software like Pearly, you’ll be able to expand the scope, frequency, and effectiveness of your patient billing efforts.
In a “set it and forget it” fashion, Pearly gives your team back the bandwidth it will typically waste on manual billing tasks. With data-driven best practices built into each billing workflow, Pearly automation will allow you to collect more with significantly less effort.
Pearly integrates with over 50 PMS systems, so if you’d like to learn more about how to bring automation to your RCM process, please book a demo with one of our product experts.
