Dentistry Huddle

How to Leverage Pre-Collection Letters for Dental RCM

Learn how deploying pre-collection letters into your patient billing outreach process reduce your write-offs and balances going to collections agencies.

How to Leverage Pre-Collection Letters for Dental RCM

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Dental Pre-Collection Letters

Pre-collection letters are an underutilized tool in dental revenue cycle management.

Subtle in its use but a force multiplier in its effect, these letters are invaluable for practices that want to maximize their collection rate and reduce third-party collection agency fees.

However, we find that most practices only send pre-collection letters when they “have time,” which means it rarely happens or occurs only when A/R becomes an acute pain point.  

If you want to improve your chances of collecting on past due balances, your practice needs a firm policy and systemic method to take action. This can be accomplished through a well-tailored series of pre-collection letters.

Establishing and iterating on this system will be a gamechanger for your collection efforts, especially for A/R that 90+ days past due.

Why Pre-Collection Letters: Understanding the Purpose and Benefits

Let’s start with the big question of “why pre-collection letters?”. Understanding the role of this powerful tool for your practice will help you differentiate these letters from other statements, and will help you craft a letter that will be a vital asset for your A/R collection efforts.

Despite the common understanding about this communication method, it’s important to note that these are not necessarily sent as a serious final notice to your patients. Pre-collection letters should instead act as:

  • Early intervention: After initial attempts at communication, they should address late payments early. In this role, these letters can increase the likelihood of prompt resolution before they escalate.
  • Professional communication: Pre-collection letters offer a professional and documented approach to debt collection, fostering trust with patients.
  • Option clarity: They clearly outline the outstanding amount, due date, and available payment options, guiding patients towards resolution.
  • Legal documentation: Pre-collection letters can serve as legal documentation of attempts to collect the debt, strengthening your position in any potential legal proceedings.

When should I send pre-collection letters?

For practices of all sizes in general dentistry, we have found that the entire initial course of billing outreach should be ~120 days. This is before patients with difficult balances to collect on are moved into a “Follow Up” bucket for future engagement.

Within that 120-day period, best practice is to send texts and emails (every 7-10 days), and to incorporate a pre-collection letter after 90 days. 

If there is no action taken after this letter is delivered, another letter should be sent with final escalated language at 120 days.

From here, the patient would move to a Follow Up status for future engagement or marked for a collections agency.

Depending on how automated and cost-effective your billing outreach process is, it’s important to set a balance minimum and review ROI after each campaign to ensure you aren’t throwing good money after, for example, a $5 past due bill.  

This series of letters with escalating tone is the best practice according to the ADA.

Why is that the case? Because the average cost of multiple instances of communication over 120+ days is still greater than a collections agency fee. More on that later.

What should a pre-collection letter say?

While there are a million ways to write a pre-collection letter, we have determined that certain formats work best and certain language is necessary for an effective letter. At the end of this section, we have included example templates that you can copy for your own pre-collection letters.

  • Personalization & Tone: Remember to use a respectful, professional tone. While it’s tempting to use aggressive language (or even legal threats), your pre-collection letters should convey a compassionate tone. Be sure to acknowledge the patient's situation and offer understanding. It’s best practice to use the patient’s preferred name instead of making the letter generic to all patients.
  • Escalation Stages: When the time comes to ramp up the severity of your language, do so in defined stages. Instead of sending a single pre-collection letter at the 120-day mark, implement a series of pre-collection letters with increasing urgency based on the delinquency period. The first letter can be a friendly reminder, followed by more direct notices with specific deadlines. We suggest changing tactics after three letters, at which point the language should be in its most serious form.
  • Payment Options & Incentives: Sometimes it’s best to use the carrot instead of the stick. For balances over $250, our research has found that offering an easy-to-enroll, interest-free flexible payment options (like installments or payment plans) increases collection rate.  Many practices set the threshold too high (i.e. over $1,000), but patients are more likely to take action if you provide an affordable monthly option for smaller balances as well.
  • Clear Consequences: Because the stick usually works if the carrot doesn’t. Using plain, uncomplicated language, explain the potential consequences of non-payment, such as late fees or referral to a collection agency. If done in a clear and concise manner and paired with a friction-free payment method like a QR code on the statement, you will see your patients paying their overdue balances more consistently.
  • Compliance: 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.

Below are two example templates that Pearly’s Letter Automation feature can print and mail with the click of a button (no data input required):

The Alternative: Third-Party Collection Agencies

The main function of  pre-collection letter statements is their role in reducing the number of balances that proceed to the next step in the collection process: employing a third-party collection agency. 

While collection agencies can certainly play an important role, practices should do everything possible to resolve the balance in house for a number of reasons:

  • Financial Considerations: Collection agencies typically charge a commission on recovered funds, often ranging from 20% to 50% of the total amount collected. While there are some agencies that promote themselves as having “0% fees” the bottom line almost always translates to a significant financial loss for the practice, even after recovering the outstanding balance.

    If profitability is a priority for your practice, then frequent use of a collection agency should be reduced. A well-structured billing outreach schedule mitigates this financial burden.
  • Negative Impact on Patient Relationships: Sending a patient's account to collections can damage the trust and rapport built between your practice and your patients. Because of their onerous legal implications and aggressive tactics, the use of collection agencies can often lead to negative reviews, a decrease in your patient loyalty, and ultimately, lost revenue. Many agencies will split their outreach into two or more “Stages” where Stage 1 involves standard letter outreach and Stage 2 involves more involved collection tactics.It’s important to ensure your practice is comfortable with the collection tactics employed by your third-party agency to ensure it aligns with your patient experience goals (along with your billing policies).

Fortunately, with a calibrated pre-collection strategy, you can reduce the volume of balances you are sending to a third-party agency, while keeping write-offs to a minimum.

Pre-Collection Letters in 2024

So what’s the solution? Sending a series of letters to every past due patient can be expensive and time consuming for staff. 

We hear stories about team members spending several days each month preparing, printing, and mailing pre-collection letters manually.  For practices and DSOs that don’t have the bandwidth to manage a full-fledged collection effort, it’s often the case that balances are written off or sent to collections.

The optimized path here is to have a system that identifies the balances that would have the highest chance of success with a pre-collection letter and automatically sends them (with the right tone) without user input.

This system saves staff time and cost, while maintaining a consistent relationship with patients. With Pearly’s Letter Automation feature, your practice can start tackling these balances in a cost-effective manner.

If you are not using Pearly dental software, click here to book a demo with an RCM expert to learn more about how we can help your practice.

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