Understanding Liability and Stewardship Issues
By Dr. David Edward Marcinko; MBA, CMP™
By Dr. Gary L. Bode; MSA, CPA, CMP™
All hospitals, clinics, healthcare entities and doctors are aware that accounts receivable (ARs) represent money that is owed to them, usually by a patient, insurance company, health maintenance organization (HMO), Medicare, Medicaid, or other third party payer. In the reimbursement climate that exists today, it is not unusual for ARs to represent 75% of a hospital’s investments in current assets. ARs are a major source of cash flow, and cash flow is the life-blood of any healthcare entity. It pays bills, meets office payroll, and satisfies operational obligations.
Medical ARS are Different
A feature of ARs in healthcare organizations that differentiates them from ARs in other types of business is that they are often settled for less than the billed amounts. These allowances include four categories that are used to restate ARs to realizable expected values:
- professional or courtesy allowances;
- charity (pro bono care) allowances;
- doubtful account allowances; and
- HMO and managed care organization (MCO) contractual and prospective payment allowances.
AR Stewardship Issues
Good stewardship of assets requires that one must be concerned not only with significant economic losses due to professional conduct (professional malpractice liability concerns, and issues raised by the Equal Employment Opportunity Commission (EEOC), Office of Civil Rights (OCR), Occupational Safety and Health Administration (OSHA), and so on); but that of physician partner(s) and even the financial failure of contracted private insurers, payers, MCOs, HMOs, etc. ARs are often the biggest asset to protect against creditors or adverse legal judgments. It is not unusual to have ARs in the range of a hundred thousand dollars for a group practice or medical clinic; and in the millions of dollars for a hospital. Yet, since they can easily be attached, ARs are known as exposed assets to creditors.
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Assessment
A judgment creditor pursuing a doctor for a claim may pursue the assets of the clinic, and ARs and cash are the most vulnerable assets. ARs are as good as cash to a creditor, who usually has to do no more than seize them and wait a few months to collect them. If a creditor seizes ARs, the clinic or health entity may be hard pressed to pay its bills as they become due. One must therefore be vigilant to protect AR assets from lawsuit creditors.
Conclusion
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Filed under: "Doctors Only", Accounting, Book Reviews, Career Development, Healthcare Finance, Practice Management, Recommended Books, Subscribe CD-ROM Journal | Tagged: ARs, medical billing, david marcinko, OSHA, accounts receivable, pro-bono medical care, MCO, HMO, www.healthcarefinancials.com, www.medicalbusinessadvisors.com, bad debt expenses, medical collections, cash equivalents, medical invoicing, AR factoring, EEOC, OCR, asset creditors
