How, when and why to write off an account

Nov. 1, 1996
I always have been amazed at the unusual thought process used by health-care practices to determine if and when an account should be written off. Some practices never write off accounts, and allow them to sit on their books year after year. Other practices write off only small-balance accounts and leave the large ones to clutter their receivables. Still others write off accounts only after they are six months old or some other entirely arbitrary time, past due. Others write off accounts as soon

The author believes that doctors should have a regular monthly program for writing off accounts.

Paul D. Zuelke

I always have been amazed at the unusual thought process used by health-care practices to determine if and when an account should be written off. Some practices never write off accounts, and allow them to sit on their books year after year. Other practices write off only small-balance accounts and leave the large ones to clutter their receivables. Still others write off accounts only after they are six months old or some other entirely arbitrary time, past due. Others write off accounts as soon as the financial coordinator does not feel like working on them any more, whether the account is collectible or not! Rarely do we see a practice that knows the answer to the question: When, exactly, should an account be written off? Most doctors believe writing off an account is a horrible experience and that writing off an account somehow denotes failure. Others believe the action of writing off an account costs the practice money. With all that baggage, it`s no wonder more accounts don`t get written off!

Since there is no tax advantage, you might wonder what possible benefit there could be to writing off an account. The value is partly psychological and partly practical. If the financial coordinator is faced with a horrendously high-aged receivables, much of which she determines is uncollectible, and the doctor sees these receivables month after month, it often creates a significant amount of stress and tension in the office. From the doctor`s point of view, this is money that is owed him and needs to be collected. He may wonder what the financial coordinator is doing about collecting this money and why she has not collected it. Or, he may feel let down by his patients` unwillingness or (much less often) inability to pay.

We have seen an even bigger problem with carrying uncollectible accounts on the books. That is the risk of abandonment and supervised-neglect suits. Accounts left on the books are invariably for people who are still, in the legal sense of the word, active patients. They have not chosen another doctor and you have not dismissed them.

Many of these patients will continue to come to your office from time to time, some for general dental emergencies, some for replacement of lost or broken orthodontic retainers, etc. Whatever the reason, these patients clutter the books, increase the account balance and the delinquency even further and do virtually nothing to contribute to the well-being of the practice. Nevertheless, until you have formally dismissed them, those patients still are patients of record in your practice and you have an obligation to continue to provide non-elective care.

I know that some disagree with my position on this issue; however, with the number of supervised-neglect lawsuits being filed, the only safe haven is to have formally dismissed the patients you do not want back in the practice. Telling the patient he/she is "cash only" and hoping the patient does not come back to you does not work anymore! If you will check with ADA or AAO attorneys, you will find there is little to no risk (no lawsuits have been lost) associated with proper dismissal of patients. In most cases, the risk of not dismissing a patient is far greater than the risk of dismissing him/her.

The problem with delinquency is not that you are not being paid! Patients who are delinquent are not accepting more elective care-they are failing appointments, they are not referring friends or family to you, they file most of the malpractice suits and they are contributing in other negative ways to the well-being of the practice. Those are the problems with delinquency. Collect-ing an extra $50 here or $100 there, from time to time, from such patients does nothing to solve the real problem. You still have a delinquent account on the books and you still have a patient/responsible party who is out of relationship with the practice.

We consider the purpose of the delinquency-control process to be to bring delinquent patients back into a quality relationship with the practice. If you have determined that is not possible and have determined that it will not be possible to collect the account, in full, within a realistic and reasonable time period, then further collection activity to collect a few dollars has more risk than benefit. Far better that you write the account off the books, report the account to the credit bureau (not a collection agency), so the delinquency is made a part of the patient`s personal credit report, and formally dismiss the patient from the practice.

When the financial coordinator reviews her delinquency, she may see a patient who came in as an emergency toothache. The patient was underemployed and had an unstable background, yet the doctor, instead of providing palliative treatment only, prepped a crown or did a first-step endo on the patient. The financial coordinator was unable to make an appropriate financial arrangement at the time, and the patient now has become uncollectible and the account has aged nine months.

From a realistic point of view, this account was uncollectible the day the patient originally walked into the office, and it is certainly uncollectible today and needs to be written off. The account probably should have been written off the day the work was done.

If uncollectible accounts are written off so aged receivables are made up only of accounts that are collectible with appropriate effort, the emotional well-being of the doctor and staff will be improved significantly. The financial well-being will improve, as well. Very often, the thought is that if the account is on the books, you have an obligation to continue to try and collect it, even though reasonable efforts to do so have already been exhausted. Therefore, very often the limited time available for collection activity will be spent working on uncollectible accounts, allowing accounts that could have been collected and which still have some hope of being "saved," to become more and more delinquent and seriously increasing the risk of loss with these accounts.

I believe there must be a regular, monthly program that allows for the routine write-off of accounts. This will allow the office financial coordinator to spend her time on accounts that can be collected and will allow the practice to maintain receivables at levels that are appropriate to the productivity level of the practice. Since a healthy dental/orthodontic office practicing normal patient flow and management procedure will write off less than 2 percent of gross production per year, this monthly review of accounts should be relatively pain-free. If a practice write-off is more than 2 percent a year, it has a significant problem to resolve in the area of patient management.

To determine whether an account should be written off, one has to ask a simple question and the simplicity of the question is very often the reason why offices are unwilling to write off an account. Doctors and financial coordinators often believe the decision needs to be complex or scientific. Your question is, "Have I taken every reasonable step to collect this account?" If the answer to that question is "yes," then the account should be immediately written off the books.

You will note that I did not ask how old the account was, how long it had been on the books, how large the balance was or any other question. Merely, "Have I done everything I can to collect the account?"

Once an account is written off, you have other decisions to make. Do you want to dismiss the patient from the practice or do you want to continue to treat the patient at no charge as a charity case? Therefore, there is a second question to ask and that is, "Do I believe that this patient has the ability to pay this office in a realistic manner?" ($20 a month on a $400 balance is not realistic!)

If, in your best estimate, this patient truly does not have the ability to pay you in a realistic manner, then the account should be written off and a letter sent to the patient dismissing him/her from the practice and advising the patient you have forgiven the balance and he/she will be receiving no further statements.

You, of course, always have the option in charity cases, such as this, of doing future dentistry at no charge, in which case the patient or family will not be dismissed. If, on the other hand, you believe the patient does have the ability to make appropriate payment (a $3 credit report will confirm that for you), but you have merely been unsuccessful in collecting, then the patient or family is dismissed from the practice, along with a formal and final demand for payment of the account.

At that point, the account is reported to the local credit bureau. In this way, a record is made on the patient`s credit-bureau report, and you may very often find at some point in the future that the account will be collected because somebody else has turned this patient down for credit because of your negative report.

Whether the account is ever paid or not, the account is gone. The patient and the problems he/she caused are out of your hair forever and you can go on with serving the patients who are interested in being your patients and who will contribute to your well-being, just as you contribute to theirs. If that thought does not bring adequate comfort to you, then, when dealing with bad-debt accounts, my only counsel would be to remember a Latin tenet: Illigitimi non carborundum!

The author is president and founder of Zuelke & Associates, Inc., a management consulting firm specializing exclusively in teaching credit management and accounts receivable control techniques to health-care practices. He is the author of PennWell Books` Cash or Credit? A Nuts and Bolts Guide to Effective Credit Management.

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