Managing Your Practice

Stop extending credit


For as long as I have been writing this column, I have stressed that aggressive management of accounts receivable (AR) is the key to any practice’s financial health; and yet, all these years later, AR is still the subject that generates the most questions.

Okay; let’s go over it one more time: Basically, physicians extend more credit than any business except banks. Despite what you may have read recently, banks are good at it, and they charge interest (and a myriad of fees) to do it. Doctors do it for free. Are we crazy? No business owner in his or her right mind allows customers to take away goods or services without paying for them; but doctors do it every day.

Dr. Joseph S. Eastern, a dermatologist in Belleville, N.J.

Dr. Joseph S. Eastern

What to do? Common sense tells you to collect everything you can at the time of service; but some patients inevitably brandish the old “I forgot my checkbook” excuse and escape without paying. And the patient-owed portion of most insurance charges is often unknown, and unknowable, at the time of service.

That means you’ll need to send a bill; and every bill you send (or hire somebody to send) costs you a bundle. And when it arrives, it goes right to the bottom of your patient’s payment priority list. That is, each month your patients will pay their electric, water, gas, and telephone bills … and just about any other bill ... before getting around to yours. If there is no more money when your bill finally surfaces, that’s just too bad. The electric company can shut off their power; what can you do?

What we do is what every hotel, rental car agency, and many other businesses have done for years: We ask for a credit card number, keep it on file, and bill balances to it as they come in. Plastic runs the show everywhere you go – except in most medical offices.

New patients in my office receive a letter at their first visit explaining our policy. At the bottom is a brief consent for the patient to sign, and a place to write the credit card number and expiration date. (See below for a copy of our letter; feel free to use it as a template for creating your own.)

Do patients object? Some do – mostly older people, and fewer each year. But when we explain that we’re doing nothing different than a hotel does at each check-in, and that it will work to their advantage as well by decreasing the bills they will receive and the checks they must write, most come around. Make it an option at first if you wish; then, when everyone is accustomed to it, you can make it mandatory.

Do patients worry about confidentiality, or unauthorized use? They don’t anywhere else. They think nothing of handing a card to a waiter or waitress in a restaurant with no thought of what he or she might do with it in the kitchen. They hand cards over to hotel clerks, and never think to ask how long they keep the information or who has access to it. They blithely shoot their numbers into black holes on the Internet. We explain that we guard our patients’ financial information as carefully as we do their medical information. (If you have EHR, it can go in the chart with everything else; if not, I suggest a separate portable Rolodex-type file that can be locked up each night.)

Does it work? In only a year, our accounts receivable totals dropped by nearly 50%; after another year, they stabilized at 30%-35% of previous levels and have remained there ever since. When my accountant retired a few years ago, I hired a new one. Something must be wrong, he said nervously, after his first look at our books; AR totals are “never” that low in a practice with our level of volume. His eyes widened as I explained our system. “Why doesn’t every medical office do that?” he asked.

Why indeed? The business of health care delivery is being rocked to its very foundations as we speak. In my humble opinion, private practice will only survive those changes if physicians learn to do more of what we do best – treating patients – and leave the business of extending credit to the banks.

Patient consent form

This generic letter is intended to be used as an example for a letter you might draft for a similar purpose. We take no responsibility for your use of its content, either verbatim or altered, or for any inappropriate usage. Click on the attachment below for a printable copy of the letter.


Online-Only Materials

PDF icon to_our_patients.pdf34.46 KB

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