Your 2012 Resolution: Stop Extending Credit!


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

Okay, folks, 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 physicians do it every day.

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. An unpaid electric company can shut off their power, but what can you do?

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

Every new patient in my office receives a letter at their first visit explaining our policy: We will keep a credit card number on file, and use it to bill any outstanding balances. At the bottom is a brief consent for the patient to sign, and a place to write the credit card number and expiration date. (The sample text of the letter is at the end of this column.)

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

Do they worry about confidentiality or unauthorized use? They don’t anywhere else. They think nothing of handing a card to servers in restaurant with no thought of what they might do with it in the kitchen. They hand the card to hotel clerks, and never think to ask how long the information is kept or who has access to it. They blithely shoot 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 an EHR, it can go in the chart with everything else; if not, I suggest a separate portable 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. Last year I hired a new accountant. Something must be wrong, he said nervously, after his first look at the books; account receivable totals are "never" that low. 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 will be rocked to its very foundations in the next few years. In my humble opinion, private practice will survive those changes only if physicians learn to do more of what we do best – treating patients – and leave the business of extending credit to the banks.


This generic letter is intended to be used as an example for a letter you might draft for a similar purpose. However, we take no responsibility for your use of its content, either verbatim or altered, or any inappropriate usage.


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