Courting a Better Bottom Line With Probate Recovery
Angela Horn
November 2011 issue of hfm magazine
View the HFMA Article—PDF (83KB)
AT A GLANCE
The probate process is
a way to recover hospital
payment while
respecting the feelings
of the patient’s loved
ones and protecting the
hospital’s reputation
and bottom line.
A healthcare organization’s
probate strategy
could include internal
staff who are dedicated
to this process or outsourcing
to specialists
in probate recovery.
Several strategies,
including setting up a
system for flagging the
records of a person
who has died within a
provider’s facility, can
be used to recover payment
from estate
accounts.
Without a probate recovery strategy in place, hospitals may be passing
up an opportunity to recover as much as $10 billion a year in unpaid accounts of patients who have passed away.
Over the next 40 years, the number of adults older than 65 will more than double, from around 40 million today to nearly 90 million by 2050, or one in every five people. For the healthcare industry, this graying of America has many ramifications, including the need to meet the rising demand for services.
For healthcare finance managers, an additional cause for concern is what happens
after members of this population die. Within the 65 and older age group, the number
of deaths each year is increasing, to nearly 3.5 million annually over the next
40 years, according to the National Center for Health Statistics. For many healthcare
organizations, this will mean a growing amount of bad debt from unpaid
accounts.
Already, the aging population and soaring end-of-life care costs, coupled with a
dramatic increase in patient payment responsibility, have driven accounts receivable
(A/R) for patients who have died—known as deceased accounts—to an estimated
$10 billion per year, according to our internal research.aDepending on the
type of healthcare provider, estate accounts make up from 4 to 50 percent of total
A/R, according to actual test file results our organization has performed on
provider data samples.
These trends are inescapable and present a major challenge: How can healthcare
providers ensure that they receive payment for the care they provide, especially
when so much of the cost of that care is borne near the end of a patient’s life? There
are several strategies to consider.
Hospitals do have an option for
recovering payment on an estate
account in a way that is sensitive to
survivors of the deceased.
A Proactive Approach to Probate Recovery
Despite the significant money at stake, most healthcare
providers have no strategy for recovering payment
from estate accounts.
Recovery efforts are complicated by the reality that
surviving family members have not personally
incurred the debt, so providers are understandably
reluctant about contacting survivors for fear of
appearing insensitive, thereby damaging their reputations
within their communities. Collecting on estate
accounts, after all, may seem like the hospital is seeking
payment for what appears to be a failure—the
patient’s death.
Many providers simply write off these receivables,
but at a time of razor-thin operating margins,
providers can no longer afford to take a passive
approach. Instead, hospitals do have an option for
recovering payment on an estate account in a way
that is sensitive to survivors of the deceased.
Identifying Estate Accounts
The first step in recovering payment from estate
accounts is, of course, identifying deceased patients.
A provider can set up a system for flagging the
records of a person who has died within its facility—
communicating to the revenue cycle system, for
example, that such an account should be categorized
for special handling.
More challenging is flagging the accounts of patients
who have died outside the provider’s facility. Weeks
or months may go by before a hospital is notified of a
patient’s death, if notice comes at all. Providers,
therefore, should also should set up a routine process
for identifying estate accounts. Typically, this process will involve running a software program against all
active A/R to identify patients who have died.
Once an account has been flagged, it should be
removed from the regular workflow for A/R. The
process for searching for a probated estate should
then begin.
Pros and Cons of Probate
Probate is a legal process where a court oversees the
administration and distribution of the deceased person’s
assets. Probate gives priority to state and federal
obligations, as well as child support payments and
expenses of last illness, then pays the claims of
secured and general creditors; any remaining assets
are then distributed to estate beneficiaries.
This legal pathway can be used to collect on a considerable
number of receivables. In fact, the Federal
Trade Commission recently released a policy statement
in connection with collection of a decedent’s
debt that highlights the importance of using probate
as part of the recovery process on estate accounts.
The probate process offers a number of benefits.
Unlike other types of legal recourse, probate is not an
adversarial process. There are no plaintiffs and defendants.
A representative of the deceased is appointed
as an executor or administrator of the estate and has
a fiduciary duty to every interested party. A hospital
would be considered a creditor of the deceased’s
estate.
Unnecessary contact with survivors or heirs is avoided.
The established rules and procedures of the probate
process keep the conversation focused on attorneys
and personal representatives instead of on the family.
This process eliminates the potential for unnecessary
or stressful conversations between the provider and
surviving family members.
Priority is given to healthcare debts. Acknowledging the
importance that Americans place on end-of-life care,
probate recognizes the priority of payment of certain
medical claims, including those relating to expenses of
last illness. Healthcare providers, therefore, often have
priority legal status over other unsecured creditors.
Regardless of how the strategy is
implemented, using the probate
system gives healthcare providers
the opportunity to fulfill their
financial responsibilities without
putting their organizations’
reputation and relationships at risk.
Probate is an administrative proceeding. Healthcare
providers are not required to hire an attorney to present
their claims.
At the same time, with more than 3,450 probate
courts in the United States, the probate process can
be complicated, time-consuming, and expensive.
Challenges include the following.
Probate rules differ. Within every state, individual probate
courts have their own processes and specifications
needed to file probate claims. Creditors must
adhere to specific court-approved procedures to
properly present a probate claim. Creditors, like
healthcare organizations, generally aren’t set up to
understand these nuances or to maintain staff with
this expertise.
Limited experience with the probate process reduces the
chances of recovery. Many healthcare providers do not
regularly use probate to collect on estate accounts.
Creditors that try to implement a probate strategy on
their own quickly realize that tackling probate one
case at a time, one jurisdiction at a time, is an overwhelming
endeavor.
There is limited time to find and file claims. Probate
claims must be filed in a timely manner. Otherwise,
creditors lose their rights to payment entirely. In some
cases, the timeframe for filing can be as little as
60 days from the opening of the estate until the
claims period has ended. That’s not a lot of time for
providers to find the open probate, organize the
claim, and properly present it. In addition, more than
15 percent of estates are opened outside of the last
known legal residence or mailing address of the
deceased. This makes it challenging to find and contact
the right probate court within the allotted time.
Fees can undermine any recovered payment. Probate
courts can charge fees ranging from a few cents up to
$35 or more per search to search for estates. Search
expenses—coupled with the fact that in some jurisdictions,
it can take more than a year to open a probate—
often cause healthcare providers to terminate the
search before the estate has actually opened. Such
termination to avoid expense can cause a provider to
miss as many as 50 percent of estates.
Options for Healthcare Providers
Combine a provider’s limited experience with probate
and the confusing and overwhelming nature of
the probate process, and it’s clear why so few
providers have an estate A/R collections strategy
that includes probate. Yet the evidence of success in
using probate to recover A/R is compelling.
For more than a decade, the nation’s largest credit
card issuers have been using probate to recover as
much as 30 to 40 percent of their estate A/R⎯with
no additional risk to their brands.
A healthcare provider has several options when
choosing to implement a probate process. Each has
its own pros and cons.
Outsource to a collections agency or attorney. The main
benefit of outsourcing is that a hospital doesn’t have to
dedicate internal resources to the probate process. An
agency or attorney, however, should be an estate
account specialist with a specific process for handling
this type of receivable. For example, the agency or
attorney should proactively identify accounts that may
become estate accounts and be able to locate a probated
estate that has been opened anywhere in the
country. Without such expertise, the agency or attorney
will face the same kinds of challenges an inexperienced
provider would by handling the process internally.
The downside is that outsourcing also comes with a
fee, which generally amounts to one-third of the
amount recovered. Although outsourcing also means the provider gives up control over a sensitive receivable,
an agency or attorney who specializes in estate
accounts may be more effective in recovering payment,
which may offset the fees charged.
Implement an internal strategy. By using an internal
team or staffer dedicated to estate accounts, the
provider actually “owns” the process, meaning it is
better able to control the payment recovery process
and may be more effective at dealing with community
members and, therefore, better able to protect its
reputation. The provider should ensure that it has
sufficient resources to effectively manage and
recover payment from estate accounts, or chances of
success will be limited.
Although providers avoid any fee associated with outsourcing,
they may also be losing a level of expertise
that can be found only with a specialist whose main
job is to handle estate accounts. Lack of such expertise
may reduce amounts recovered.
Combine internal staff with technology. By adding probate
software or online probate applications, the inhouse
staff gain expertise while maintaining control of
the process. Automating the process also reduces the
staffing requirements; in some cases, estate accounts
can be handled by less than one FTE, as the technology
automatically scans receivables to identify estate
accounts, locate the probated estate, and determine
the correct forms to file.
Providers should take time to choose user-friendly
technology or the effort to automate will be counterproductive.
Likewise, technology comes with a cost,
which may be significant or nominal depending upon
the type chosen. Software and hardware will have
up-front costs, while web-based applications will have
a transaction fee for each estate account that
matches a probated estate.
A Healthier Bottom Line
A proven remedy is the preferred approach in health
care. Likewise, a proven approach to managing the
debt of patients who have died should be welcome
news for healthcare professionals tasked with maintaining
a healthy bottom line.
Regardless of how the strategy is implemented,
using the probate system gives healthcare providers
the opportunity to fulfill their financial responsibilities
without putting their organizations’ reputation and
relationships at risk. Probate recovery offers a practical
solution for providers looking to find the right balance
between patient sensitivity and fiscal responsibility.
a This research examined actual provider portfolios from about 30 providers to determine the
percentage of unpaid healthcare debts and the percentage of those debts owed by deceased patients.
Angela Horn is vice president and general counsel, Forte, LLC,
Minneapolis, and a member of HFMA’s Minnesota Chapter
(angela.horn@fortedatasolutions.com).
Reprinted from the November 2011 issue of hfm magazine. Copyright 2011 by Healthcare Financial Management Association,
Two Westbrook Corporate Center, Suite 700, Westchester, IL 60154. For more information, call 1-800-252-HFMA or visit www.hfma.org.
