According to Wikipedia, bad debt is defined as - Bad debt occasionally called Uncollectible accounts expense is a monetary amount owed to a creditor that is unlikely to be paid and for which the creditor is not willing to take action to collect for various reasons. In financial accounting and finance, bad debt is the portion of receivables that can no longer be collected, typically from accounts receivable or loans. Bad debt in accounting is considered an expense.
In healthcare there are several determining factors that will determine the amount of bad debt that is incurred in a practice. It comes down to the revenue cycle of the claim and how well the provider and the billing company work together to keep an eye on the entire work flow process. I have read that the industry average for bad debt should be between 3-5% of the total adjustments.
There are Contractual adjustments vs non contractual adjustments (untimely claims filing, failure to obtain a prior authorization, etc). The non contractual ones should be analyzed and reviewed monthly, quarterly and yearly to determine where the holes are and what improvements can be made. Most software systems can provide a report that shows the specific reasons a balance is not paid.
The percentage of patients who are uninsured has been increasing of late, due to recent job losses: According to the Kaiser Family Foundation, about 27 million Americans will have lost their employer-sponsored insurance as a direct result of the pandemic.
Patient portions are on the rise which can increase the amount of bad debt write offs. Here are some steps to follow if your bad debt is on the patient side: