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Write-Offs in Medical Billing: How to Reduce?

Medical billing makes sure doctors get paid for treating patients. But write-offs, the amount patients or insurance don’t pay, make it hard.

Write-offs take a big bite out of a practice’s income. So unless and until practices work at managing write-offs, they’ll struggle to keep the doors open and have a shot at growing.

This article talks about some ways for practices to manage write-offs so they lose less money.

What are Write-Offs in Medical Billing?

For a doctor, few things are more frustrating than having to deduct money from the revenue column that will never be seen.

Unfortunately, these “write-offs” are common in the medical field.

Write-offs in medical billing refer to any money that is recorded as owed to the practice but will not be paid for one reason or another. This could be because an insurance company refused part or all of a claim or a patient could not afford to pay their bill.

While annoying, write-offs are considered normal in healthcare finance. Doctors have to account for them in their budgeting to understand the real financial health of their practice. If there are too many write-offs, revenue suffers.

There are two types: contractual, from insurance agreements, and non-contractual, from patients unable to pay.

Write-offs may be unavoidable, but doctors must keep them under control to improve the cash flow of their medical business.

Types of Write-Offs

Types of Write Offs in Medical Billing

Contractual Write-offs

These are the most common and are part of the contractual agreement between healthcare providers and insurance companies. They represent the difference between the provider’s standard fee for a service and the agreed-upon reimbursement rate by the insurance payer.

For instance, if a provider’s standard charge for a service is $200, but the contract with the insurance company states they will only reimburse $150, the remaining $50 is a contractual write-off.

Non-Contractual Write-offs

Unlike contractual write-offs, these are not pre-agreed upon and can happen for various reasons. Examples include bad debts (where patients are unable or unwilling to pay their bills), billing errors, and courtesy adjustments. Non-contractual write-offs can be more challenging to manage as they often reflect issues within the billing process or patient management.

There are some write-offs in which errors such as missing the insurer’s deadline, diagnosis coding issues, illegible claims, incorrect patient numbers, and registration issues can lead to unnecessary write-offs that otherwise can be avoidable. A few examples are;

  • Timely filing write-offs – Filing a claim past the insurer’s deadline can result in write-offs of the patient’s portion of the bill.
  • Collection agency write-offs – If the unpaid balance remains above $100, it gets transferred to the collection agency to collect on your behalf.
  • Uncredentialed provider write-offs – In this case, the provider remains uncredentialed with the payer and is filing a claim.
  • Administrative write-offs – There may be circumstances where a manager will approve a write-off if the patient had an unsatisfactory experience with the care. Also, a written-off policy manages such instances if the practice is not in-network.
  • Bad debt – Then there is also the matter of forgiving the balances forever for whatever reason. These are called bad debts.

How To Calculate Write-Off Percentage

Calculating the write-off percentage for a medical practice requires just basic arithmetic, once you know what terms to use.

Your total write-offs divided by your allowable charges will give you a percentage that tells you how much of your billing ends up getting written off as bad debt each month.

Let me explain it conversationally:

1). First, you need the total dollar amount of write-offs from last month – the bad debts you couldn’t collect. We’ll call this WO for write-offs.

2). Next, calculate your allowable billing amount. This is the total you could legitimately bill for services and supplies. It includes purchase charges (PC), rental charges (RC), minus any contractual adjustments (CA) you made. So:

Allowable billing = PC + RC – CA

3). Then, divide the write-off amount (WO) by the allowable billing to get your rate percentage.

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Say in one month your practice writes off $10,000 in unpaid charges from deadbeat patients. Meanwhile, your total charges that month are $200,000, less $20,000 in adjustments required by insurance contracts. So your "allowable" charges are $180,000.

To calculate your write-off rate, just divide your write-offs by your allowable charges. $10,000 divided by $180,000 is 0.0556. So your write-off rate for the month is 5.56%. Or to put it plainly, out of every $100 you're allowed to charge, you end up writing off $5.56.

Write-Off VS Contractual Adjustment

AspectWrite-OffContractual Adjustment
DefinitionAn amount deducted by the provider from a medical bill is not expected to be collected from patients or payers.A discounted rate or allowable payment based on the contract with an insurance company.
When it OccursIt can occur for various reasons, including patient inability to pay, billing errors, or bad debt.Occurs when the billed service fee is more than the amount agreed upon with the insurance company.
ExampleIf a patient cannot pay their portion of the bill due to financial hardship, this amount may be written off.If the charge for a procedure is $90 and the insurer’s agreed rate is $80, the $10 difference is adjusted.
Patient’s Insurance PlanWrite-offs are not necessarily related to the patient’s insurance plan.Typically related to the specifics of the patient’s insurance plan and the pre-negotiated rates.
Management in BillingRequires a well-structured financial policy to mention situations for write-offs.Based on contractual agreements with insurance providers, adjustments are usually predefined.
Financial ImpactWrite-offs can significantly impact the practice’s revenue and should be constantly reviewed.Contractual adjustments are a regular part of billing and do not usually represent an unexpected loss of revenue.
LimitationPractices should aim to keep non-mandatory write-offs under a certain percentage (like 5%) of expected collections.The limitation is primarily the contract terms with the insurer, which dictate the allowable adjustments.
Review and ChangesWrite-off amounts should be reviewed quarterly, and necessary changes should be made.Adjustments are usually consistent based on contracts but should be reviewed periodically to ensure alignment with industry standards and the practice’s financial health.

Why Write-Offs Occur in Medical Billing: The 5 Main Reasons

Reasons for Write Offs

Understanding write-offs means you can make changes to lessen their impact. Renegotiate contracts, better screen patients for assistance programs, or update billing practices. Do what it takes to keep your practice going strong. Write-offs don’t have to damage your profitability. With knowledge, you can stay financially fit.

Knowing the types of write-offs and why they happen lets you get a handle on them, so your business doesn’t bleed money. Here are the 5 main reasons why write-offs happen in medical billing:

1). Insurance Denials

Doctors provide treatment thinking the bills will get paid, but it doesn’t always turn out that way. Insurance companies are quick to deny claims for all manner of reasons. Maybe the doc didn’t check with them first before doing a procedure. Maybe the receptionist typed in the patient’s details incorrectly. Maybe the patient’s insurance had expired and the signs were missed. Or perhaps the insurance simply doesn’t cover that particular treatment. When insurance denies a claim, the cost becomes a “write-off”.

2). Coding Errors

A single mistake in the coding can spell trouble. The insurance company may kick the claim back or pay only partially. This means the provider has to write off the remaining amount. Write-offs are a huge loss to any healthcare organization. Accurate coding is absolutely essential to get claims paid in full. Slipshod coding practices lead to claim denials and underpayments which ultimately hurt the patients and the doctors.

3). Patient’s Financial Hardship

Some medical billing write-offs happen when a patient ends up in a tight spot where they can’t pay their medical bills. When a patient can’t pay what they owe the doctor, the doctor has to decide whether to write off the payment as “bad debt” or forgive the patient, calling it a charity. Either way, the patient gets off the hook, and the doctor is left holding the bag.

4). Contractual Obligations

The doctors and hospitals have contracts with the insurance companies. These contracts mean that some of the costs for treating patients will be written off. It’s just part of doing business. The insurance companies don’t pay the full bill for services, so the doctors and hospitals have to eat the difference. At the end of the month, when all the bills have been paid, the accountants tally up how much was written off. Bills flow out, payments flow in, and write-offs flow into the abyss. The cycle continues day after day.

5). Administrative Mistakes

Providing medical care is tough work, no two ways about it. The hours are long, the cases are tough, but helping folks get back on their feet – that makes it worthwhile. Still, running a clinic is also a business like any other. And sometimes, due to medical billing errors or oversights, you end up giving away services for free. Maybe the receptionist was overwhelmed and forgot to verify a patient’s insurance. Maybe someone walked out without paying their co-pay. Or perhaps the billing got delayed for one reason or another. When those write-offs start adding up, it stings.

How to Avoid Write-offs in Medical Billing

Managing Write Offs in Medical Billing

Write-offs. A big thorn in any provider’s RCM. Can you erase them completely? No sir, that’s a pipe dream.

While you can’t eliminate them fully, you can sure take them down a few pegs.

It takes a plan of attack on multiple fronts. First, know your enemy – learn the types of write-offs and why they happen. Train your staff well – an educated team is your best weapon. Communicate clearly with patients so there’s no confusion.

Audit regularly to catch issues early. Stay on top of denials, using technology to help. And negotiate with payers when possible – a few points makes a difference.

Here’s a detailed approach to each strategy for minimizing your “Write-Off” rate:

1). Track and Analyze

For any medical practice, write-offs hit the bottom line hard.

Rather than accepting them as an inevitable cost of doing business, doctors would be better served by tracking the reasons behind each write-off.

Was it due to an insurance denial, a patient without the means to pay, or a mistake made in medical coding that caused the bill to be written off?

By logging the explanations for write-offs and analyzing the patterns, a practice can target problem areas and make changes to cut down on the number of write-offs that could have been avoided.

Stopping even a fraction of unnecessary write-offs can make a real difference to a doctor’s income at the end of the year.

2). Train Your Staff

Want to cut down on write-offs? School your staff and school them well. Hold regular sessions on how to bill correctly, the coding updates they need to know, and the rules of every insurance firm you bill. And show them how to have a useful conversation with a patient about their financial responsibilities too.

Staffers who have learned their jobs from top to bottom make fewer slip-ups when it comes time to submit claims and enter codes. So, at the end of the day, you’ll have fewer refused claims and write-offs as a result.

3). Establish a Proper Patient Communication

Write-offs plague practices when doctors fail to be up front with patients about money. But when a provider lays out costs clearly – insurance coverage, payment plans, out-of-pocket fees – they set the stage for patients to meet their obligations.

Have the financial conversation patient to patient. Discuss the realities of care and what they’ll be responsible for. Give it to them straight without softening the blow. Once patients understand fully what’s at stake, they can budget and prepare.

Miscommunications, on the other hand, breed disputes and defaulted payments. Patients get blindsided by fees they didn’t anticipate. And doctors lose money they have to write off.

So be transparent. Make good on the trust patients place in you. When they choose a course of treatment with open eyes, write-offs become a last line of defense rather than a constant threat. Clear, thoughtful communication – that’s the remedy for keeping a practice financially fit. Meet each patient’s financial duty with honesty and care. The rest will follow.

4). Perform Regular Billing Audits

Unpaid medical expenses can deal a heavy blow to any practice. The solution is simple: audit your own books like a hawk. Bring in medical billing consultants if you need to, but go over how you bill patients and insurance providers with a fine-toothed comb.

Doing so—either through an internal review or by hiring auditors from outside—lets you catch and fix slip-ups and wasted motions in how you bill patients and insurance companies. With the flaws remedied, write-offs shrink.

An ounce of auditing prevention, it turns out, is worth a pound of unpaid-bill cure!

5). Manage Denials Effectively

The key to running a tight ship in the medical claims business is keeping those denied claims to a bare minimum. Put together a step-by-step process for reviewing why each claim got rejected and determining if it’s worth appealing. Maybe the paperwork was filled out wrong or some information was missing. Whatever the case, figure it out and fix it.

An effective denial management strategy, one with an eye toward correcting mistakes and appealing when appropriate, can recover revenue that would otherwise just be written off.

6). Leverage Medical Billing Technology

Write-offs are a doctor’s nemesis. But technology can help turn the tables. A modern medical billing software can help the doctor and his team file clean claims on the first try. It flags errors and inconsistencies before they lead to denials and appeals. With real-time analytics, the doctor can pull reports to see where write-offs are happening.

For instance, the computerized system might catch a missing signature on the CMS 1500 billing form that would’ve otherwise invalidated the whole billing claim.

7). Negotiate Your Reimbursement Contract with Your Payors

To keep write-offs to a minimum, a hospital has to be ready to negotiate with the insurance companies. They need to work out payment rates and rules that they can live with. Knowing the score on what the insurance outfits usually cough up for each item on the bill is key. If there’s too big a gap between what the doc asks for and what the insurance agrees to, the hospital has to eat the difference. But put the time in to get the insurance companies to sign a deal that’s fair to both sides, and then those write-offs won’t amount to a hill of beans.

Stop Losing Money To Preventable Write-Offs.
We Can Help!

If you’re like most practices, a sizable portion of your revenue is being lost to write-offs and underpayments.

We know how frustrating this can be, which is why at the Best Medical Billing company, we have made it our mission to help practices minimize revenue loss and get paid properly for their services.

We use modern technologies to gain a comprehensive understanding of your billing data, identify potential issues, and implement solutions to prevent future mistakes.

So why continue to lose money when the solution is a phone call away? Schedule your free medical RCM consultation now and take the first step towards minimizing your write-offs.

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