Credit Balances, an overlooked problem and hidden danger
One often overlooked area in the reimbursement arena is the issue of credit balances.
The credit balance occurs from several situations. Three common ones are as follows:
- Lack of contract information or specific authorization with HCPC codes at the time of intake
This situation results in an incorrect allowable booked at the time of billing and an overpayment at the time of cash posting resulting in a credit balance
EXAMPLE:
Billed Per Diem @$75/day for 10 days = $750.00
Claim sent at List and booked to A/R @$750.00
Paid @ List -25% resulting in $1000 payment and a credit balance on the account of -$250.00
- Billed to Medicare primary and private insurance secondary/ no automatic crossover from Medicare
This situation results in a paper claim to the secondary with the Medicare EOMB attached. Claim is sent reflecting the charges in full and the secondary processes and pays the claim in full rather than the secondary amount.
EXAMPLE:
Billed to Medicare @ $2500.00
Paid by Medicare @ $2000.00
Due from Secondary @ $500.00
Paid by Secondary @$2500.00
Credit Balance @-$2000.00
- Claim goes to insurance company and is not paid as presented
EXAMPLE:
Billed to Insurance @ “J” code for Drug @ listed contract rate available to the Billing Staff
Claim is paid at another rate than the one on file resulting in an overpayment at the time of cash application
EXAMPLE:
“J” Code for Drug @ $ 250.00 Paid by Insurance @ $ 300.00
Credit Balance @ -$50.00
Negative Impact on Financial Status: Credit balances are often deducted from the now misstated Accounts Receivable balance once the numbers are presented to finance for month end calculations. This results in an increase in the DSO (Days Sales Outstanding). In addition, the refund of a large number of Credit Balances in one financial period can negatively impact your cash for the period.
Legal Implications: Standard operating procedure calls for a 45 day turn around when a credit balance is identified as being due to a payer: Legal implications can result from ignoring Credit Balances for prolonged periods of time.
Mask true Accounts Receivable Balance: When the Credit Balances is a significant percentage of the Accounts Receivable balance the true balances is not readily identifiable. To manage your Accounts Receivable, you must manage you Credit Balances.
Not all credit balances are refunds: It is important to understand that all credit balances do not require refunds. In cases where the A/R was booked wrong and the resulting balance after a payment is negative you simply need to make a revenue adjustment. This not only corrects your A/R but increases revenue.
In summary, use the reports from your software or Home Infusion Reports (www.HomeInfusionReports.com) and work your credit balances on a continuous basis much as you bill monthly. Applying the refund / Credit Balance process in a timely manner can save you legal problems, financial issues, and save your relationships with your payers, whether that is a patient or an insurer, while giving you a true picture of your status in Accounts Receivable.
Pearl Shores MBA
Shores Enterprises
January 30, 2007
Phone: 760-518-9329
Fax: 760-418-8042
shoresiv@aol.com