Every year, hospitals in the USA report nearly $50 billion in bad debt, and 30% of the hospitals (one in three) incur a bad debt of over $10 million. That’s a lot of money being written off!
Write-offs in medical billing are a frequent occurrence. While some write-offs are happily agreed upon by the provider and payer (patient or the insurance company), other write-offs can result in bad debt and loss of revenue, eventually resulting in the practice shutting its doors.
So, if you want to avoid write-offs and collect maximum reimbursements for your services, read this detailed guide to understand the troubling phenomena of write-offs and how they differ from contractual adjustments.
What is a Write-off in Medical Billing?
In medical billing, a write-off is the uncollected amount the healthcare provider forgoes and marks as unrecoverable in his ledger. When a provider is unable to collect payment against the services he rendered from either the patient or the insurance provider, he ‘writes it off’ or voluntarily leaves it ‘unpaid’ instead of chasing it for months.
In other words, write-offs are deductions from the provider’s accounts receivables (A/R). Although he initially charged this amount, he does not expect to collect reimbursement for it. Therefore, it is slashed from the A/R.
In broad terms, there are two kinds of write-offs in medical billing – Approved and other write-offs. Approved write-offs include contractual, charitable, small balance, and no insurance write-offs. Other write-offs include uncredentialed, timely filing, promotional, and bad debt write-offs.
Common Types of Write-offs in Medical Billing
According to an analysis by Kodiak Solutions, healthcare providers wrote off $15.8 billion between 2021 and 2023. The financial transactions of 1,850 US hospitals and 250,000 physicians were reviewed over 2 years, and it was found that the total payment collection was $5.4 billion, even though the hospitals accumulatively charged $21 billion on their medical claims.
So, why are healthcare providers writing off nearly 75% of their charges? To answer this question, let’s look at some common types of write-offs in medical billing and what prompts them.
Bad Debt Write-offs
A bad debt write-off occurs when the amount the provider bills to the insurance payer cannot be recovered due to errors like incorrect coding, missing or wrong information submission, incomplete documentation, etc.
Healthcare practices and professionals write off a bad debt when their claim denials cannot be reversed. Another major reason providers encounter bad debt write-offs is when they fail to verify a patient’s insurance coverage before rendering a medical service.
Contractual Write-offs
The payable amount for every medical service covered under the insurance plan is mentioned on the provider-payer contract. However, if the healthcare provider charges more than the allowable fee, the payer only pays the amount stated in the contract, and the provider must write off the balance.
Charitable Write-offs
Healthcare providers write off a patient’s charges as a professional courtesy. If the patients’ financial status makes them eligible for this charity, the provider extends this support out of goodwill and to help the community. A charitable write-off is the difference between a provider’s fee schedule and the collected amount.
No Insurance Write-offs
Large healthcare organizations write off the charges of some uninsured patients when they pay the full amount for the rendered services. It is also known as a prompt payment write-off and is a gesture of gratitude from the provider to the patient to thank them for their one-off and fast payments.
Promotional Write-offs
Some practices and providers write off their new and uninsured patients’ bills to boost the number of visits, build long-term relationships, and encourage full payments next time.
It is not to be confused with provider discounts. Those are reductions (in percentages) on the total bill. In contrast, a promotional write-off disregards the entire amount.
Small Balance Write-offs
When the provider’s charges are insignificant, e.g., $15 or $20, he writes it off under small balance write-offs. Instead of billing the patient or payer for $15 or $20, the provider documents it and may include this amount in the bill for the service rendered on the next visit.
Timely Filing Write-offs
This type of write-off in medical billing happens when healthcare providers cannot keep track of claim filing deadlines. They file the medical claim past the insurance payer’s deadlines, and as a result, the claims are denied. As these denials cannot be overturned, the provider has to write off the charges.
Uncredentialed Write-offs
Uncredentialed providers are not a part of the insurance company’s network. It means that the insurance payer did not verify the provider’s credentials, nor signed a contract with them. Therefore, the provider is not authorized to offer healthcare services to the payer’s policyholders.
In such a case, the provider’s medical claim will be rejected, and the provider will eventually have to write it off.
Best Practices to Write Off a Claim in Medical Billing
There can be several reasons for healthcare providers to forgo their reimbursements voluntarily. Instead of wasting time in payment recovery efforts, they write it off in their accounts receivables. While this is a common practice in the healthcare industry, it must be done correctly to save the provider and the practice from extreme financial losses.
Let’s look at some of the best practices for write-offs in medical billing.
Identify the Type of Write-off
First, you must identify which category your write-off falls into. Are you writing off the claim because the patient does not have insurance coverage and cannot afford to pay for your services out of pocket? Or are you writing off the claim because the insurance payer triggered a hard denial?
Identifying the type of write-off and determining the candidate’s (patient or payer) eligibility for the write-off is the first step in justifying non-payments.
Document the Causes of Write-off
Next, you must record the exact causes of write-offs. For example, if you let the bill be unpaid because the charges were more than the payer’s allowable fee or the patient was from a low-income family and his/her insurance plan did not cover the rendered services, these reasons should be recorded in your ledger.
Review Your Practice’s Policies
Another good practice is to regularly review your policies. It will help you check whether or not your philosophies are leading to too many write-offs and jeopardizing the financial health of your practice.
For example, if you regularly write off claims for charitable reasons or do not consider appealing denied claims, this could be a problem on your end. Over time, it will lead to revenue loss, and you may have to file for bankruptcy.
Ensure Timely Write-offs
Once you have decided to write off a claim, make an immediate note in your general ledger. It will save you from confusion, and if someone else is following up on your accounts receivables, they will know that this payment is not to be chased.
Audit Your Revenue Cycle
You must frequently audit your revenue cycle to identify bad debt and unnecessary write-offs. It will help you formulate better policies for optimizing your practice’s financial health and staying compliant with government and payers’ rules and regulations. Audits are also necessary to retrain your staff and ensure efficiency in the billing workflow.
How to Reduce Unnecessary Write-offs?
Other types of write-offs, which include timely filing, credentialing, bad debt, administrative, and promotional write-offs, are unnecessary and lead to revenue loss.
Many of these occur without your consent, and you are left with no choice but to take the financial burden upon yourself and cease the revenue recovery efforts.
However, you can mitigate unnecessary write-offs in medical billing by being proactive.
Stay Compliant
Whether you are seeking payments from government insurance payers – Medicare/Medicaid or commercial payers, one thing is certain. They all have unique requirements that must be followed for accurate and timely reimbursements.
You must adhere to their rules and regulations, like medical credentialing, insurance verification, pre-authorizations, and timely claims submission, to avoid claim denials and resulting bad debts.
Report and Analyze
You can use revenue cycle management (RCM) automation tools and software to monitor your practice’s financial performance, identify patterns, and pinpoint key areas of improvement.
For example, these tools can indicate which type of write-off is occurring the most and how much money you are losing because of it.
Train the Billing Staff
You must also train your staff on medical billing and coding best practices so they can prevent unnecessary write-offs.
For example, they must always verify a patient’s insurance coverage and thoroughly review the provider-payer contract to determine the claim filing deadline.
Hire Professionals
Medical billing is a time-consuming and complicated process. When, after meticulously following several steps, providers’ medical claims are denied, they get so fed up that they quit the chase and write off their charges.
But instead of giving up the chase, providers should let a professional medical billing company handle the entire process. From the first step, medical credentialing, to the last, denial management, they follow the proven methodology to collect reimbursements for their clients.
What are Claim Adjustment Codes?
Claim Adjustment Reason Codes (CARCs) and Claim Adjustment Group Codes (CAGCs) are used together on EOBs to explain why the insurance payer’s reimbursement amount was different than what the healthcare provider had billed and now who is liable for contractual adjustment (the remaining amount).
These alphanumeric standardized codes streamline communication between the payer, provider, and patient and correctly identify the reason for adjustments and the party responsible for the remaining amount.
The following are some of the Claim Adjustment Group Codes.
- CO (Contractual Obligation) – This indicates that the adjustment is based on the contract signed between the payer and the provider. As the contract terms were negotiated beforehand, the adjustment or payment reduction is considered an agreed-upon or approved write-off.
- OA (Other Adjustments) – This group code indicates that no other CAGC code was applicable for this adjustment. Hence, the provider must write off the balance in payment.
- PI (Payer Initiated Reductions) – The payer uses this group code to state that the patient is not responsible for the balance payment/ adjustments.
- PR (Patient Responsibility) – This code is used when the patient has a secondary insurance plan. It indicates that the patient is responsible for the contractual adjustments, whether through deductibles, copays, or coinsurance.
- CR (Corrections and Reversals) – Used with PR, CO, and OA, the group code explains that a correction or reversal was made to a previously adjudicated claim.
Write-offs vs Contractual Adjustments – How Do They Differ?
The main difference is that contractual adjustments in medical billing lead to write-offs. Contractual adjustments trigger contractual write-offs and are only a part of the common practice.
Write-offs are of many kinds, and their reasons vary from no insurance coverage to charity and non-credentialing to small balances. In comparison, contractual adjustments are the agreed-upon reductions in reimbursements and comply with the insurance payers’ policies.
So, while write-offs, especially OTHER write-offs, can financially drain your practice, contractual adjustments rectify billing errors (by identifying the correct reimbursement amount and the person responsible for financial liabilities) and prompt the provider to re-negotiate the allowable fees for accurate reimbursements.
Bottom Line
As a healthcare provider, you must understand the different kinds of write-offs in medical billing. While some write-offs are voluntary and have a positive effect on your practice, such as increased patient satisfaction and improved provider-payer relationships, other write-offs can drag your practice down.
You can use techniques like regulatory compliance, staff training, and reporting and analysis to prevent unnecessary write-offs and optimize your revenue cycle. However, if avoiding write-offs and minimizing your contractual adjustments is a struggle, try our tailored medical billing services.
Our expert team proficiently handles contract negotiations, insurance coverage verification, timely claim submissions, and denial management to save you from leaving money on the table.
