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As bad debt continues to rise in the healthcare industry threatening already slim profit margins, hospitals and health systems are searching for options that bring more dollars to the bottom line. Increasingly, providers are finding that one very practical solution is selling their bad debt.
Generally, when a hospital chooses to sell its bad debt, the decision is not one made quickly, but comes after much careful consideration and attempts to collect the debt have been exhausted. Once the decision to sell is made, It's natural for a provider to feel relief at the thought that, after perhaps years of uncollected revenue, the accounts will finally turn into cash.
Not so fast, notes attorney Leslie Bender. The debt selling process in the healthcare industry is far from simply turning over accounts and receiving a check. That transaction is only the start of an arrangement that, just like any relationship, can sour very quickly should the wrong partner be chosen. Success in the debt selling process, therefore, depends on the buyer, or partner, that is chosen to take over the debt. For the hospital or health system, the buyer can be the reason for a smooth process or the source of complaints regarding unwarranted collections practices.
"The manner in which the portfolio is serviced post sale could have a dramatic impact on the hospital," says Bender, CIPP, a Timonium, Md.-based attorney who often represents sellers in such transactions. "Relationships with patients are ongoing, so it is especially important that a hospital sells to someone who shares its philosophy on collection practices and will act in a way that supports its reputation in the community."
Of course, paving the way for a successful relationship only begins with finding a qualified buyer.
The provider must also structure a fair contractual agreement and institute a monitoring process to gauge how well the relationship is going. In the end, how much due diligence the hospital or health system has put into choosing its partner, along with its efforts in building a solid partnership, often will mean the difference between success and failure. So while being choosy may lengthen the selection process for finding a debt buyer, it's also the key to making sure a provider finds the right one.
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