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Resolve credit balances to improve compliance and reporting

April 20, 2021 Article 4 min read
Chris Moshier Duane J. Fitch

Credit balances are a critical part of the revenue cycle, and they require ongoing resolution to prevent large or aged balances, which can have serious consequences for healthcare providers. Learn how to detect and resolve credit balance issues.

Doctor wearing facemasks reviewing paperwork.Credit balances are a normal part of doing business for healthcare organizations, typically representing between 1 and 5% of total gross accounts receivable. And while credit balances are a critical part of the revenue cycle, they require regular attention and ongoing resolution to prevent accumulating large or aged balances. 

But credit balances can be challenging for providers to resolve since they require exhaustive reporting and continual account review. They also require the commitment of full-time resources, and it can be painful to spend money in-house to send money out the door.

As a result, large or aged credit balances are often not discovered until there’s private equity activity or an audit, when the risks and costs of remediation are unnecessarily high.

Credit balances are often not discovered until there’s private equity activity or an audit, when the risks and costs of remediation are unnecessarily high.

Risks of credit balances

Large or aged credit balances carry several risks, including patient complaints to state agencies, penalties and interest on unclaimed property, potential violations of payer requirements, and risk of Medicare audits, among others. Providers are legally obligated to resolve credit balances in a timely manner under the Affordable Care Act (ACA). Medicare and Medicaid overpayments must be reported and returned within 60 days of identifying the credit balance, and failure to comply puts providers at risk of prosecution for fraud under the False Claims Act. To avoid the many risks, successful healthcare organizations take a proactive approach to and resolving credit balances. Let’s take a look at how.

Does your healthcare organization have a credit balance issue?

To determine whether your healthcare organization may face credit balance challenges, start by asking yourself the following questions:

1. How often is my organization running credit balance reports from the electronic health record (EHR) or patient accounting system? Credit balance reports should be run at least once per month. In addition, you’ll want to set up your EHR to flag credit balances on accounts.

2. Is my organization filing Medicare 838 forms on a quarterly basis as required?

3. Did our internal audit note any large or aged credit balances, that is, greater than 3 to 5% of accounts receivable or older than approximately six months?

4. Is my organization filing annual unclaimed property reports in the state of business or, for out of state patients, in the state of the patient’s last known address? Many states require negative reports if you have no credit balances to report.

5. Do we have sufficient policies to prevent credit balances and to resolve them in a timely manner? These should include, among others:

  • Bad debt collections policy
  • Financial hardship policy
  • Medicare 838 form policy
  • Patient credit balance policy
  • Payer credit balance/overpayment refund policy
  • Payment posting policy
  • Point-of-service collections policy
  • Unclaimed property policy
  • Voided charges policy
  • Small-dollar adjustment policy

Resolve credit balance issues

Once you’ve identified that your organization has a large volume of or aged accounts with credit balances, three analyses are crucial to perform.

1. Start to assess your data and analytics methods.

First, conduct an exploratory analysis of your data to begin to identify the problem. An exploratory analysis helps you assess the feasibility of extracting the right data from your patient accounting or electronic health record systems, and it helps you see whether your data analytics methods to determine the root cause will work on the extracted data.

2. Stratify credit balances by payer.

This is important because resolution will vary by payer, since payer type determines the lookback period. Lookback periods for Medicaid, patient, and commercial insurance vary by state, and the Medicare lookback period is six years.

3. Assess aging balances.

Next, you’ll want to conduct an initial aging analysis on the data you extracted, and validated as usable, in the step above to determine the age of your credit balances. This is important considering that resolution lookback periods are different by state, credit balance amount, and payer type.

4. Perform a root-cause analysis.

In addition to the aging analysis, it’s important to perform a root-cause analysis to determine where your credit balances are coming from and to ensure they are in fact credit balances and not posting errors.

Perform a root-cause analysis to determine where your credit balances are coming from and to ensure they are in fact credit balances and not posting errors.

Common issues that contribute to credit balances include:

  • Unrequired patient copayments
  • Patient prepayments
  • Incorrect coordination of benefits
  • Voided charges
  • Unposted AP refunds
  • Unresolved takebacks

Once you’ve completed these four steps, you can take the findings and begin to develop a remediation plan, critical for healthcare providers but outside the scope of this article.

Prevent credit balance issues

While credit balances are an inevitable part of doing business and healthcare providers can’t escape the need for ongoing resolution, several strategies can help you keep balances in check. These strategies include enhancing or developing policies and procedures, adjusting staffing to better align roles with department needs, implementing credit balance dashboards, and optimizing the electronic health record.

It’s also important to recognize that updates to processes or technology within your organization can have unintended consequences on your credit balances. In addition, many healthcare organizations find it helpful to seek external expertise to strengthen their revenue cycle and improve their data analytics reporting to prevent credit balance issues.

In summary

Ultimately, credit balances require organizations to balance cost with compliance while adhering to the terms of payer contracts and state regulations. Electronic health records and sophisticated patient accounting systems can be leveraged to help manage credit balances, such as by creating flags on patient accounts, generating credit balance work queues, running reports, and more.

Don’t let unresolved credit balances pose unnecessary risks to your organization. Instead, focus on resolution to minimize the chance of audit or penalties, while also preserving your patient relationships. Please feel free to reach out to a Plante Moran contact to learn how we can help you.

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