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Red Flag Rule Clarified

CBC, Inc. Celebrates 90 Years in Business

Accounts Receivable Outsourcing: Creating a Collaborative, Value-Added Relationship with your Agency

Industry Affiliations

Choosing an Agency


The Red Flag Program Clarification Act of 2010, which went into effect on Dec. 18, 2010, amends the Fair Credit Reporting Act (FCRA) with respect to the applicability of identity theft guidelines for creditors. The measure was the result of continued confusion over which businesses were required by the Red Flags Rule to implement an Identity Theft Prevention Program designed to detect, prevent and mitigate identity theft.

Financial regulatory agencies, including the Federal Trade Commission, issued the Red Flags Rule under the FCRA for the purpose of preventing identity theft. The Rule requires creditors and financial institutions with covered accounts to implement programs to detect warning signs, or "red flags," that could indicate identity theft. The Rule also requires service providers for applicable creditors and financial institutions to develop and implement policies and procedures designed to detect, prevent and mitigate the risk of identity theft. By virtue of their services provided to a creditor or financial institution, debt collectors and asset buyers may be considered a service provider for purposes of the Rule, and may be required to implement an Identity Theft Prevention Program to the extent required by their clients.

Prior to the amendment, the FTC's broad definition of creditor would have required certain small businesses whose functions were incidental to credit extension—such as small medical practices and law offices—to undertake arguably costly and unnecessary measures to prevent identity theft. Because the applicability of the Rule to certain creditors was not entirely clear, the FTC delayed implementation of the rule multiple times to allow for Congressional clarification.

The new measure clarifies which entities must comply with the Red Flags Rule. The amendment limits the definition of "creditor" to only those who "regularly and ordinarily in the course of business" (1) obtain or use consumer reports, (2) furnish information to consumer reporting agencies in the course of a credit transaction, or (3) advance funds on behalf of a person, based on the obligation to repay. The third category does not include a creditor that advances funds on behalf of a person for expenses incidental to a service provided by the creditor to the person.

As a result, entities that allow payment to be deferred for a service are exempt from the Red Flags Rule unless they engage in one of the previously described practices.

However, while the clarification could exempt parties such as attorneys, physicians, dentists, health care providers and others from the Red Flags Rule, it does not create an outright exemption for these or any other service provider or industry. Entities that "regularly and ordinarily in the course of business" use consumer reports or report accounts to consumer reporting agencies (either directly or through the use of collection agencies) may potentially still be covered by the Red Flags Rule.

However, the amendments do not impact debt collectors to the extent they serve as service providers for creditors or financial institutions.

Entities should review the rules to determine whether they meet the Rule's definition of a creditor. Until interpretive guidance is issued by the FTC, the safest course of action for entities using consumer reports or credit reporting is to comply with the Red Flags Rules.

Regardless of whether or not an entity is covered by the Red Flags Rule, it is still a wise compliance decision to implement policies to guard against identity theft.

The enforcement date of the Red Flags Rule for entities subject to the FTC went into effect on Dec. 31, 2010.

Information provided by ACA International, the association of credit and collection professionals.

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The Charlottesville Bureau of Credits, Inc., is celebrating its 90th year in business. CBC is the oldest receivables management and collections firm in Virginia and has been a pioneer in the industry. Its longevity is based on and has been made possible by adhering to its core values--Dignity, Diplomacy and Dependability.

In 1920, local businesses had no way to evaluate potential customers when deciding on the extension of credit. The decision was based on a person's character or the fact that other businessmen would vouch for them. As the area grew, drawing more businesses and people into the area, it became more difficult to know those with whom you were dealing. It was evident there had to be a better way to share information on potential customers and to minimize the risk of extending credit to persons new to the area. A small group of area English businessmen decided that a "Bureau of Credits" needed to be formed to provide a central repository and debt clearinghouse as they had in England. The repository was formed to receive information about specific business dealings with consumers and to share this information with businesses that subscribed to the service. John Hopkinson agreed to form such a business and to provide this much needed service to the community of Charlottesville. Hence, the Charlottesville Bureau of Credits, Inc, one of the first credit bureaus and collection agencies in the United States, was born.

Since that time, the business has been passed down through the generations to John Barlow Hopkinson, to John M. (Skip) Hopkinson, and finally to the fourth generation and current President, William E. (Bill) Hopkinson. While the consistency in ownership has been integral to the survival of the original business, it has been the ability to adapt to ever changing technologies and the demands of its client base that has helped the Charlottesville Bureau of Credits continue its growth.

What began as a humble "Bureau of Credits" in Charlottesville has grown, through acquisition and development of new services, into a variety of business offerings serving the business community throughout the mid-Atlantic region. It is now a full-service receivables management and recovery firm offering consultation, management, consumer and commercial collection services and Point of Sale solutions to businesses across a wide range of industries.

The Charlottesville Bureau of Credits looks to the future with excitement and optimism as it continues to grow and adapt changing technologies to market conditions.

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Many of us in the Health Care Receivables industry can remember when the only outsourcing by medical providers was to Collection Agencies. Over the years, the idea of outsourcing and the number of agencies has grown dramatically. Firms have changed their offerings to include management of more parts of the revenue cycle. Some firms offer expertise in managing the entire revenue cycle, from Day 1 billing and insurance follow-up all the way through to collections while others have chosen to market their services on a smaller scale, carving out niches in the revenue cycle in which to specialize.

There was a time when performance was the main, if not only, yardstick by which the outsource agency was evaluated. There were also fewer firms, providing a limited array of services. Today the hospital Patient Accounts Director is faced with many choices. However, once the decision is made to outsource there are two very important questions that need to be answered: What separates one firm from all of the others and what level of service should I expect from the chosen firm?

First, however, let's take a look at the analysis that has to be performed and the decisions that have to be made when determining if outsourcing is the right choice for your business office. Outsourcing helps to meet the needs of the medical provider by taking on jobs that the provider either doesn't have the staff or expertise to perform, or has decided they don't want to handle internally. While an outsourcing relationship can be either short term or long term, it is borne of a need that the medical provider cannot currently fill. The first step in moving toward a decision on outsourcing is to fully evaluate the current situation, particularly with respect to available resources. Some questions to ask are:

  • Are my A/R days where I want them to be?
  • Am I confident in the current process and procedures we have in place?
  • Are my systems out of date?
  • Does my staff possess the necessary level of experience?
  • Is staff retention a continuing problem?
  • Is managing and dealing with A/R issues taking too much time away from our mission of caring for patients?

If a thorough, honest evaluation of these questions and their answers leaves you feeling more controlled by your situation than being in control, then you have taken the first step toward not only regaining that control, but to a solution that will put your operation back on the right track.

The next step in the process is to fully assess the strengths and weaknesses of your A/R management process. If you find that your staff is doing much of the work manually, instead of making the system work for them, then training on the system and its full functionality is in order. If you find that your system is not capable of managing your processes anymore, then you may be looking at a replacement scenario. Staffing may be your problem, either under-trained or underutilized staff or retention issues leading to not being able to keep up with the fast-paced A/R management environment while hiring and training new staff. Finally, your system may be state-of-the-art and your staff well trained and long term, but your processes need evaluation. Your staff is working hard, but not smart. They are not effectively managing the A/R process.

A healthcare receivables management firm can help you in many ways:

  • Consultation - evaluating your systems and processes for maximum efficiency
  • Training - ensuring your staff is working smart and fully understands the A/R management process
  • Providing additional staffing resources
  • Management of a specific portion of your A/R - examples:
    1. Performing insurance follow-up after the initial claim has been filed
    2. Handling of claims filed with problem carriers - Workers Comp, Motor Vehicle claims, Managed Care to name a few
    3. Early Out or Pre-Collect programs, ensuring that only the truly delinquent and difficult accounts get sent to Collection
    4. Day 1 Billing - Filing your claims for you
    5. Denial Management
    6. System conversion clean-up
    7. Collections

A thorough evaluation of your business office, its capabilities, staffing, systems and procedures is only the first step. If outsourcing is determined to be the best solution, then the next step is to choose an agency to work with. This process is very important and many factors must be taken into consideration. While the mechanics of the procurement process and drafting Requests for Proposals (RFP) are necessary first steps, we want to concentrate on the actual selection process.

Selection criteria must be established and weighted as to its importance in the final decision. Some of the criteria are as follows:

  • Experience of the firm
  • Length of time in business
  • Areas of Expertise
  • Management Team
  • Pricing
  • References

While all of the above are important factors to consider, and you may have others that are important to your Organization, it is the last point, References that may be the most important of all.

Checking the references of potential outsource firms will give you a picture of their performance, the level of complaints received by the provider and the efficiency of the firm's work. You must remember, however, that the references provided by the applicant firms will be the very best ones they have to offer. How can you get a real picture of the firm you are considering when the deck is stacked in their favor? First, ask the firm to also provide names and contact information on clients they have lost in the past 1 - 2 years. While the reasons for losing a client are varied, from poor performance to non-responsiveness, they may also be related to budgetary concerns or a desire on the part of the provider to take back a project to handle it internally. The answers will give you the information you need. But probably the most important questions you can ask a reference relate to the relationship they have established with the outsource agency. Specifically:

  • Is the agency responsive to your requests?
  • Do they regularly provide reports showing the status of your account base and the results of their efforts?
  • Do you have regular meetings with them to discuss the project, to address issues and to ensure all key personnel are kept in the loop?
  • Do you have easy access to key personnel at the agency?
  • Do you receive feedback and timely information to allow you to more effectively manage your business?
  • Do you feel that the agency has added value to your operation?

The answers to these questions will provide you with a much better picture of the firm. As stated earlier, there was a time when performance was the main standard by which agencies were measured and compared. Now, however, you should be looking for a partner - a firm with which to create a mutually beneficial, collaborative relationship.

Once the choice of agency has been made, the tone of the relationship and working parameters must be set and agreed upon. **Please note that the following steps can also form the basis for questions to prospective agencies to determine whether or not you want to work with them**.

At the very beginning of this new relationship, an Implementation or Kick-Off meeting should be held. It should include all stakeholders, particularly those persons who will be involved in the daily operations and management of the project. This meeting sets the tone for not only the specific project, but for the relationship that you are forming with your outsource agency. It is a chance to ensure that all individuals get to meet face-to-face and to discuss issues and logistics that will eventually lead to the success (or failure) of the project. Lines of communication need to be established and key personnel identified. The partnering of the two entities should be made as seamless as possible allowing for a smooth flow of information reporting of outcomes. This is also the time to make sure that all involved parties understand the role of the outsource agency. The way the project and the agency are introduced to the business office staff can have a lasting effect on the project. The staff needs to understand that the agency is being brought in to help them or to augment their existing staff and expertise - not to replace them and not because their performance has not been up to par. This is also the time to establish specific, measurable targets for the project. These need to be outlined in detail, for instance - A/R days need to be reduced by 10% in the first 3 months of the project, or by the end of the first year, Bad Debt Recoveries must increase to 35% of assigned amounts. Now you have measurable targets. Of course the discussion needs to include thoughtful consideration of the feasibility of any targets. While targets may be altered during the course of a project, it is important to start out with reasonable attainable goals. Going forward, regular operational meetings should be held, more frequently in the early stages of the relationship to continuously monitor and discuss targets and results. While feedback from the agency should be a regular, as needed, process, this monthly meeting is the perfect opportunity to share findings and to discuss issues that have arisen during the past month. While many of these issues may have already been addressed, the meeting is the time to report on those issues and subsequent solutions.

The outsource agency must become an integral part of the business office structure, almost like another division. Gone are the days of the "us versus them" mind-set. Every reasonable effort must be made to minimize the differences and to create an efficient working environment in which both the business office staff and the outsource agency thrive and succeed. The outsource agency provides a wide range of experience. Through its partnerships with a variety of health care organizations, the agency develops a knowledge base that can then be shared with all of its clients - taking networking to a whole new level. This sharing of information and access to a wide variety of sources might not be possible if not for the partnership formed by the hospital and the outsource agency.

The benefits of a truly value-added partnership will be obvious as improvements in processes are realized, days in A/R are reduced and Bad Debt Recoveries increase. But the true benefits of such a relationship are even more far-reaching. A true collaborative partnership can lead to cost savings as well. Through communication, increasing efficiencies and teamwork, outsourcing can become a declining-cost solution to A/R management. More efficient processes and constructive feedback and problem solving may lead to a reduced dependency on the outsource agency, thereby reducing the amount spent by the hospital on outsourcing. The added benefits are that the hospital will see increased efficiencies and economies of scale through the partnership and the agency has helped to create a loyal customer - one that will continue to utilize its services in other areas and will serve as a referral base for the agency.

It is this enhanced relationship of:

  • Open Communication
  • Setting Realistic targets with measurable performance standards
  • Feedback
  • Buy-in of stakeholders at all levels
  • Regular Operations meetings to discuss issues and progress

that all hospitals should look for in an outsource partnership. It is important to note that the type of relationship described here and the level of commitment required by the agency will be evident from other relationships and projects they have been involved with. It is a part of their core values and normal business practice, not a behavior that can be mandated by an agreement. There must be a truly collaborative effort at all levels with open and honest communication before such a mutually beneficial relationship can be achieved.

Written by Randall G. Bledsoe of RGB & Associates. For further information, Mr. Bledsoe can be reached at 434-295-9800.

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CBC, Inc. is committed to providing ongoing training to its employees and managers and believes membership and active participation in industry specific organizations is an important step in this process. This ongoing commitment to education and keeping up with regulatory changes in the industry provides a value added benefit to CBC's clients as the information is shared with them and integrated into their projects on an ongoing basis.

William Hopkinson, President, serves on the National Board of Directors of MDHBA and is currently the President of the Virginia Collectors Association (VCA).

CBC, Inc., VCS, Inc. and managers in these affiliated firms are members of the following organizations:

American Association of Healthcare Administrative Management (AAHAM)
Healthcare Financial Management Association (HFMA)
American Collectors Association (ACA)
Virginia Collectors Association (VCA)
Medical Dental Hospital Business Associates (MDHBA)
Consumer Data Industry Association (CDIA)
Better Business Bureaus (in areas where the firm does business)
Chambers of Commerce (in areas where the firm does business)

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Aren't all agencies pretty much the same? Definitely not!

Consider the following:

  • Reputation - Does the agency have a well established reputation in their market?
  • Method of Operations - Collections programs should be tailored to the specific needs of the client. Communication between the client and the agency are crucial to the success of this partnership.
  • Scope of Services Provided - Does the agency provide a full range of services, including consultation and training?
  • Rates - Work should be performed on a contingency basis, with no up-front or membership fees.
  • Professionalism - Does the agency enforce strict compliance with all state and federal laws? Do they perform using ethical practices?
  • Integrity - Does the agency have strict internal controls in place to protect you, their customer? On average, every year, over 300 collection agencies go out of business annually, many with their client's money still in hand.
  • Longevity - Does your agency have a proven track record of higher-than-average returns, and have they been performing at this level consistently over a long period of time?

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