Chargebacks are a major challenge in the health care industry. Health care service providers like hospitals, clinics, and testing facilities often use one of two options for dealing with them—neither of them good. They either write off chargebacks as just another cost of doing business, or they report accounts that have disputed payments to a collection agency. However, when a dispute is filed, the health care provider has to wait at least six months before they can report the account to collections.
According to the American Collectors Association, it is estimated that collection agencies are able to collect from only 17% of patients overall. Due to the low recovery rate, collection agencies tend to take anywhere from 40 to 50% of the revenue they collect.
What many health care providers don’t realize is that there is a third option. You may be surprised to know that even in an industry with stringent requirements for HIPAA compliance, health care providers can recover up to 70% of their lost revenue without paying heavy collection fees or violating HIPAA regulations.
Debunking the Chargeback Representment Myth
Per the US Department of Health & Human Services, "The Privacy Rule permits a covered entity, or a business associate acting on behalf of a covered entity (e.g., a collection agency), to disclose protected health information as necessary to obtain payment for health care, and does not limit to whom such a disclosure may be made."
Across all industries, merchants who do nothing about their chargebacks stand to lose up to 40% of their revenue, and health care providers are no exception.
Many disputes are based on false or mistaken premises. These are referred to as “friendly fraud” chargebacks. They often result from situations such as a cardholder failing to recognize a transaction listed on their account, claiming that the quality of the goods or services received was unacceptable, or that they were uninformed about the cost of the transaction. In some cases cardholders may falsely claim that a transaction was fraudulent, either because they were unhappy with the cost or quality of the goods or services, or because they simply think they can get their money back through filing a false dispute.
Friendly fraud chargebacks typically account for anywhere from 17 to 32% of a merchant’s total chargebacks. The good news is that these chargebacks can be beaten if you fight them effectively.
Still unsure? Here are the top three reasons why health care providers should consider chargeback representment:
In order to win a chargeback dispute and recover your revenue, you'll need to provide evidence that the transaction was authorized by the cardholder and the goods or services were delivered. The issuing bank will look over this evidence and consider it in relation to the claims made by the cardholder. In some cases the cardholder may also provide evidence to support their claims, however most cardholders don't do this, especially those engaging in friendly fraud.
For the best chance of winning chargeback disputes and recovering your funds, we recommend that health care providers present the following evidence:
As effective as chargeback representment can be, the most efficient way to fight chargebacks is to prevent them from happening in the first place.
These strategies can help you avoid disputes before they ever reach the chargeback stage:
Root-Cause Analysis
In order to put together a truly effective plan of defense,
That means you can’t take the bank’s reason for the chargeback at face value. Every chargeback tells a story, and provides you with an opportunity to fix your business processes and prevent future chargebacks from happening due to avoidable mistakes.
Order Insight
Cardholders often dispute transactions as “not authorized” because they are unaware that the charges were made by family members. Sometimes, they forget charges they themselves have authorized. Order Insight, now offered by Chargeback Gurus, allows health care providers to provide service details to issuing banks via real-time integration. This tool can help you proactively prevent Visa disputes by confirming the validity of the charge before the bank escalates an inquiry to a chargeback.
Prevention Alerts
If you are approaching your chargeback threshold or have already exceeded the 1% maximum chargeback ratio, prevention alert services will allow you to avoid chargebacks by issuing immediate refunds during a brief window of time after the dispute is filed. This will prevent the chargeback from happening, and avoid any chargeback fees.
If any of the statements below apply to you, you should consider hiring a chargeback management company:
The chargeback management company you hire should have a solid understanding of your industry, should understand HIPAA compliance, and should have experience working in your industry assisting providers with recovering lost revenue and proactively preventing disputes using proven defense strategies.
Please note: The recommendations provided above are not intended to replace any advice provided by your HIPAA compliance team. We highly recommend you talk to your compliance team prior to implementing your chargeback defense strategies.
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