Question

how can you ensure that errors are not made when these adjustments are recorded, a.non-sufficient funds b.collections agency payments, c. over-payments on patient accounts and d. third party contractual adjustments

Answer 1

A well defined internal control system can help any organization to ensure that all the transactions are properly authorized, recoreded and accounted. Based on the above question, we can ensure that there are no errors as such when adjustments are recorded for the following types of transactions:-

A.) Non - Sufficient funds :-

Non sufficient funds generally mean that whenever a cheque issed by your company is presented by the payee at his/her bank and if the cheques are not accepted because there is not enough funds available in your account that is equal to the amount of the cheque, the cheque might get bounced or rejected. To penalise the account holder for this charge, the bank might charge a fee for having spent their time and labor in the process which is known as the Non - Sufficient fund fee.

When a bank charges such on the bank account, once it has notified the customer of the bank, the account holder has to pass a necessary entry to reflect the bank charge on his books. This is called as the adjusting entry as it adjusts the bank balance as per the customer's books of accounts.

B.) Collection Agency Payments :-

Collection agencies are companies , the services of which are used by lenders, creditors, financial institutions , banks, etc to recover funds that are past due or from the accounts where there has been default. Their major responsibility is to reach out ot defaulters and follow up with them on the payment that is to be received by the compay. Since it can be difficult for a lending institution to follow up and get the money that they owe, they generally outsource this work to a collection agency.

It is a third party engaged by the above mentioned agencies to collect funds and they would be paid a rate of commision for their services. Whenever a payment is collected through a collection agency, the agency might retain a percentage of charges as their fee. To avoid recording payment of such fees, the institutions, at the time of recording the receipts related to that payment , can also reduce and record the expenses related to such collections.

C.) Over payments on patient accounts :-

When a medical insurance is taken, insurance companies generally pay the treatment related expenses of the policyholder. When this is done, to avoid errors, in paying the medical expenses of the policyholder/patient, it becomes increasingly necessary for the insurance companies to verify and audit the bills provided by the hospitals, the investigation documents, the reports, etc.

A separate team would evaluate the expected amoung of hospitalization charges and based on the above reports, the insurance company would pay the bills. When there is any discrepancy, the supporting documents need to be observed and the necessary adjustments should be passed.

D.) Third Party Contractual Adjustments :-

Contractual adjustments is a phrase commonly used in health insurance when an insured person is covered by an individual or group health plan that involves a network of providers contracted by the insurer. Because of the network of providers contracted by the insurer, there is a lesser burden on the insurer, thus reducing the amount owed on the claim. Similar to a contract between the insurer and the policyholder, there is also another contract between the insurer and the providers.

At many health care networks, policyholders are not directly involved in claims. If the member gets a service covered by his health care plan, the provider usually bills the insurer and charges only a portion of it as part of the co-payment to be made by the insured. The provider usually submits the bill for the provider's standard rate for the service. Assuming the service is covered by the insurance contract, the insurer processes the claim at the agreed-upon service rate. The reduced amount between the provider bill and contract rate is discounted and called a contractual adjustment. The necessary contractual adjustment here should be carefully recorded in the books of the insured based on the percentage it owes on the claim process. If there are any adjustments that needs to be made in this process, it should be done after ensuring that there are appropriate deductions for the co-payment part borne by the policyholder.