Over the past decade, the collection industry has been reeling from a seemingly endless string of market changes that have made the goal of “trying to make a profit” revert to “trying to stay in business.” Whether you define your operation as small, medium, or large, there are challenges specific to your segment of the market that plague managers each day. Over the past several years I have addressed many dynamics that impact the owner/manager of a collection operation with recommendations for making the best choices based on the best practices of successful industry players. However, today there appears to be a shift among organizational leadership from “how can we be better at what we do” to “how do we keep the doors to our firm open?”
I have had a debate among industry friends about where one might define the best size to be in today’s environment. Is it better to be small, medium, or large? Let’s presume small is 15 or fewer staff members, medium is 16 to 50, and large is 50+. We do know that the majority of collection firms fall into the small to medium range and the truly upper-end firms with hundreds or thousands of collectors are the small minority.
The focus of this issue of Collection Advisor is medical collections. This is an appropriate market to use as an example for agency success, as the bread and butter of most collection firms is based solely, or in some fashion, on medical accounts. Between the Affordable Care Act, 501(r) regulations, and the condensing of the medical market there is a serious shift from doing business locally to using large players with more perceived collection resources. Traditionally, the small agency had one or two major local clients that were medical facilities. These organizations represented 50% or more of their business and the agencies had contracts for decades with long-term personal relationships. The medium agencies likewise have a large base of regional medical facilities that represent a major percentage of their business spread over a handful of contracts. These foundations are crumbling.
Small and medium agencies are losing contracts with their long-term medical clients as community and rural hospitals are merging or being acquired by huge medical conglomerates in unprecedented numbers. These conglomerates are directing their business to very large organizations. The big players are getting bigger and the average agencies are suffering reductions in new business bookings in staggering numbers.
I recently heard the vintage song by Stealers Wheel, “Stuck in the Middle with You.” As the lyrics go:
Yes, I’m stuck in the middle with you, And I’m wondering what it is I should do… Clowns to left of me, jokers to the right, Here I am, stuck in the middle with you.
Many firms find themselves in this middle dilemma. They are mature enough to weather some adversity but find the traditional rich wells of business are drying up. Of more concern, is the inability for most to replace this lost business successfully and in a timely manner. Extended business office (EBO) programs are reducing subsequent bad debt write offs and the smaller firms fortunate to provide these services are likewise losing out to the larger entities. Charity care models are skimming off more accounts and further regulations prevent working and litigating accounts as quickly in compliance with 501(r), the IRS rule pertaining to maintaining a tax exempt status for hospitals. On top of these dynamics, time frames to work accounts are shortened by providers and rates have been driven historically low by the larger agencies that maintain huge contracts.
Small agencies are selling as their challenges mount. Medium agencies are finding opportunity in small player acquisitions making both segments somewhat happy but tentative about the future. The large agencies keep getting bigger often experiencing exponential growth.
Your organization may seem stuck in the middle and many of your management meetings probably include strategies for how to continue. You may look to your left and right and see lots of proverbial clowns and jokers, but you have to decide with which ones you will engage. The formula for success will be different for each organization and may in most cases involve staffing changes, exploration of new business segments and reductions in volume that will present economic difficulty. The collection industry is not going away, but the players will be fewer, larger and at some point much stronger. As agency management we have to decide where our operations may fall. One industry colleague recently shared with me that his choice is to sell straw baskets on the beach, listen endlessly to Jimmy Buffet, and surround himself with bottomless margaritas! After all, “It’s Five O’Clock Somewhere”. The question is, will you be in the collection game when the work whistle blows, or will you weaving, dancing and sipping those frozen concoctions!
We encourage our readers to submit a “best practice” idea for inclusion in this column. Until next time, I’m in a collection office near you!
Harry A. Strausser III is the President of Interact Training and Development. He can be reached at