Moody’s announcement of a negative outlook for not-for-profit healthcare has profound implications for an industry largely dependent on bond and debt markets for primary sources of new capital or debt restructuring. And as health systems’ revenue composition continues to shift, and bad debt continues to increase even in the post-ACA era, rating agencies like Moody’s are becoming increasingly likely to examine patient revenue performance when they assess the financial health of a given health system. This newfound focus will create knock-on effects in how health systems can secure new capital, and at what cost.
At VisitPay, we continue to see firsthand a flat or modest growth in collected patient payments that is greatly outstripped by the explosive growth in overall patient obligation. So it is not unreasonable to assume that rating agencies will impose more scrutiny on the liquidity of patient revenue, especially since it is now commonly 25%+ of a health system’s revenue.
And when they do, many health systems are likely to see further downgrades and capital challenges—making it even harder for them to remain competitive, grow and thrive.
Providers no longer have the luxury to overlook accept high bad debt rates resulting from patients becoming the new payer. And traditional approaches from a time when patient revenue was inconsequential just aren’t cutting it in this age of high deductible plans. Health systems lack the tools, techniques and approaches to support their shifting business: performing services before they receive payment and then rudimentarily extending credit via payment plans and finance plans through manual, one-size-fits-all processes.
So how can health systems stay true to their mission—to provide exceptional patient care, ensuring access to all—while at the same time maintaining the financial health of their organization?
One answer might be closer and easier to reach than you think: the balance sheet.
Find New Opportunities in Familiar Places
No one worries about the balance sheet like a CFO. But, for health systems to keep pace with today’s ever-changing healthcare environment, CFOs must adopt new strategies to uncover untapped financial opportunities.
For instance, take “self-pay receivables.” As a financial asset class, it’s largely wasted and health system CFOs might be more accustomed to writing it off than thinking through how to approach it strategically. Instead, they must find ways to increase their patient payment yield (which has an immediate and significant impact on the bottom line) and maximize the potential of their patient revenue portfolio by dramatically improving the patient experience.
Improving the patient experience sounds buzz-wordy, but it isn’t. And it’s not just about putting a simple digital payment interface on complex billing systems and processes. It’s about using data and analytics to understand what makes up “self-pay receivables” and then customizing the patient experience in an automated way at massive scale as a result, presenting tailored financial offers that fit the needs of patients and empowering them to select options that works best for their family finances.
Additionally, CFOs can look to new off-balance sheet financing options where providers can transfer patient receivables from their balance sheet to a third-party’s balance sheet to improve liquidity, reduce days AR, and improve credit worthiness. However, for such a program to work, the cost of the program cannot be more than the provider’s own internal costs, or it will be remarkably capital inefficient. To swap out a health system’s low cost of capital for one that is more than 2x is value destroying for the provider. Further, an off-balancesheet program that does not change the yield equation for a health system risks being economically unsustainable in the long run. Off-balance sheet financing can make it easier for providers to offer patients custom and friendly financing plans over a longer term—leading to both patient satisfaction and payment resolution. They can also support the patient experience by preserving the provider’s brand—which has everything to do with improving patient satisfaction.
Health systems’ payer mix is changing radically and CFOs are faced with a new set of challenges around having to manage large portfolios of consumer receivables. One thing is certain, this isn’t the time to hold tight onto the status quo. In fact, these market conditions require just the opposite.
Act Like There’s No Time Like the Present
Health system CFOs are charged with refining strategies for the new patient-as-payer world, and while optimizing their balance sheets. Rest assured, it is possible to achieve sustainable and positive financial outcomes in a way that considers the idiosyncrasies of healthcare and takes care of patients.
More than ever, patient financial experience is inextricably linked to the financial performance and long-term economic viability for a health system. Rethinking patient revenue management and its direct impacts on the balance sheet will ensure health system’s have the opportunity to grow and thrive, and fulfill their very important missions.