Abstract: Our myth buster David Kirshner explores whether there is a better course of action than dismissing financially challenged patient accounts as bad debt write-offs.
Are charity care write-offs or aggressive collection practices sufficient to address the growing number of under-insured and insured patients who have large deductible and co-insurance patient payment responsibilities? Would having the ability to offer patients a different path–one where they are able to propose what they feel they can pay, based on a combination of discussion and analytics–be a more effective strategy?
In the post, David addresses why these two ends of the spectrum may not serve the best interests of either the provider, or the patient in the era of consumer-driven health plans.
The Charity Care Mandate
Most hospitals and employed physicians in the US are tax-exempt entities required to render urgent and emergent services to patients, regardless of a patient’s ability to pay. Internal Revenue Code, Centers for Medicare and Medicaid, and common state regulations routinely require compliance with so-called “charity care” standards, including an upfront assessment of low-income status.
There is no denying that there’s a moral imperative embedded in charity write-offs. Health systems play a key role within their community. Charity care is an important part of the mission and it’s vital to the patients who truly need it. For the patients who are indigent or very unlikely to have any means to pay their medical costs, health systems may choose to not even bill the patient, opting instead to recognize the revenue generated as a “contra revenue,” reporting it as “charity care.”
Many leading health systems use a financial “scoring” methodology to identify patients who qualify for charity care under household income criteria. These scoring systems were initially designed to address the “propensity of a patient to pay” their bill, to support a charity care designation, or formally qualify for an uninsured discount.
An uninsured discount policy is typically a clearly defined, documented business practice adopted by health systems to collect at least what the provider would have received from a third-party insurer – had the patient been insured. In general, co-payments, co-insurance or deductibles are not waived or discounted.
Patients with “Propensity to Pay”
That then leaves the growing legion of insured patients who have a “propensity to pay” their responsibility for account balances that remain, after the application of all insurance payments and contractual adjustments, in accordance with any remittance advice or “explanation of benefits” received from the insurer.
With mounting pressure to collect patient pay receivables over a timely period – ranging from 30 to 120 days – patient accounting professionals will often designate a patient balance that doesn’t qualify for charity care or uninsured discount to an “early out” vendor. The rationale for this behavior is based on the belief that consumers with a “propensity to pay” are more likely to pay their bills while these bills are still fresh in their minds.
A health system gets more return when they collect from the patient with the threat of being sent to a bad debt collection agency after 120 days of written patient statements, a phone call, and a final collection notice. With consumer protection high on the list of priorities, however, many states have laws preventing healthcare providers from predatory behavior toward patients who don’t pay their patient obligations.
Health systems today typically don’t report patient bad debt to any credit bureau. This policy is not intended to restrict the hospital from taking this action in very specific cases; nor does it prevent the hospital and its agents from utilizing the services of a credit bureau to identify the credit rating of a patient with a view to determining the patient’s “propensity to pay.”
The result of traditional collection action is a very unhappy patient – one who feels harassed and with no choice. While very few patients are ever “happy” to pay their patient obligation, for many patients, setting an expectation up front and being given the benefit of more time, makes all the difference.
Why Consider New Patient Payment Programs as a Middle Ground?
Changing behavior is never easy. However, without exploring other patient payment options beyond charity care and traditional collection agencies, a health system might end up in a situation where they need to either be bailed out or face bankruptcy. Let’s consider the following four facets of a Patient Payment Program for your organization:
#1 Make it easier to have difficult financial conversations
Determining a patient’s hardship status can entail a difficult conversation that healthcare systems would rather not have. The aversion to having the initial difficult conversation is understandable. Without a reliable “propensity to pay” scoring methodology – determining who qualifies and who doesn’t is a bit of a shot in the dark.
However, some health systems are starting to understand that when patients are allowed more time and options through payment plans or deferred payment options tailored to their unique circumstances, the system will recoup more of the value of the outstanding balance. Some patients might also prefer a prompt payment discount to resolve their obligations.
With a sophisticated Patient Payment Program, these conversations can be made easier. For example, patients can pay a portion of their bill through a set of self-selected options that are created by the provider health system.
These options give patients the opportunity to design a payment plan for themselves, based on the criteria set by the health system. The result is the patient can pay their bill off over a set period (e.g., 12 to 18 months). When offered the choice, patients have a vested interest in proactively managing these obligations – which gives patients who fall within the financial hardship category a better option.
Further, health systems are using advanced propensity to pay solutions to add intelligence to their early out relationships. The temptation with an “early out” vendor is to use it for all patient balances, including those that could be identified as the “cream of the crop.” But this approach can be expensive and, with the advent of smart analytics solutions, is now unnecessary.
#2 Consumer-centric health systems reduce complexity for the patient
Adopting a more consumer-focused portal brings a level of familiarity and ease into what has been perceived as a complex payment process in the healthcare sector. Providing a solution that looks, feels and behaves like any other consumer financial experience, encourages engagement and ultimately improves patient payment yield.
Leading health systems with Patient Payment Programs supported by VisitPay are already offering patients alternatives to straight payment plans – giving them time and appropriate incentives to pay off their health obligation over a longer term.
Education of patients and clarity of options for insured patients with balances are becoming very important. Having revenue cycle and finance professionals be the only judge of payment terms isn’t good enough, anymore. To change behavior, the industry needs to create a new language – with personas and terms that are easily understood by the average consumer.
#3 Measure income bands with greater granularity
The answer to the question of how best to recover a balance due from most insured patients depends on the health system’s ability to match the consumer’s needs and identify categories within which the patient can find him or herself.
For instance, patients in lower to middle-level income buckets likely include those that want to pay something towards their bill. If a health system has the means to more accurately stratify and segment patients, the health system will have better visibility into who really qualifies to receive discounts and payment plans.
Using VisitPay’s platform with sophisticated analytical scoring models and business rules, combined with both provider and patient input and third-party data resources, enables providers to more accurately identify a patient’s ability and capacity to pay for medical services or qualify for charity or other financial assistance.
#4 Ensure patients are aware of alternative options
When a patient visits a doctor or hospital and is asked for financial information, they are often given brochures offering them financial counseling, including the potential of charity care. In the future, health systems will instead be publishing options available for consumers to explore that include pre-payment, deferred payment plans, and financing. For the tax-exempt hospital revenue cycle, this is relatively new territory.
It’s not a coincidence that “patient-payment” or “patient-pay program” have emerged as new terms within the healthcare finance arena – which used to only refer to “self-pay” when referring to patient balances.
Patient-payment is a profoundly important part of revenue cycle strategy and execution, no matter what software system is being used. With so many insured patients presenting at the time of registration or service with unknown deductibles and co-insurance, patient-pay is the rule rather than the exception. Understanding what patient payment means for your health system and having a solution like VisitPay is fundamental in the new, consumer-driven revenue cycle.