Patients discharged from Tallahassee (Fla.) Memorial Regional Medical Center are told that if they can't pay off their bills in 30 days, they must finance the balances by opening a credit account.
"Their first reaction is `I've never had to do this before,"' said Bob Lovell, a vice president at the hospital. "We say, `Things aren't the way they used to be."'
In times of shrinking reimbursement, hospitals are starting to call in all their markers.
Estimates vary widely, but experts say hospitals traditionally haven't collected even half the money owed by individual patients. A patient's insurer usually pays its portion of the hospital bill promptly, but the balances patients are personally responsible for-called the "self-pay" portion-often are never recovered.
The reason: It's too much of a hassle. Billing offices put their resources into rounding up the big payers, such as insurers, Medicare and Medicaid.
Zimmerman & Associates, a Milwaukee-based consulting firm, estimates that self-pay makes up 5% to 8% of a hospital's revenues. That's a small slice based on percentages, but collectively it becomes a very appetizing pie itself-$19.3 billion this year, according to HHS estimates (See chart).
Not surprisingly, credit card companies are figuring out ways to work with hospitals to get a taste of that pie.
"The market is incomprehensibly huge," said Robert Barbour, president of MultiOne Financial Services, based in Chesapeake, Va.
MultiOne and a handful of similar companies are targeting hospitals because such a large portion of their self-pay charges ends up as bad debt. And hospitals don't need more of that. Hospitals' uncompensated-care burden, which includes bad debt and charity care, rose 8.8% to $16 billion in 1993, according to the American Hospital Association (May 8, p. 30).
"Most hospitals literally write off the 4% to 5% private-pay business," said Roger M. Sigler, president and chief executive officer of MedCash, a Mission, Kan.-based credit card company. "If you say you have a product to help them manage that 4%, it's of no value to them unless it takes no additional effort on their part," he said. "It seems strange that that's the mentality, but it is."
MedCash makes it simple for its 50 hospital clients that issue its MedCash or MedCash Access credit cards. The program, a joint venture with Dean Witter's SPS Payment Systems in Chicago, is integrated into a hospital's information system. When patients are discharged, they are asked how they want to settle the balance. If the patient decides to open a MedCash account, the hospital employee types in the information and in 15 seconds receives an approval code and a line of credit.
Sigler compared the system's ease of use and speed to the "swipe" credit card systems in retail outlets.
On the payment end, the system is easier for the patient as well.
For example, MultiOne consolidates all the patient's bills into one monthly statement. Instead of getting a bill from the hospital, the laboratory, the anesthesiologist and the surgeon, the patient receives just one bill.
"That elevates our bill from the something that usually goes to the bottom of the pile," Tallahassee Memorial's Lovell said.
MultiOne's program recently got a big buy-in from the Metropolitan Chicago Healthcare Council, a group that represents 94 hospitals.
In July, the council started a pilot program with MultiOne and BankOne in which hospitals can issue two kinds of cards to patients: The gold card must be paid off in 90 days, and the interest rate is 12.75%. A credit limit is set by Dayton, Ohio-based BankOne, a partner in the program. The blue card allows patients to pay their bills over a longer period of time. If they repay in 90 days, no interest is charged. If the term is longer, the interest rate is 14.75%. Those payment schedules can be individually negotiated. There is no credit limit.
After the second year, the cards carry an annual fee of $12.50, although no fee is charged if the card isn't used.
Chicago hospitals were worried about the growth in self-pay charges, and the credit cards give patients another way of financing their bills, said Gina Dibella, the council's manager of revenue enhancement services.
Resurrection Health System in Chicago has tested the card system and issued about 100 of them, Dibella said. Chicago's Children's Memorial Hospital is looking into it, she added.
Although most hospitals already take the name-brand cards such as Visa, MasterCard and Discover, Dibella said patients are reluctant to use them for hospital bills.
For example, patients are afraid that their hospital bills would "max out" their limits on those cards, leaving them with no credit to buy gas, meals or entertainment.
Despite that perceived reluctance, Visa has garnered a strong business in this area. It estimates about $6.8 billion in healthcare services will be charged to Visa cards this year, up from $5 billion in 1994. Specific figures for hospital payments weren't available.
The credit card movement also appears to be catching on with physicians. Earlier this month, a for-profit subsidiary of the American Medical Association announced a deal with Overland Park, Kan.-based PulseCard to provide electronic credit card processing for its physician members who accept Visa, MasterCard and American Express. The program offers AMA members discounts on fees involved in credit card transactions.
About half the nation's 650,000 physicians now accept credit cards, the AMA reported.