For decades, hospitals have been lax when it came to collecting money from patients. Copayments have gone uncollected, outstanding balances have been excused and requests for payment have been delayed until months after services were rendered.
Hospitals' reluctance to collect aggressively from patients grew from the fact that they were well-supported by third-party payers and the government, and from a belief that vigorously asking for money from those in their care didn't harmonize with their status as tax-exempt charities.
But change is on the horizon. Faced with declining liquidity and bad debt levels that exceed operating margins, hospitals are targeting every revenue source-including the relatively small portion that comes from patients-for more aggressive collections. New procedures to collect from patients would represent a significant cultural and operational shift for many hospitals.
Hospitals have a "significant opportunity" to improve patient self-pay collections, according to a report on the growing importance of the patient revenue cycle issued this month by the Healthcare Financial Management Association. While self-pay accounts for 3% to 4% of healthcare expenditures, it represents about 16% of outstanding accounts receivable, according to the HFMA.
The report, based on a survey of hospital patient financial services professionals, says boosting self-pay collections is one of several goals among that group of professionals. The goals also include capturing patient information at the time of service, requiring early verification of insurance, instituting processes to reduce claims denials and offering a greater say in managed-care contract negotiations.
Self-pay takes a bigger bite
The ability to collect from patients will be even more important if patient self-pay becomes a proportionally larger source of revenue because of a projected increase in the uninsured rate and reductions in employer-sponsored coverage. Uncompensated care, which includes bad debt and charity care, has been relatively stable over the past decade, totaling $21.6 billion, or 6.2% of hospital expenditures in 2000, according to the American Hospital Association. Expansions of government-funded insurance for children have been credited with helping to keep uncompensated care in check.
A visible sign that hospitals are getting more serious about patient collections is the industry's 2-year-old "patient-friendly" billing initiative, formally launched by the AHA and the HFMA. The initiative was meant to correct what AHA President Richard Davidson said was the industry's "No. 1 public relations problem": confusing bills.
Under the banner of patient friendliness, hospitals and their technology vendors are reformatting bills to resemble credit card statements with easy-to-read typefaces, brief text, less jargon and simple instructions. But in addition to improving customer service, hospitals expect to see another important benefit to improved billing: faster and more complete collections from patients, since bills that are easy to understand are more likely to be paid promptly. As an offshoot of that effort, hospitals are experimenting with online patient billing (See related story, p. 23).
With less fanfare, some hospitals are adopting steps such as collecting insurance and credit card information before elective procedures, counseling patients on financial responsibilities, collecting copayments more consistently at the time of service and billing patients before their insurance pays.
Nashville-based HCA, an investor-owned company, has introduced patient-friendly bills, created a centralized staff focused on patient billing with immediate access to patient financial data and trained staff at its hospitals to collect more complete insurance information from patients and set an expectation of what each patient will owe. (See related story, p. 26.)
Spokesman Jeff Prescott said better patient billing is a "critical aspect" of the company's effort to improve collections, although the main focus is on reducing claims denials and accelerating payments from managed-care companies. "The important thing is to know upfront how the payment process is going to work, so when you come to the collections process, if a patient hasn't paid their portion, you've got a lot better understanding of why that might be," Prescott says.
Patients can be allies in collecting from managed-care companies and government payers such as Medicare, says Seth Avery, chief financial officer at Scott and White Memorial Hospital in Temple, Texas, which credits better billing practices with a recent increase in total cash collections. "We only get 6% of our revenue from patients," he says. But he adds, "If you can get patients information about what's going on with their account, they can help you resolve those billing issues. What I want to do is get money from our (third-party) payers."
There's no shortage of recommended methods to increasing patient collections. According to Zimmerman & Associates, a Hales Corners, Wis., consultancy, 50% or more of the best-performing hospitals collect from inpatients at the time of discharge, verify insurance while patients are still in-house and contact patients with high balances by phone.
Jack Duffy, director and founder of Integrated Revenue Management, Carlsbad, Calif., and a former vice president of finance at Scripps Health in San Diego, goes so far as to recommend that hospitals establish their own credit cards. Duffy says hospitals "shot ourselves in the foot" by poorly communicating financial information to patients for many years.
"I think the fact that we are underpaid is much the result of our own invention," Duffy says. "Patients have habituated that hospitals are adequately paid by their insurance company."
But many hospitals have been reluctant to implement new measures. Less than one-third of hospitals attempt to collect money or ask for a deposit at the time of an inpatient service, according to a survey conducted in the fourth quarter of 2001 by Hospital Accounts Receivable Analysis. The figure was little changed from a year earlier. In surveys, hospitals have offered a variety of reasons, from technical to public relations, for not asking for money upfront (See chart below).
Some hospital boards and administrators may fear a bout of negative publicity. In 1997, Johnson City (Tenn.) Medical Center closed a finance company that charged up to 24% interest on patient loans and sometimes foreclosed on clients' homes, according to media reports. That same year, Tenet Healthcare Corp. came under media criticism in St. Louis for its program, which extended unsecured credit at high interest rates, similar to commercial credit cards. At the time, Tenet was negotiating a controversial deal to acquire not-for-profit Saint Louis (Mo.) University Hospital.
Tenet spokesman Harry Anderson says a patient who was the focus of the negative story didn't qualify as a charity case because she had a part-time job and had no credit card on which to charge the debt. He says Tenet's billing practices are not substantially different from those of its not-for-profit competitors, which ask uninsured patients to put down cash deposits or provide a credit card at the time of a non-emergency service.
"The fact is, if you borrow money, you typically have to pay interest. And if it's not secured by a hard asset, you typically pay more," he says.