Targeting bad debt

As patients are forced to pay a bigger share of their medical bills, bad debt will remain a concern for providers—even as more Americans gain insurance coverage under healthcare reform. Hospitals are realizing they need to be on the frontlines in counseling patients at the point of service, assessing their financial capacity and finding creative ways to help them pay.

Hospital leaders increasingly recognize that the old way of billing patients isn't going to cut it when patients are becoming responsible for much higher percentages of their bills out-of-pocket. A June report from Citi Enterprise Payments, part of financial services giant Citigroup, found that patient financial responsibility under their health plans is now approaching the 15% to 20% range, when it was previously in the 6% to 10% range.

With billions of dollars at stake, providers also are investing in new tools to simplify bills with the aim of speeding up and maximizing payments at the point of service.

“We've gotten creative in the past couple of years,” says Michelle Fox, director of revenue operations and patient access at Health First, a four-hospital system in Rockledge, Fla. “We were missing a lot of money and leaving it on the table. As (patients') deductibles increase, they're going to owe more of that coinsurance piece.”

Many hospitals are still using the old system of billing patients after services are provided and hoping the checks come in. But savvy medical centers are taking a more proactive approach: calling patients weeks in advance of service, using screening tools to assess their ability to pay and then setting them up with financial counselors to work out a payment plan when necessary.

“There's a lot of one-on-one interaction that will be required,” says Sheri Hughes, senior manager of healthcare consulting at accounting firm Moss Adams.

But hospitals seeking to improve collections have to be careful, as state regulators have pushed back against overly aggressive debt-collection practices—particularly in cases where treatment was delayed or family members were denied access to a patient until bills were paid.

The increased financial burden on patients comes as the U.S. economy is still making a halting recovery from the recession that economists say officially ended more than four years ago. An analysis from Citi projects that bad debt could reach $200 billion by 2019. The banking giant is one of the growing number of vendors taking advantage of opportunities to help hospitals increase collections by simplifying the process.

“The economy certainly made a dramatic impact on patients' ability and willingness to pay,” Hughes says.

The number of patients enrolled in high-deductible health plans has been increasing since 2005, but has accelerated over the past two years. At a growing number of companies, high-deductible plans are the only option. A survey from Aon Hewitt found that 44% of the employers it surveyed showed they are increasing deductibles and/or copayments as a way to manage their healthcare costs. At $2,086, the average deductible for a consumer-directed health plan was nearly double the average annual deductible of $1,097 for all health plans in 2012, according to the Kaiser Family Foundation.

About 15.5 million individuals are now enrolled in high-deductible plans, with an annual growth rate of about 15% over the past several years, according to America's Health Insurance Plans. The fastest growing segment is the large-group market (See chart).

Individuals and small business employees buying coverage through the new state insurance exchanges starting in January are likely to swell the total number of Americans in plans with high cost-sharing. Healthcare executives and policy analysts are concerned that the people least able to afford their medical bills will be most likely to select the cheaper “bronze” plans available both inside and outside the exchanges, which pay only 60% of costs. Those plans carry a steep out-of-pocket maximum of $5,950 for individuals or $11,900 for families, according to Kaiser.

And that means hospitals are likely to face a situation where more revenue is at risk—even as more people gain coverage. A 2005 report by the Commonwealth Fund cautioned that 54% of individuals with a deductible greater than $1,000 had trouble paying their medical bills, compared with just 24% of individuals with no deductible.

The American Hospital Association estimates that healthcare facilities provided $41.1 billion in uncompensated care in 2011, representing 5.9% of their total expenses. And at least some of it may be preventable. Consulting firm McKinsey & Co. estimates that 19% of patients delay payments because of limited payment options and another 17% delay payment because of discrepancies between billing statements from providers.

But some hospital systems have gotten more innovative and proactive to address this problem. In April 2011, Health First installed RelayHealth's RevRunner, a tool that provides automated financial screening of patients' ability to pay. Based on data patients provide at the time of scheduling, the patients are given a “soft spending score” of red, yellow, blue or green. That score allows Health First to set up payment plans or qualify patients for Medicaid.

For patients who want to compare prices from different local providers, Health First has a 24-hour pricing hot line and keeps a database of its contracts with payers and chargemaster data, which allows it to provide pre-service estimates. “All the expectations are on the front end,” Fox says.

The results are paying off. Fox notes that average point-of-service collections increased 30%, or $246,000 per month, between fiscal 2011 and fiscal 2012, or nearly $3 million. In addition, bad debt decreased 41% during that time period and average monthly charity qualifications increased 36%, or $3.9 million.

Patients at Mount Carmel Health System in Columbus, Ohio, similarly can consult a price database to get information about their responsibility for payments after scheduling advance services. The database combines information from the system's payer contracts with its average charges. Karen Geisler, vice president of financial services, says Mount Carmel begins the process of checking insurance coverage as soon as patients schedule treatment. “We start that conversation whenever possible prior to service.”

The system, which has a 729-bed flagship hospital, also redesigned its billing statements to make them easier to understand and added resources for applying for charity care. A patient portal enables online bill payment, and within the past 18 months, Mount Carmel added the ability to make payments without creating an account.

In February, it also started offering low-interest loans, and Geisler says that applications have increased as staff and patients become more comfortable with the program.

“Healthcare billing is complex and there are a lot of intricacies to the encounters,” says Jason Koma, a Mount Carmel spokesman. “We look at it as how can we best serve our patients. It's really evolved on our end.”

Citi's Money2 for Health tool is described as a healthcare “wallet” that aggregates explanations of benefits for patients, and allows them to make online payments to participating providers. Its charter members include Parallon Business Solutions, the revenue-cycle management arm of hospital giant HCA, which is piloting the technology in two markets; and health insurer Aetna.

Baptist Memorial Health Care Corp., Memphis, Tenn., has had an ePay portal in place for the past three years. But the 14-hospital system recently enhanced the tool, adding future payment scheduling, mobile alerts and payments, and enhanced messaging services.

The upgrade corresponded with new marketing materials, including inserts in all patient bills that promote the ePay tool, says Bill Griffin, the system's vice president of corporate finance. About 15% of patients are taking advantage of ePay, at the low end of the 15% to 18% goal.

But Griffin says the numbers are increasing every month, and Baptist believes the tool will help increase payments by adding convenience. The system first undertook a review of its electronic and Web-based tools in 2004, when it added online registration and then an out-of-pocket payment estimator, which was searchable by procedure.

“All of this revolves around transparency so the patient feels more in control and has a greater understanding of their bill,” Griffin says. “We've had a very positive response from patients who've used our system.”

Griffin could not put a number on how much revenue might be at stake for the system. But he acknowledges, “It's certainly affecting the strategic direction of the system. We've all got to be able to adapt.”

But hospitals have to proceed cautiously in the wake of stepped-up state scrutiny of collection practices. Last year, the Minnesota attorney general's office sued vendor Accretive Health for alleged violations of patient privacy and consumer protection laws. A settlement agreement bars Accretive from operating in the state for at least two years or no more than six.

While healthcare executives interviewed denied that the case has caused them to rethink their own collection practices, Hughes says that there are lessons for hospitals about interacting more considerately with patients on billing issues. Those lessons include not calling anxious patients about their bills the night before surgery, or not talking with a patient about money when the patient is in pain.

“I think what most people took away from Accretive Health was: Look at how it plays on TV,” she says.

Follow Beth Kutscher on Twitter: @MHbkutscher