Hospitals turn to friendlier tools to collect unpaid bills

Marleen Shroyer had never been seriously ill until one day last year when doctors discovered that she had an abscessed and perforated colon. While insurance covered most of her $180,000 medical bill from the July surgery at Memorial Hospital in South Bend, Ind., she was on the hook for the $6,000 deductible on her Blue Cross plan.

“I needed help,” said Shroyer, a retiree who shares an insurance plan with her husband, who is also retired. “I don't know how people are paying it.”

She got it. Memorial Hospital put her in touch with CarePayment, one of a number of vendors helping hospitals tackle a ticklish and growing problem: how to collect individual payments associated with the growing number of high-deductible health insurance plans. “They don't charge interest and they give two years to pay,” Shroyer said.

In one of the bigger ironies of the Affordable Care Act era, when millions of people have gained access to insurance, many providers are reporting an increase in bad debt. The reason: More individuals and families are finding themselves in high-deductible plans as employers shift their benefit packages, and individuals and families buy plans on the federal or state-run exchanges, where the most popular options involve significant copays and deductibles.

Even people who have been insured for years are realizing just how little they understood about how healthcare services are paid for when their out-of-pocket responsibility soars. Facing a daunting bill for her care, Shroyer borrowed $4,000 under the program and now pays $167 a month, often using the firm's online payment feature. “I'm 60-something years old, and if I can do it, anyone can do it,” she said.

Vendors such as CarePayment and competitor ClearBalance say their products make it easier and less confusing for patients to pay their bills. They also claim to increase customer satisfaction while helping hospitals collect the greatest amount possible. Both report rapidly growing client rosters.

The firms say their programs adhere to the Healthcare Financial Management Association's Patient Friendly Billing guidelines, which were issued in October 2013. The guidelines advise hospitals to include family members or other advocates in the billing conversation. They suggest patients should receive contact information for financial assistance programs in their discharge paperwork.

But being “patient friendly” also is about avoiding land mines as state and federal regulators step up their scrutiny of collection practices by hospitals and their vendors. In Minnesota, Attorney General Lori Swanson imposed a $2.5 million fine on revenue-cycle management firm Accretive Health, and temporarily blocked the company from doing business in the state, as part of a 2012 settlement to resolve allegations of patient privacy violations and overly aggressive collection tactics. In New York, Attorney General Eric Schneiderman negotiated a March settlement with the country's three major credit- reporting agencies that requires a 180-day waiting period before medical debt can appear on a credit report.

HHS in 2013 extended direct criminal and civil liability for violating patient privacy laws to vendors and contractors who handle patient data. Even the Internal Revenue Service is getting involved. The Affordable Care Act sets additional requirements for tax-exempt providers, which must publicize their financial assistance policies and refrain from any “extraordinary collection practices” until they have determined whether patients are eligible for financial assistance.

To avoid such scrutiny and to improve word-of-mouth about their patients' experience, providers are taking cues from retailers on how to get people to pay their balances. They're investing in tools to make the process less confusing and easier to navigate. And they're using sophisticated algorithms to predict who is most likely to pay and who is not, so they can focus their efforts where they make the most sense.

At Orlando-based Florida Hospital, the system estimates that for every patient with an out-of-pocket balance of $250—the average in 2013—it typically recoups only $50. The Adventist Health-owned group prescreens patients whenever possible through a short financial form. It also has signed an agreement with Cerner Corp. to consolidate its revenue-cycle services so it can present patients with a single bill rather than a separate one for each physician and service involved in a patient's stay. Those bills have been revamped so that they're easier to understand.

And about 5,000 patients are currently on a no-interest payment plan through ClearBalance. “The more we do for our patients, the more our patients will engage with us,” said Jeff Hurst, Florida Hospital's senior vice president of finance. “It's trying to elevate the conversation with patients.”

The hospital also has 40 full-time employees and a team of 15 customer service representatives who work on financial counseling—everything from getting uninsured patients signed up for Medicaid to working out a payment schedule. Patients eligible for charity care get a “warm handoff” to a designated financial assistance navigator to see if they would qualify for Medicaid or a premium subsidy to help them buy a private health plan through insurance exchanges, Hurst said.

The rise of high-deductible plans is driving the revolution in collection practices. The average deductible for a single person enrolled in an employer-sponsored health plan reached $1,217 in 2014, a 7% increase over the previous year, a November study published in JAMA found. By 2019, providers could see a 50% increase in the amount of revenue they are collecting directly from patients, with 30% of that amount, or as much as $200 billion, written off, according to estimates from Citi Retail Services, a division of financial services giant Citigroup that offers a digital payment platform.

The proliferation of high-deductible plans is blending two categories that were once distinct for healthcare providers. Those without insurance who could not afford to pay their bill are being joined by some with insurance who once were considered a low risk for default, but who now may owe thousands of dollars after a procedure.

Collection prospects dim as those numbers increase, said Don Wright, senior vice president of operations at Parallon, the revenue-cycle management subsidiary of hospital giant HCA. “Just because someone has the ability to pay doesn't mean they're going to pay you. We've had to become much more creative. Basically, the collection industry has become more of a science,” he said.

Like Florida Hospital, Parallon takes the approach that it's more important to move patients to financial counseling than collections. Someone who balks at a $2,500 bill might be more likely to pay $500 to settle the account.

Parallon uses scoring and segmentation models that account for the size of someone's bill as well as their ability to pay. The model determines, for instance, whether patients get an automated reminder message or a call from a person who's able to negotiate with them. A $750 bill might also include significantly more detail, such as links to financial assistance programs.

Tenet Healthcare Corp. similarly credits Conifer Health Solutions, its own revenue-cycle division, for increasing its collection rate. “Conifer is so good at collecting receivables and knowing where to spend their efforts,” CEO Trevor Fetter said. “I think we're better than most. They don't waste their time and resources collecting bills that are uncollectible.”

Hospitals have more resources than ever for patients who don't have insurance. Baptist Hospitals of Southeast Texas, a 394-bed medical center in Beaumont, has set a goal to convert 60% of self-pay revenue that can be otherwise covered by another program to either Medicaid or charity care.

To make the conversions, it set up a patient-advocacy program run by certified application counselors—a designation under the ACA—who help people sort through their insurance options. Baptist patients are screened either before they're discharged from the emergency room or at the time they schedule a non-emergency procedure. Admitted patients might receive a visit from an advocate during their stay.

Baptist offers options such as payment plans and discounted rates to settle outstanding balances. As a community hospital, any boost from increased collections is a big help, said Jerry Thompson, director of admissions services.

The challenges of billing and collections are hitting not only hospitals but also physician practices. The average patient will take the entire year to reach a deductible, which means racking up smaller bills along the way, said Betty Smith, CEO of Atlanta-based Four Seasons Healthcare Consultants, which specializes in revenue-cycle management. “Someone's going to be stuck with that bill the patient is not paying,” she said.

Some physician practices offer patients the option of seeing a midlevel provider, such as a nurse practitioner or physician's assistant, at a lower rate. For minor ailments, a number of practices also have a nurse practitioner who will consult with patients over the phone or computer for a small fee, Smith said.

New technology offerings have played a key role in giving patients more control during the collections process. Last December, Memorial Hermann Healthcare System in Houston introduced PayMyBill by technology firm Simplee, which allows patients to view and pay bills electronically. The platform also is optimized for mobile devices, which Simplee estimates represent 20% of all payments through its platform.

The eight-hospital system saw a slight increase in bad debt from patients who purchased high-deductible plans on a health insurance exchange. It estimates that it recoups only half of the amount that patients owe after their insurer pays its portion.

“We set out to engage our patients and consumers in a more patient-friendly, digital manner,” said Dennis Laraway, Memorial Hermann's chief financial officer. “It gives consumers a chance to see their information in an organized manner, in a real-time manner. We're going from assisted—which is very high cost—to basically unassisted.”

Patients can use a credit card, PayPal account or even set up their own payment plan without ever talking to a person. The platform also allows hospitals to link to other online services they offer, prompting patients to schedule follow-up appointments or sign up for home-monitoring services.

The digital engagement also enables Memorial Hermann to keep more of what it collects. Sending a bill to a collection agency can cost as much as 33% of the unpaid balance. By allowing patients to pay their bills online, Memorial has seen self-service payments increase 53% and reduced its collection costs by 23%.

“Once you leave the healthcare entity, it becomes a very expensive process to collect that bill,” Laraway said. “If we can get patients to self-engage, there's virtually no cost.”