Richard L. Clarke, DHA, FHFMA

A few weeks ago, the Wall Street Journal ran another story in a series about the "growing public backlash" related to hospital billing and collection practices, especially for uninsured and needy patients. The issue makes good press.

The issue also is complex. On the one hand, when a hospital or any business provides service, it should expect payment. On the other hand, overly aggressive efforts to collect payments from patients with limited resources appear both harsh and, in many cases, futile. And medical service providers often are expected to provide service even when payment is unsure.

Various state and federal regulations require hospitals to provide certain services regardless of the ability to pay. For example, construction grants and loans through the Hill-Burton program required that receiving hospitals provide a certain level of uncompensated care. Various tax exemptions carry explicit and implied obligations to serve as a community asset. And fair-credit reporting and collection laws restrict the approach that can be used to charge interest or collect past-due accounts.

Pricing and discount policies also affect this issue. Similar to most businesses, including the Wall Street Journal, hospitals provide discounts to high-volume purchasers. These discounts, often provided to insurance companies and managed care organizations, recognize the benefits of marginal income derived from additional patients, as well as the reduced cost of collection associated with these patients. Other payers, such as Medicare and Medicaid, dictate the prices or discounts that will be provided.

So, uninsured or underinsured private patients are left paying full prices. And the full charges reflect the hospital's financial requirements, including the "discounts" provided to government and private insurance payers. Thus, private-pay patients pay more because of the "cost shifting" that occurs related to these negotiated or dictated discounts. Seems unfair.

There are macro and micro responses to this problem. On the macro level, this country must deal with the problem of the uninsured and underinsured population. We are the only industrialized country that has not dealt effectively with this issue. It is a national embarrassment. And hospitals and other healthcare providers are stuck trying to deal with a problem that should be addressed properly by policy makers.

The micro solution relates to the manner in which hospitals set prices, set discounts, and pursue collections. Hospital financial professionals should examine their price-setting policies to ensure they are rational and reflect the financial requirements of running the facility. Hospitals also should perform a cost/benefit analysis of negotiated discounts to ensure the benefits received outweigh the costs incurred. As to your collection efforts, embrace the philosophies of PATIENT FRIENDLY BILLING® to ensure that your financial communications maintain high customer-service standards (see the project's website). Finally, hospitals should carefully examine and uniformly administer a charity-care policy. Determining the ability to pay is critical to an effective collection effort.

Careful examination and administration of pricing, discount, and collection policies are keys to ensuring that hospitals take a rational approach that reduces the potential for public backlash.

Publication Date: Friday, August 01, 2003

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