Sandra J. Wolfskill

Providing health care for the uninsured is an ongoing national concern that affects all Americans, but it also is an immediate concern for a hospital's CFO. 

The plight of Americans who lack health insurance or who are underinsured is among the gravest concern facing our nation-and the weight of this concern falls heavily on the shoulders of healthcare financial executives. It is the CFO or other highest-ranking financial executive who must provide the knowledge and leadership to ensure a hospital has the financial wherewithal to meet the needs of uninsured and underinsured patients while it also maintains a healthy bottom line. Hospital CFOs and other financial leaders must be well-informed about every issue that hospitals must address to effectively serve this population.

Financial leaders play this pivotal role because addressing the needs of the uninsured and underinsured is an essential revenue cycle activity. And as the numbers of uninsured and underinsured Americans continue to increase, these leaders must take steps to ensure this area under their purview receives the same amount of focused attention as do aged accounts receivable, managed care payer contracts, and government rate changes. From the perspective of a hospital financial executive, although self-pay revenue may account for less than 3 percent of the organization's gross revenue, the amount of self-pay dollars in the open A/R may be anywhere from 10 percent to more than 50 percent of the unresolved A/R.

Of course, not all of these unresolved dollars represent amounts due from uninsured or underinsured patients. But the question you, as the senior financial leader, should be asking yourself is, "Does my organization's revenue cycle management strategy account for and optimize appropriate returns from this segment of its patient population?"

Let's take a look at the top 10 issues-from the general to the specific-for healthcare senior financial executives related to managing the uninsured and underinsured. Have you given due consideration to each of these important points?

1. Legislative Activity

Federal legislation dealing with the uninsured and underinsured enacted in 2005-06 involved changes to Medicaid and the State Children's Health Insurance Program. States have been able to make changes to their Medicaid programs thanks to the Deficit Reduction Act of 2005, but these changes have largely been a redistribution of available dollars, not the initiation of new benefits. Reauthorization of SCHIP is likely to become a major focus of the 2007 legislative session.

Change appears to be occurring at the grass roots or state level. As of year-end 2006, three states-Maine, Massachusetts, and Vermont-had passed legislation providing healthcare coverage for 95 percent to 100 percent of their citizens. Common to all three states is subsidized coverage for families whose income is less than 300 percent of the federal poverty guidelines. Based on the 2007 guidelines, that is an income of $61,950 for a family of four.

Availability of coverage for all children is the goal of legislation enacted in three states in 2006-Illinois, Pennsylvania, and Tennessee. Illinois and Pennsylvania provide universal coverage for all children. Tennessee's program is a combination of a separate SCHIP program (family income 250 percent of FPG) and purchased healthcare coverage through subsidized premiums (family income >250 percent of FPG).

States enacting programs targeting low-income workers and/or small employers include Arkansas, Montana, New Mexico, Oklahoma, Rhode Island, Tennessee, and Utah. Program details vary from state to state and may include high-risk pools, eligibility based on income levels and employer size, and mandated employer participation.

Prior to 2006, Florida, Iowa, and West Virginia worked with the Centers for Medicare and Medicaid Services to obtain waivers or redesign their Medicaid programs, while Georgia, Kentucky, Louisiana, Texas, and Washington passed minimum benefit legislation.

Understanding the type of initiatives under consideration at the state level gives you an opportunity to model the impact on your organization, and to prepare and present testimony to shape the legislative outcome in your state.

2. Mission and Values

To make sure you are managing your uninsured and underinsured population effectively and appropriately, you need to examine your organization's approach to the uninsured and underinsured patients, and make certain you understand it. Does the approach reflect your organization's mission and values? Can you discuss the numbers of uninsured and underinsured served each year? Can you articulate the difference between these two groups of patients and give examples of how your organization seeks to provide care to these groups?

How you deliver care to this portion of your patient population should be a reflection of your organization's mission and values. Defining this relationship between mission and actual services-including financial services-is a meaningful way to highlight the human side, and true purpose, of healthcare financial activities.

Examples of information that can be used to reinforce this mission-service connection include facts that bring the issue of healthcare affordability into a personal perspective. For example, in 2005, the annual premiums for family insurance coverage averaged $10,880; a full-time minimum wage worker earned only $10,712. (Source: Employer Health Benefits 2006 Annual Survey, Kaiser Family Foundation and Health Research and Educational Trust, Sept. 26, 2006.)

Cover the Uninsured Week 2007, April 23-29, 2007, offers an opportunity to get your organization involved in bringing awareness of the issues to light. Sponsored by The Robert Wood Johnson Foundation, this campaign focuses on challenging state and national leaders to find a solution for this growing segment of the population who are living without any or adequate insurance benefits. Activities and events are posted at Get involved now to help make sure that SCHIP is reauthorized and programs for uninsured adults continue to be developed.

In a January 2007 press release, The Health Coverage Coalition for the Uninsured announced an historic agreement among 16 leading healthcare groups, including the American Hospital Association, the American Medical association, the Blue Cross Blue Shield Association, and Kaiser Permanente. The HCCU proposal represented a consensus agreement among organizations with varying political perspectives and alliances.

The heart of the HCCU agreement is a two-phased approach to reducing the number of uninsured Americans. The first phase, which focuses on children, has four specific components: 

  • One-stop shopping to process enrollment in SCHIP or Medicaid programs at the same time the family applies for other public programs, such as food stamps
  • Additional funding to enroll up to 6 million children in coverage programs
  • A new tax credit for families with incomes up to 300 percent of the FPG, to be used to buy health insurance
  • Grants awarded on a competitive basis to states to design innovative ways to expand coverage of the uninsured population

The second phase of the HCCU proposal is designed to resolve the problem of the uninsured adult population. This phase calls for two specific components: 

  • The expansion of Medicaid coverage to all adults at or under the FPG
  • A refundable, advanceable tax credit to cover private insurance costs for families falling in the 100 percent to 300 percent of the FPG

3. Historical Performance

Consider, also, your organization's historical contribution to the care of the uninsured and underinsured. Do the footnotes to the audited financial statements adequately describe the charity care provided? Could an interested observer compile a trend line over the past 10 years charting your performance? Is the historical information accurate in terms of the separation of bad debts and charity care?

Charting trends is an effective way to see performance over a longer period than a single year. Only by knowing how your organization has performed in the past can you effectively frame and implement revised financial assistance programs. When combined with modeling data, the historical data serve to illustrate the long-term impact of policy changes. Such information is essential for generating support for planned or recently implemented financial assistance programs.

4. Executive Engagement

As many hospitals' margins continue to flounder, and with states looking to adjust Medicaid programs and CMS exploring options to control Medicare spending, it goes without saying that every department within your organization is competing for the same limited financial resources. In such an environment, C-level support for your organization's uninsured and underinsured strategy is critical. How well do your colleagues in the executive suite understand the demographics of the uninsured population?

Just as you can use information to reinforce the mission-service connection, you can foster receptivity to the concerns of the uninsured among your colleagues by being conversant with the facts. For example, 66.2 percent of the uninsured children live in a family where the head of household is employed full-time, according to "Facts on Health Coverage in the USA," a presentation developed by Cover the Uninsured. Overall, 62.1 percent of the nonelderly uninsured population resides in a household with a full-time-employed head of household.

You also should be aware of the current federal poverty guidelines and how they relate to earnings. For 2007, the FPG for a family of four is $20,650, while for a primary wage earner working in a minimum wage job, maximum income currently varies between $10,712 at the federal minimum level to $16, 494.40 at the highest state minimum (Washington). Given just the costs of daily living-food, shelter, clothing-supporting a family of four even working full-time does not provide sufficient monies for health insurance or medical care. Even at twice the FPG for a family of four, $41,300 still may not cover daily living expenses with enough left over to provide health insurance or medical care.

Why are such statistics significant? Setting charity care eligibility at 200 percent of the FPG is no guarantee that individuals with income above this level can pay for the services provided; depending on the cost of living in your community, obtaining health insurance may be cost prohibitive even for families at the 300 percent of FPG income levels. A hospital's senior executive needs to recognize these realities.

5. Available Reference and Modeling Materials

Keeping abreast of federal and state initiatives and providing up-to-date information to healthcare executives is a function of state and national associations, such as your state hospital or healthcare organization association and HFMA. Additional data are readily available through web searches of organizations that advocate for the uninsured and underinsured.

Making use of such information sources is valuable because they can help you better understand legislative proposals and newly enacted laws, and know how to model the financial impact of such changes on your organization's bottom line. Also required is a database that enables you to model all requests for financial assistance, income levels, income levels of bad debt and payment plan guarantors, and the associated charges.

Another type of modeling is necessary if your state is funding additional coverage programs through employer taxes or new taxes on healthcare providers. Can you effectively demonstrate how the increased costs are offset by increased payments for services provided? If not, you should begin now to develop a plan to bring this kind of information into the budgeting process, especially at the executive and board levels.

6. Implementation of Charity Guidelines

According to recent AHA information, more than 4,000 hospitals have revised their charity care policies to reflect a more contemporary approach to treatment of the uninsured. Key components of the AHA guidelines include: 

  • Communicating with patients about the hospital's billing and collection practices and about options available to resolve their accounts
  • Providing assistance to patients who may
  • qualify for coverage through state or federal programs or hospital-based programs
  • Ensuring the accurate and consistent application of hospital policies in the billing and collections area
  • Recognizing and resolving the need to make care more affordable for patients with limited financial resources
  • Using fair billing and collection practices

HFMA's PATIENT FRIENDLY BILLING® initiative also provides guidance to CFOs in terms of format, content, and readability of patient billing statements. The initiative advocates looking at such statements from a patient's perspective, asking questions such as: 

  • Do your statements clearly identify the assistance available to the uninsured?
  • Would a patient understand what to do if he or she cannot pay the bill?
  • Are instructions and options explained in simple, easily understood language?
  • Is access to interpreters available for non-English-speaking patients?

If the answer to any of these questions is "no," then your organization needs to make an effort to better serve all your patients. You should know the answers to these questions and implement the right solutions before you are confronted by board members or the local news media.

7. Accurate Financial Reporting

HFMA's Principles and Practice Board recently released a revised version of its Statement 15: Valuation and Financial Statement Presentation of Charity Care and Bad Debts by Institutional Healthcare Providers, which deals with charity and bad debts. In essence, this document asserts that, in reporting charity care and bad debt, institutional healthcare providers should: 

  • Classify bad debt as an operating expense
  • Eliminate charity care from revenue and receivables
  • Disclose their charity care policies and the amount of charity care provided

The challenges in Statement 15 center around two basic issues: the timing of the charity care eligibility determinations, and the valuation of charity care. The statement recommends that charity care be identified prior to or at the time of service. Nonetheless, it also acknowledges that there is no set timing for the recognition of charity care. Changes in the patient's financial circumstances, even well after the provision of care, may affect eligibility either positively or negatively. Further, bad debt placement and collection activities do not negate the applicability of charity care. From a financial statement perspective, however, care must be taken to correctly report dollars originally classified as bad debts and subsequently reclassified into the charity category. Do you have the accounting and reporting controls in place to ensure accurate reporting?

Valuation of charity care should be based on costs, even though charges are the basis for recordkeeping purposes. The P&P statement specifically indicates that, because gross revenue is absent from the financial statements, under the terms of the AICPA audit guide, reporting charity gross charges is inappropriate. The guidance further details reporting of discounts and receipts applied to charity care.

Implementing the P&P Board's revised Statement 15 looks simple on the surface; however, it is important to perform a detailed review of your reporting of revenue, adjustments, and expenses to ensure that your accounting staff have correctly operationalized the various sections of the guidance.

8. Discounting to the Uninsured and Underinsured

Historically, self-pay patients were billed full charges, while all other payers, although also billed full charges, received significant discounted rates. In 2004, CMS issued specific guidance to providers that allows discounting for specifically identified patient populations under specific guidelines. How has your organization responded to this ability to discount? Are self-pay accounts routinely reviewed and appropriately discounted, based on financial criteria? What impact, if any, has your discount program had on cash collections and charity adjustments?

Tracking and monitoring the discount process is one way to measure the effectiveness of your organization's efforts in this area. Performing internal audit reviews of discounting and charity applications is a good way to appropriately validate internal controls for this process. Failure to audit and review opens the door to inappropriate activities based on misinterpretation of policies and procedures, or worse.

9. Early Identification of Financial Assistance Needs

In the past, uninsured and underinsured patients were usually identified during the post-service collection process-even as late as during the bad debt collection cycle. The contemporary revenue cycle turns this process upside down, initiating screening for financial assistance at the earliest opportunity. Charity becomes one of multiple options offered and processed for both the scheduled and unscheduled patients. Where is charity processed within your revenue cycle? Are scheduled patients financially counseled and expected to resolve accounts prior to service? Are unscheduled patients financially counseled at time of service? Is your process patient friendly, or designed to inhibit rightful qualification for assistance? The answers to these questions provide a sure indicator of the contemporary nature of your revenue cycle.

Why is early intervention important? Patients want to understand their financial obligations, and some patients may delay necessary services because they have no or limited health insurance coverage. Knowing that the financial obligation is resolved early in the process makes it easier for patients to concentrate on getting well.

In addition, by resolving financial issues earlier in the treatment cycle, providers have an opportunity to reduce postservice processing activities and costs, and potentially generate income for their organizations. Early intervention may provide access to state or local assistance programs that may provide reimbursement for services provided. Retrospective qualification, however, may not be available.

For example, some state programs will cover services retrospectively only from the documented date an eligibility application is provided to the patient. This type of rule also underscores the need for making financial counseling services available around the clock, seven days a week, and not just Monday-Friday during normal business hours.

10. Proof of Performance-Internal Metrics

Internal metrics are essential to demonstrate that operational procedures and adjustment activities conform to expected performance. Volume data, such as number of applications received, number and dollars approved, and number and dollars denied provide information required to comply with public disclosure guidelines.

Of equal importance are metrics related to the timeliness and quality of the completion of the application process. For example, how many days on average elapse between initiation and completion of the application process? How long is it taking your staff to review and respond to charity applications? How many applications are backlogged at any given time? How many determination appeals are processed and in what time frames?

The use of metrics forces accountability for performance and helps ensure that patient financial services staff view charity processing as an important activity. Absent measurements, you risk unacceptable backlogs and processing delays and, possibly, aggressive collection attempts misdirected toward patients who are simply unable to pay for the services.

Solutions Live with Those Who Know

Although you, as a senior financial leader, may be generally removed from the day-to-day activities related to services to the uninsured and underinsured, understanding the issues and ensuring the organization's compliance with expected performance is an important aspect of your financial leadership role. The extent that you can develop such an understanding is the extent that you can do your part in finding solutions to this difficult challenge facing our nation.

Publication Date: Thursday, March 01, 2007

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