Healthcare has made great strides in claim denial prevention, contract management and cost containment over the last few years. But the industry as a whole still struggles with perhaps its most pressing challenge: rising levels of uncompensated care. According to American Hospital Association (AHA) survey data, national uncompensated care costs rose 45 percent between 2002 and 2006, to $31.2 billion for registered U.S. institutions, or 5.7 percent of hospitals’ total expenses (see chart). Compounded annually, this translates into a 9 percent increase each year.
As described by AHA, uncompensated care is the measure of healthcare provided by a hospital for which no payment is received either from an insurer or the patient, whether in the form of bad debt or charity care. It is important to note that uncompensated care does not include underpayments from third parties such as Medicare or Medicaid.
The most obvious reason providers struggle with bad debt and an increased charity care burden is the growing number of uninsured and underinsured patients who don’t have the financial wherewithal to pay their medical bills. And of course there are the relative few number of individuals who are unwilling to pay their bills and provide little or no documentation that would allow hospitals to follow up.
But there is a new dynamic emerging that is placing greater strain on healthcare providers: fully insured patients with higher deductibles and co-pays, says Patrick McDermott, senior vice president of revenue services for Resurrection Healthcare, a nine-hospital system in the Chicago metropolitan area. “While they are responsible for a greater portion of their healthcare expenses out of pocket, they probably don’t have any more discretionary income than before, and perhaps even less given the tighter economy.”
With costs for healthcare rising at a relatively brisk clip, insurers placing a greater financial burden on employers and patients and a sketchy economic outlook overall, uncompensated care is certain to remain problematic for hospitals well into the foreseeable future. The onus falls on healthcare providers to offset a portion of bad debt and increased charity loads through creative improvements in collection practices, technology and staffing.
Up-Front Collections
In every major consumer transaction, payment for the product or service—at least in part—is required up front. Healthcare has been slow to follow this course, perhaps due to the sensitive nature of the services rendered.
Given the financial pressures that hospitals face today, it is no longer taboo to have a conversation about how the patient intends pay for their portion of care. In fact, it is mandatory if hospitals want to reduce their bad debt. “In today’s healthcare environment, it’s critically important for providers to have extreme rigor around a fair and efficient up-front collection process,” says Joel Gardiner, a principal in Deloitte’s national revenue cycle practice.
A fair and efficient process, according to Gardiner, includes collecting the patient’s portion of a medical procedure during registration. Or for larger amounts, having the ability to judge the probability of the patient paying the fee based on their credit score and credit history, with a strategic determination on the best way to collect that money, including financing options.
Efforts to collect the patient’s portion of the bill will fall flat without the appropriate deployment of technology at the point of service such as during an emergency room visit, when scheduling a procedure or at time of registration, Resurrection’s McDermott believes. “We are now investing in solutions that give us much more information on patient demographics and their financial situation.”
Resurrection’s goal is to more accurately and appropriately distinguish between a patient who can afford to pay their bill but is unwilling to do so from the patient who truly does not have the means to pay, McDermott says.
“Ultimately, making a better accurate distinction between bad debt and charity care will allow us to allocate additional resources to those who really need financial help.”
McDermott feels that vendors are stepping up their efforts to help providers tackle their bad debt and charity care challenges. “They’re doing a good job of aggregating information from credit bureaus and other sources to more speedily qualify patients for charity care and more accurately determine if someone has the ability to pay and then help us collect what we can up front.”
Focus on Results
At Resurrection Healthcare, the patient access department has expanded its duties from scheduling and registration to certain financial activities including collecting payments, structuring lending arrangements or estimating patient financial risk that are traditionally reserved for the back end. With many more revenue cycle tasks now taking place on the front end, the organization identified a need to strategically redistribute its revenue cycle personnel.
“From an organizational perspective, we are moving more of our resources to the patient access area,” McDermott says. “We have done this in a budget-neutral environment … not hiring to fill these positions, but reallocating staff to areas where we need to be more effective.”
The provider relied heavily on decision support information to help it reallocate staff strategically with the knowledge that the actions would yield better results. “We were able to quantify the return on investment by measuring point-of-service collections, not only from a cash receipts perspective but from a staff effectiveness perspective,” he says.
According to McDermott, Resurrection Healthcare has been able to improve point-of-service collections by about 150 percent within a 12-month time frame, which translates into fewer accounts turned over to collection agencies, fewer patient complaints and quicker processing times.
“Although this is an impressive improvement in just one year, for us it’s a multi-year, incremental effort,” he says. “I would expect that we would be able to achieve similar results again this year.”