Setting a pre-pay discount amount for insured patients requires balancing the prospect of early, no-cost collections and loss of potential revenue.

When Centra Health, a three-hospital system serving central and southern Virginia, introduced a 10 percent pre-pay discount on the out-of-pocket responsibility for insured patients in 2010, its point-of-service (POS) collections jumped $50,000 in the first month.

“That particular year we had been averaging around $275,000 a month in point-of-service payments. When we offered the pre-pay discount, we jumped to more than $300,000 every month, and we have never gone below that since,” says Melissa Viohl, director of patient access at Centra.

In fact, monthly point-of-service collections are averaging $545,000 in 2014, up from an average of $500,000 each month in 2013.

Since Centra introduced its pre-pay discount program for insured patients four years ago, it has become so well-known that many patients ask for the discount before the preregistration staff member has a chance to offer it. “People want it,” Viohl says. “These days money is tight across the board, and even if it only equates to a $40 discount, they want it.”

Wooster Community Hospital in Wooster, Ohio, has also seen POS collections increase steadily since it began offering early-pay discounts on insured patients’ out-of-pocket charges in 2009. Wooster offers a 15 percent discount to patients who pay on the day of service and a 10 percent discount if the patient pays within 30 days.

“Many patients want to take advantage of the discount because they already know they are going to have to pay their out-of-pocket charges anyway,” says Kristen Shoup, Wooster’s director of revenue cycle.

Looking Before You Leap

Neither Centra nor Wooster have payer contracts that prohibit pre-pay discounts for patients’ out-of-pocket responsibilities, but not every health system is so lucky. “Some payers have taken the position that if a provider discounts to the patient, then the payer is liable for less because of the discount,” says Sandra Wolfskill, HFMA’s director of healthcare finance policy, revenue cycle MAP. “My advice to any provider is to have your legal department look at your payer contracts before you start giving discounts and go with that legal advice.”

Determining the Discount

Both Centra and Wooster introduced the discounts for insured patients as part of a broader program that includes deeper discounts for true, uninsured self-pay patients. Wooster offers self-pay patients a 25 percent prompt-pay discount; Centra offers 30 percent off chargemaster prices plus a 10 percent prompt-pay discount. As a result, both providers have been able to ease the financial burden for patients, encourage quicker payments, and improve efficiency in the revenue cycle.

“If your goal is to drive down bad debt expense and drive down your cost to collect, the most efficient way to collect out-of-pocket payments is when the patient is in your facility,” Shoup says. “That’s when they have the highest motivation to pay because right then and there your services are important to them.”

Wooster settled on its strategy—15 percent discount on day of service; 10 percent discount if paid within 30 days—after considering two factors:

Chargemaster prices in comparison to competitors. Wooster has been nationally recognized for its low chargemaster prices on some common procedures, so it does not need a deep discount to position itself as the lowest-cost option.

A desire to incentivize early payments. Wooster’s 15 percent discount on the day of service makes it easy for patients to choose to pay even if they must use a credit card. “We want to offer enough of a discount to make it worth it for people to pay at or near the time of service,” Shoup says.

Centra opted for a 10 percent discount after its revenue cycle director researched the discount policies of other hospitals in the region, as well as some providers in other states. The goal was to find the balance between early, no-cost collection and loss of potential revenue. “I would urge others to start small,” Viohl says. “I think 10 percent is enough of an incentive.”

Centra extends the pre-pay discount for five days after service to meet the HFMA MAP standard that says money collected within five days of discharge counts as POS cash. This patient-friendly policy gives patients a chance to move money from one account to another or make other arrangements to be sure the money is available for payment.

Related tool: Pre-Pay Discount and Cost Estimate Scripts

Estimating Patient Payments

Communicating the idea of a pre-pay discount to patients is easy; communicating the exact amount of the discount can be tricky. Here’s how Centra and Wooster handle this challenge.

Centra’s approach. An automated tool calculates estimates of the patients’ full out-of-pocket responsibilities and the 10 percent discount on those amounts. Preregistration staff, who register about 85 percent of all patients, offer the discount during a telephone call and payment is accepted at that time, on the day of service, or within five days after discharge.

If the actual charge is higher or lower than the estimate, the discount must be recalculated, and patient accounts staff make a manual adjustment. “It creates a little bit of work, from a systems standpoint, on the back end,” Viohl says.

Centra has never advertised its discount policy. However, after four years of offering discounts as part of preregistrars’ scripted telephone conversations with scheduled patients, the practice is well known among its patient base.

Wooster’s approach. Wooster is currently implementing a financial clearance software suite that will automate out-of-pocket estimates. However, for nearly five years, registration staff have been calculating out-of-pocket estimates and discounts manually when patients arrive for service.

“Of course, it’s easy to calculate straight copays for visits,” Shoup says. Beyond that, registration staff match the order for services that the patient is to receive against a price list of commonly ordered services to estimate the patient’s responsibility and the applicable discount. If services are more complicated, revenue cycle staff look up chargemaster prices to provide an estimate. “We do a lot manually at the drop of a hat when patients come in because we want them to receive their discounts,” she says.

Wooster does not advertise its discount for out-of-pocket charges, but it is offered to every insured patient who receives an estimate before a service is performed.

Heading Off Potential Problems

Although pre-pay discounts offer benefits to both providers and patients, there are a few factors providers should be aware of as they develop their policies.

Research competitor policies and prices. “You definitely have to know your marketplace,” Shoup says. “We hear a lot of patients say, ‘Such-and-such hospital is offering a bigger discount.’” She refers those patients to Wooster’s website, which illustrates how its prices are lower than its competitors’ prices. That allows her to make the point that a small discount off a lower price still means a smaller out-of-pocket responsibility to the patient.

Prepare for credit balances and refunds. Providers that don’t have a way to accurately estimate patient payments should prepare to manage credit balances in accounts receivable and to promptly process patient refunds if patients have overpaid. “Until the final bill is satisfied, the 10 percent pre-pay discount hits your accounts receivable as a credit balance,” Viohl says.

Of course, when a patient’s actual responsibility is less than was collected upfront, a refund must be made. “You need to make sure that you have a process in place in which you refund quickly—otherwise, this becomes a source of patient dissatisfaction,” she says.

Develop a clear policy for offering pre-pay discounts. Centra’s policy is to offer a pre-pay discount to any patient who receives an estimate. But that is not always possible when patients arrive in the emergency department (ED) because their treatments must supersede any financial discussions.

If a patient asks for a discount after the five-day window in Centra’s policy, staff verify (through the ED registrars’ notes) that no discount was offered at the time of service, and then offer a 5 percent discount. “We don’t offer it—you have to ask for it,” Viohl says. “We review it on a case-by-case basis. We have to be careful or everybody will call in saying ‘Nobody offered it to me.’ We actually had that issue when we first started the pre-pay discounts, so we’ve altered our policy to cover various scenarios.”

At Wooster, the discount window ends at 30 days after service, by which time the first billing statement should have been received. If a patient calls to ask for a discount, insisting that the billing statement did not arrive, the hospital re-sends the statement. “We honor that because we want to give them the benefit of the doubt,” Shoup says. “But we do want to be paid on that first statement, and that way everybody wins. We get our money collected faster, and the patient gets a little bit of a discount off of their out-of-pocket.”

Boosting Patient Satisfaction

As patients’ out-of-pocket expenses rise, revenue cycle staff will find themselves counseling patients who may be surprised by their financial responsibilities. Estimates of patient costs and pre-pay discounts can help patients prepare to meet their financial responsibilities and ease the burden of higher copayments and deductibles.

Lola Butcher is a freelance writer and editor based in Missouri.

Kristen Shoup is manager of revenue cycle, Wooster Community Hospital, Wooster, Ohio, and a member of HFMA’s Northeast Ohio Chapter.

Melissa Viohl is director of patient access, Centra Health, Lynchburg, Va., and a member of HFMA’s Virginia-Washington D.C. Chapter.

Publication Date: Wednesday, May 07, 2014