Psychology and Behavioral Change Theory as Applied to Changing Revenue Cycle Payment Models

December 26, 2018 1:45 pm

Health care is behind the times when it comes to payment collection.

The prevalence of subscription services like Netflix, Blue Apron, Birchbox, and others has changed the way many consumers think about payment. According to a 2017 study, 67 percent of baby boomers, 78 percent of Gen Xers, and 89 percent of millennials make use of service subscriptions, which commonly store payment information online and bill on a recurring basis. a

Speaking generally, nearly one-third of Americans store their payment information online. b

Experts in healthcare payment and collections are urging healthcare providers to start thinking more like retailers to boost patient net collection rates and operating income at a time when high-deductible health plans (HDHPs) have become the norm and patient financial responsibilities have reached record levels. Providers, however, have been hesitant to adopt a system in which patients would keep a card on file to take care of their balances.

Shifting Consumer Expectations

In fact, 78 percent of patients responding to a recent survey reported that they would be willing to keep a card on file for charges less than $200, making this approach the most preferred patient payment method. c This finding suggests less than a quarter of patients would be reluctant to keep a card on file. Yet only 20 percent of healthcare providers believe the card-on-file approach is among the best ways to reduce the cost of patient collections, despite clear evidence that contradicts this belief: The same survey found that keeping patients’ credit card information on file can reduce collection costs by up to 34 percent. The real reluctance toward card-on-file policies and changing payment approaches lies with the providers, not with the patients. Clearly, there is an understanding gap between provider assumptions about patient payments and reality.

Consumer expectations about paying for goods and services have changed—and healthcare providers need to undergo a major mindset shift to keep up. d The subscription goods and services industry is only one example of many where consumers are asked to store their payment information and be charged later. For patients, keeping payment information on file for per-visit charges is comparatively less of a commitment than signing up for a recurring subscription service, because the healthcare payments are intermittent and therefore easier to track. And for the provider, this approach works to reduce patient and provider bad debt by not allowing expenses to build up over time. Moreover, both Gen Xers and millennials are fully comfortable with this payment model, and it’s important to keep in mind that these are the individuals who increasingly will make medical and financial decisions for their aging baby boomer parents.

Possible Source of Misconception: Mental Accounting

The term mental accounting, coined by Richard Thaler, winner of the 2017 Nobel Prize in Economics, refers to the tendency of consumers to keep their money in a series of “mental accounts” rather than just one large pool. e Each of these accounts is assigned a different weight and purpose based on the person’s goals and value perceptions. Certain “accounts” can be engaged in seemingly frivolous expenditures, while others are untouchable except in certain situations.

Consider this example: A person has set aside $200 for gambling on a trip to Las Vegas. In his mind, that is money already spent, so if it’s lost at the blackjack table, the person does not experience the same feeling of failure as he would if he literally lost $200 in cash.

Whether they realize it or not, healthcare providers are constantly encountering the practice of mental accounting in their patients. It has long been observed that people are more willing to spend money for pleasure than for utilitarian purposes. For this reason, many healthcare providers assume that patients will be unwilling to keep a credit card on file for post-visit residual balances and that they will be similarly unwilling to pay a prior balance at the time of service. However, the assumption that patients place a low priority on their medical bills is incorrect. In fact, a 2017 survey found that 86 percent of patients feel the same sense of responsibility to meet their healthcare financial obligations as they would for any other professional service. f

In terms of mental accounting, medical spending is placed in a separate “consumption category” from other circumstances where a person would not hesitate to keep a card on file. For example, most hotels require that guests do so for incidentals, and rarely does anyone object to this practice. The difference is that such a policy is the standard in the hospitality industry, whereas it is a somewhat new concept in health care.

Clearly, a change in the way patient payments are collected is necessary for a well-functioning, value-based healthcare industry that wishes to provide the highest-quality care possible. The key is to align consumer payment expectations and provider payment models.

Do Providers Fear Change?

Before initiating a major change in the method by which it accepts payments, a provider might find it helpful to consider the reasons people resist change to begin with, and how to effectively ease that resistance. One of top reasons people resist change is that it is hard to get out of a long-term habit. The established habit among providers when accepting healthcare payments has been to require a copay at the time of service and to bill for the remainder later. But this habit has proven problematic. A 2017 survey by TransUnion found that 68 percent of patients with bills of $500 or less did not pay off the full balance during 2016, an increase of 28 percent since 2014. g This figure is expected to rise to 95 percent of patients by the year 2020.

Many medical practices have become accustomed to leaving substantial portions of revenue on the table and writing it off as bad debt. In fact, this practice has almost become the status quo. With rising patient financial responsibility, however, this portion of lost provider income is growing at an alarming rate. Patients have become used to insurance picking up most of the tab after a medical office visit, but HDHPs have changed that. Both providers and patients must abandon traditional payment models if real change is to take place. Once a new patient payment habit is created, card-on-file policies are likely to become widespread, if not the norm, in the healthcare industry.

Providers first should discard the misconception that patients would oppose such a policy, which is contradicted by available research data. Providers then should take a hard look at why they are hesitant to institute new payment policies that will undoubtedly result in increased collection rates, decreases in collection costs, and greater operating income for their practices. The reason is that they fear that new payment models such as card-on-file and time-of-service payment policies will drive their patients away to other providers or, even more troubling, that patients will be reluctant to seek care at all.

Although providers do have an ethical imperative to deliver care to patients in times of crisis, pain, or illness, they should not be forced to close their doors because inefficient revenue cycle management and payment policies have not allowed them to collect the patient payments they need to stay afloat. Providers must tend to the financial health of their organizations to ensure they can continue to deliver high-quality care for patients.

Clearing Up Uncertainty

In all likelihood, patients who are uncomfortable with new payment approaches such as keeping a card on file—including the 22 percent of patients responding to the previously cited survey who felt this way—object to such approaches because of financial uncertainty. Because medical costs vary widely among providers, some patients may worry that they will end up paying much more than they thought for an appointment, treatment, or test if their card is kept on file and automatically charged. No one enjoys feeling they have lost control of the ability to manage their own finances. Providers must determine how to keep patients’ credit cards on file while helping the patients feel empowered through initiatives such as providing cost estimates before arrival, at the point of service, when claims are submitted, and before surgery.

There’s no doubt that medical costs continue to mystify the average healthcare consumer. Research conducted as part of the “A Bill You Can Understand” challenge mounted by the U.S. Department of Health and Human Services (HHS) found that 61 percent of healthcare consumers rated their medical bills as “confusing” or “very confusing.” h More than 49 percent of those surveyed responded that they were unsure if the balances on their statements were correct, and 48.8 percent said the amount owed was a surprise. Unexpectedly high medical bills are notoriously fraught with confusion, leaving many patients wondering if some kind of secret code is needed to decipher them. In such an environment, it’s no wonder that some patients may still be hesitant to hand over payment information to their healthcare providers.

The simple antidote for patient financial uncertainty is price transparency. If patients know up front exactly how much they will owe, and they can plan and budget for post-visit balances, they are much more likely to agree to keep a credit card on file with their healthcare providers, with huge revenue implications for providers. Positive payment experiences contribute to overall patient satisfaction, but if providers need further motivation to create greater price transparency for patients, many states are passing healthcare price transparency legislation, and federal regulators are eyeing the issue as well. Providers can expect the call for greater price transparency to affect their organizations in the coming years, so it’s to their advantage to be proactive and consider possible ways to deliver it now.

Steps Toward Successful Payment Policy Change

There are many different models that represent steps toward positive behavioral change. However, the Fogg Behavior Model, designed by B.J. Fogg, PhD, founder of the Behavior Design Lab at Standford University, was specifically created to facilitate the types of changes driven by automation and digitization.

The Fogg Behavior Model outlines three elements that must be present simultaneously for a behavior to change:

  • Simplicity factors (ability)
  • Core motivators (motivation)
  • Types of prompts (triggers)

Motivation and ability are subject to trade-off. For example, if a person has low motivation but high ability, or high motivation and low ability, he or she may still be convinced to make a change. In this case, we will discuss how these three factors can lead to the successful implementation of new payment and collection polices and processes within a medical practice.

Ability. Providers have a high ability to change the way they accept payments. As previously stated, providers need to recognize changing healthcare consumerism expectations and make adjustments accordingly, abandoning misconceptions about payment attitudes they may currently possess.

As for patients, according to the Fogg Behavior Model, barriers to ability include things like time, money, physical effort, and mental effort. Card-on-file and point-of-service payment policies lower these barriers because they are faster, easier, and more convenient than traditional payment models. A process that once included a long wait, a bill that most patients would struggle to understand, and a need for patients to remember to physically send a payment by mail can now be automated into a comparatively convenient, transparent, and painless procedure that also provides an informative rather than confusing billing experience.

Motivation. Providers should be highly motivated to change to the way they collect payments. After all, it is the provider that has the most to gain when more revenue is collected from patients. The good news is that the motivation for patients to keep a card on file and make point-of-service payments also is high. However, the benefits that motivate the target behavior must be clearly communicated to patients, so they can see the potential value to be gained from adapting to these new payment approaches in reducing the pain and confusion associated with payment of medical bills.

Patients will appreciate the added convenience that comes with keeping a card on file with their providers, including an end both to having to remember payment deadlines (because reminders are typically provided with this payment method) and to having to send payments by mail. By removing such inconvenience factors and thereby reducing the pain of payment for patients, providers will automatically begin collecting a greater percentage of payments.

Confusion around what is owed as been another pain point for patients. Often, by the time patients receive healthcare bills in the mail, they may not remember the details of the treatment received. There also is a possibility that they have been incorrectly billed for a service. Point-of-service payments allow patients to pay when the visit is fresh in their minds, and at a time when any billing errors can be quickly resolved. A research study published in American Economic Review indicates the merits of point-of-service payments with the finding that people tend to be willing to pay more for something when it is physically present in front of them. i

Trigger. Even with high motivation and high ability, a behavior change is unlikely to happen unless there is a trigger or call to action. Addressing this element requires attention to three considerations.

First, providers should ensure staff receive adequate training and incentives. Healthcare leaders should make sure any new payment policy is supported by extensive staff training so the team knows why the policy has been changed, what the new policy will do for the provider organization, and how it benefits them as well as patients. Providing staff with incentives to explain the new policies to patients also is an important piece of the puzzle, because an engaged staff will lead to a more engaged patient population.

Second, providers should focus on making patient communication clear and efficient. Such communication is essential to provide the trigger element. The fact is, patients do want to meet their financial responsibilities to pay for their health care. If front-desk staff can clearly explain how the new policies and procedures make payment easier and more convenient, patients will have greater buy-in and engagement.

Third, once the staff has been trained and the new policy’s benefits have been communicated, they should be directed to begin explicitly asking patients to provide credit cards on file and/or pay at the time of service. The simple fact is, if you never ask for something, it is unlikely you will ever receive it.

A Response to Disruptive Consumer Expectations

Today’s healthcare landscape is compelling providers to take lessons from retailers to future-proof their organizations and deliver patient experiences that speak to the needs of the modern healthcare consumer. One of these lessons is for providers to examine the state of their patient revenue cycle and consider the fact that unless they incorporate automated and dynamic revenue cycle payment models, they risk extinction.

The ubiquitous nature of HDHPs and the associated spiking patient payment responsibility is reshaping the entire healthcare industry, forcing providers to change the way they think about patient payments. Providers can no longer afford to be complacent about patient revenue cycle management. To adapt successfully to this changing landscape, providers must confront their preconceived notions and fears about changing patient payment models, and then devise a systematic plan of action to facilitate new payment and engagement behaviors in patients and staff.

It’s about tailoring the patient experience to what the research is telling us about the disruptive nature of healthcare consumer expectations. The data make it clear that patients are ready. It’s time for providers to take the leap and make a change.

Rajesh Voddiraju is the founder and CEO of Health iPASS, Oak Brook, Ill.


a. PR Newswire, “ Millennials Lead, Gen X and Boomers Lag in the Subscription Economy,” March 23, 2017.

b. Crouch, M., “ Poll: 94 Million Americans Store Their Card Information Online,”, May 31, 2017.

c. Sanborn, B.J., “ HIMSS Analytics Survey Shows Patients Want Convenient Payment Options,” Healthcare Finance News, June 8, 2018.

d. See Howard, A., “ The Millennials Are Coming—How Will Your Practice Adapt to Their Patient Revenue Cycle Needs?” Health iPASS Revenue Cycle Insights, March 18, 2018.

e. Thaler, R.H., “ Mental Accounting Matters,” Journal of Behavioral Decision Making, 1999.

f. Navicure, “ Navicure Survey Reveals Different Patient and Provider Attitudes About Patient Billing and Payments,” Press Release, Feb. 17, 2017.

g. TransUnion, “ Patients May Be the New Payers, but Two in Three Do Not Pay Their Hospital Bills in Full,” June 26, 2017.

h. Gooch, K., “ 61% of Patients Confused by Medical Bills, Survey Finds,” Becker’s Hospital Review, July 14, 2016.

i. Bushong, B., King, L.M., Camerer, C.F., and Rangel, A., “ Pavlovian Processes in Consumer Choice: The Physical Presence of a Good Increases Willingness-to-pay.” American Economic Review, Sept. 2010.


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