High-deductible health plans have health systems seeking new, innovative ways to increase patient collections at the point of service.
Although there is considerable uncertainty regarding the future of healthcare legislation and its effect on the healthcare industry, one thing remains highly likely: Providers can expect to see continuing proliferation of high-deductible health plans (HDHPs). Because they shift more of the cost to patients, HDHPs also almost certainly will cause providers to experience increases in bad debt and charity care along with collection costs. These issues will be compounded if previous efforts at Medicaid expansion are rolled back, significantly altering the uncompensated care landscape.
Many providers are responding to these challenges by implementing comprehensive preservice centers (PSCs) that offer patients financial counseling services and assistance in navigating payment options to improve overall patient experience and collections.
However, it may be time to refocus the strategy to meet that goal. Providers should consider whether they should continue to strive toward the industry standard for collections or seek to develop ways to substantially exceed that standard in the wake of HDHP growth, particularly when it comes to point-of-service (POS) collections.
Tools Needed for Surpassing Traditional Metrics
To support the strategic imperatives of building a robust POS collections program, providers must first come to grips with whether their POS collections metrics are well-aligned with their organizational goals. Leading practices vary by source, but two metrics are widely accepted today:
- Total POS collections as a percentage of net revenue
- Percentage of POS payments compared with the opportunity (i.e., total potential patient liabilities identified prior to or at the time of service)
Given the landscape of the new health economy, however, these metrics may be too conservative. As declining payment rates constrain providers’ already tight operating margins and benefit-plan changes increase the consumer’s cost-sharing burden, providers’ long-term survival may begin to depend on their ability to substantially improve their collection of outstanding patient liabilities.
Consider these figures: According to one 2014 report, out-of-pocket spending on national health expenditures (NHE) reached an estimated $338.6 billion in 2013, while being forecasted to reach $512.2 billion in 2023. Also in 2013, growth in out-of-pocket spending was expected to have increased by 3.2 percent, and projected to accelerate to a peak of 5.8 percent annually by 2020, remaining above 5 percent through 2023.
Copayments for in-network primary care office visits also have become increasingly expensive. From 2012 to 2016, the percentage of patients owing copayments between $0 and $24 decreased by 24 percentage points (from 49 percent to 25 percent) while the percentage of patients with copayments above $25 increased 6 percentage points (from 32 percent to 38 percent). Further, as of 2016, the averages for individual out-of-pocket maximums for in-network and out-of-network medical plans were $3,474 and $6,718, respectively, the latter having increased by 8 percent from 2015. These trends create a marketplace ripe for innovation by providers that make the appropriate infrastructure investments to act upon this growing POS opportunity.
Given such figures, it may be time to challenge traditional industry-leading practice POS metrics—specifically whether using a percentage of net patient revenue is the best metric for measuring the effectiveness of an organization’s payment collection performance. Healthcare organizations should consider that they’re using a calculation where the denominator—i.e., net revenue—will continue to decline due to reduced payment rates, a shift in consumerism towards retail options, and increased bad debt from either previously or newly uninsured patients (depending on potential legislative changes) for the foreseeable future, thereby potentially overstating collections effectiveness. Rather, organizations should find ways to accurately capture and understand how much they are currently collecting versus how much they should collect.
The point here is not to guide a process for defining a new metric. Rather, it is to underscore the challenges providers face if they adhere to the traditional metrics. Industry prognosticators will debate what the right target is, but ultimately, the challenge is to develop the means to collect substantially more than current POS leading practices suggest should be targeted. Ultimately, what is required is not just a new metric, but new tools that can support increased POS collections.
Following is an account of how one health system implemented the tools and processes required to achieve a higher target for point-of-service collections.
Case Study: Refining Collection Reporting
Sisters of Charity of Leavenworth Health (SCL), a not-for-profit health system in Broomfield, Colo., had the goal of transforming its culture to improve the overall patient experience by adopting refined billing and collection processes as a standard and using reporting dashboards to provide its staff, management, and leadership team with transparency into the organization’s financial performance. As SCL tracked its financial performance, its aim was to rapidly make informed decisions around both process and patient experience improvement initiatives, where applicable, through pointed root-cause analyses. By developing a price-estimation-reporting tool enhanced by change management, SCL has been able to make its collection activities more accurate, timely, and complete, while also improving overall patient experience in the process. In addition, the tracking, monitoring, and reporting collection activities have provided a foundation for a career progression model that SCL has offered its staff, creating further incentives for its associates to align with the organization’s established standards.
The tool, which SCL uses side-by-side with its purchased price-estimation tool, tracks patient payment activity to support an analysis of how and why the amount collected for a patient might differ from what should have been collected, thereby also helping to validate the quality and accuracy of the price-estimation tool.
SCL’s reporting tool is innovative in that it not only identifies what the patient’s actual out-of-pocket amounts are likely to be based on insurance eligibility and benefit amounts but also looks at the insurer’s EDI 835 document to compare the actual amount listed against the original estimate. By comparing the POS estimates with amounts on explanations of benefits (EOBs), the new reporting tool tracks insurers’ reasons for denying or reducing payments, providing the health system with valuable information for improving the quality and accuracy of its price estimates for patients and, ultimately, increasing POS collections.
Here is how the process works: SCL first uses its price-estimation tool to estimate a patient’s liability. Then, SCL’s customized reporting tool gathers patient liability data from EDI 835 documents for the patient, which provide detail regarding insurance payments and EOBs on particular claims. The tool then ties that information to the preservice staff member or registrar responsible for collecting the patient’s estimated liability.
Having estimated the liability, the preservice staff member or registrar enters the amount collected from the patient, along with a reportable, collection-specific reason message for the amount collected or not collected. This step is crucial for analyzing cases where the full out-of-pocket payment was not collected at the point of service and determining the reason. Examples of potential reasons include the following:
- The patient requested to be billed after the visit.
- The insurance verification is pending.
- The patient requires a follow-up copayment call.
These responses are critical to understanding the barriers to collections that must be targeted to achieve financial improvements. Empowered by data, leadership can identify performance gaps at the associate and department level and quickly address them through customized training, including scripting, designed to prevent their recurrence.
After the preservice staff member or registrar enters the information during the patient preregistration/registration process, he or she updates a database that supports the analysis of patient registration and collection information. The database allows the end user (e.g., management or leadership) to stratify the data in various ways, including by patient arrival time, admitting department, discharge department, financial class, associate, and reason code.
The detailed stratification allows management to quickly identify outliers and develop an associated remediation plan, where applicable. For example, the report could identify a department that has a collection rate that is lower than the average rate of the department’s peers within the organization. Management then can further drill down in the database to make an informed decision on next steps. The department’s patients may have a higher propensity of refusing to pay out-of-pocket expenses despite collection efforts, for example, which would mean the department’s performance level is affected by external and uncontrollable factors.
The database also enables the department manager to develop detailed reports and regularly assess associate performance on a per patient basis by financial class, thereby helping to identify the largest improvement opportunities, which often are the biggest obstacles to sustained improvement in an organization’s collections performance.
Although developing a sound methodology is a prerequisite, determining how best to operationalize a tool is critical for overall program success. SCL has successfully built a solid, sustainable reporting infrastructure around the new price-estimation-reporting tool supported by participation of associates, managers, and directors, to promote increased transparency into collections effectiveness.
As part of the reporting structure, individual associates and/or managers receive routine updates on their performance relative to that of their peers, which fosters an increased sense of ownership and accountability among the staff. The recurring touch points also enable the leadership team to create personalized action plans to address performance goals linked to and aligned with individual and departmental incentive plans, such as bonuses based on achievement of internal collection targets.
SCL also required tools and a process comparing and reporting estimated out-of-pocket amounts with what was actually due and collected. A sample report is shown in the exhibit below. The report illustrates a substantial financial opportunity to increase POS collections and improve the accuracy of the estimates. SCL is in the early stages of employing a skills-based advancement framework based on consistent attainment of preservice internal targets, of which collections performance is a key component.
SCL Price-Estimation Analysis: Executive Summary of Estimated Patient Liability for Admissions in the Month of January 2016
Similarly, it is important to analyze health plan payment estimates and compare them with actual payments to determine variances and discrepancies and validate the accuracy of the organization’s efforts to estimate patient liabilities. The data collected also allow a health system to hold health plans accountable when they fail to meet allowable estimates.
Health plans will play a key role in the continued evolution of patient estimation technology. An ongoing concern for providers regarding estimating POS collections using proprietary or purchased technology is that, often, they have no way of knowing where the patient is in his or her deductible or coinsurance spend down; only the health plan has that information. The lack of knowledge-sharing creates the potential for scenarios where providers may be overcollecting, resulting in refund or credit-balance issues as well as customer-service challenges. In the future, it will be important to develop interoperability between provider and health plan information systems to enable real-time access to outstanding liabilities.
Since SCL adopted the price-estimation-reporting tool and related processes, it has seen some significant improvements in POS collections. One hospital site increased collections from $4,000 to $11,000 per month, on average, for a three-fold increase, while another site experienced a 40 percent increase over two months. Throughout the implementation, data integrity and the information flow between systems was a significant consideration,because it was important to extract the correct potential copayment amount due from the EDI 835 to allow for a comparison with actual collections.
SCL Lessons Learned
Efforts to implement new technologies and processes often are fraught with unforeseen challenges, impediments, and cultural resistance to changes required to adapt to the transforming health economy. Here are some key lessons SCL gleaned from its POS collections initiative.
Identify change agents and use them to communicate across stakeholders. Education materials must be developed and continuously refined and training constantly refreshed to help make change stick. In particular, SCL underscores the importance of training staff to handle patients with no insurance coverage. As part of its organizational culture change, SCL has developed a rigorous training program and a standard letter for interacting with this particular patient demographic.
Use technology as an enabler. Sustainable change occurs only when the people and processes supporting the technological platform and solutions are in synch and driving toward the same goal.
Avoid “analysis paralysis.” A rigorous process for identifying the objectives of a price-estimation-reporting tool is required up front to mitigate process reengineering on the back end. During implementation, leadership should continuously revisit these guiding principles to ensure the resulting tool and processes are aligned to support improved operational performance.
Whatever solution a health system chooses, the message is clear: Improving POS collections is imperative to enabling an organization to maintain long-term financial sustainability in a new health economy. And responding to that imperative must necessarily include developing metrics, collecting and analyzing data, fostering cultural change, and improving transparency into POS collections performance.
Joshua Cahn is a principal, PwC, Boston, and a member of HFMA’s Massachusetts-Rhode Island Chapter.
Peter Johnson, MBA, CHFP, is a manager, PwC, Boston, and a member of HFMA’s Massachusetts-Rhode Island Chapter.
Kevin Driesen is senior associate, PwC, Boston, and a member of HFMA’s Massachusetts-Rhode Island Chapter.
Laurie Hindson is senior director, business analytics and intelligence, SCL Health, Broomfield, Colo., and a member of HFMA’s Colorado Island Chapter.
Cheri S. Kane, MSA, FHFMA, FACMPE, is vice president, patient financial services, Community Health Systems, Franklin, Tenn.