Bad Debt

In the wake of recent news, providers should examine their patient collection practices to avoid pitfalls

November 5, 2019 2:03 pm
  • Hospitals must collect payments from patients to operate as a business.
  • However, resolving outstanding balances is complex and sensitive, and missteps can result in a negative patient financial experience.
  • Best practices both during and before collection activities can help hospitals provide the best possible experience.

Intermountain Healthcare Executive Vice President and CFO Bert Zimmerli recalls a conversation 15 years ago with a patient advocate about the challenges facing many patients with healthcare-related debt.

 “Most of them are overwhelmed,” the advocate told Zimmerli. “Some are clinically depressed. You would see a stack of bills on the table that they haven’t even opened because they know they can’t pay them.

“If you really cared,” she said, “you would put a statement on the outside of envelopes containing your bills that says something to the effect that, ‘If you need help paying your bills, please call the following number.’”

Soon thereafter, Intermountain began including that statement in both English and Spanish on the back of every such envelope.

More broadly, that exchange has helped inform Intermountain’s approach to patient billing and collections under Zimmerli’s stewardship of the finance department. The goal, as the organization’s website states, is to allow patients to “focus on getting well rather than worrying about how they will pay for care.”

Scrutiny of collection policies

The issue of patient collections has landed squarely in the spotlight in recent months following media coverage of the approaches at various health systems. It’s not a stretch to think other providers could find themselves the subject of unwanted headlines as media outlets search for patients to profile in the current healthcare environment.

Patients bear more financial responsibility for healthcare services in this era of high-deductible health plans, while the prevalence of narrow networks can mean a greater chance of receiving costly and unexpected out-of-network bills for a portion of care.

Healthcare these days “absolutely rivals” buying a house or car in terms of the consumer payment burden, said Jonathan Wiik, principal of healthcare strategy at TransUnion Healthcare. The difference, he said: Healthcare generally is far less voluntary than those purchases.

Yet hospitals require some form of payment from most patients to be able to sustain operations and fulfill their missions. The question, then, is how to implement a collections policy that is effective yet fair.

HFMA and other guidance on collection standards

IRS regulations require that not-for-profit hospitals “make reasonable efforts to determine whether an individual is eligible for assistance under the hospital organization’s financial assistance policy before engaging in extraordinary collection actions [ECAs] against that individual.”

In the IRS’s definition, reasonable efforts generally constitute providing a financial assistance notification period of 120 days and an application period of 240 days, starting from the date of the patient’s first post-discharge billing statement.

ECAs can start after 120 days. But if a patient applies for financial assistance during the second 120-day period, collection activity must be suspended. If the patient is deemed eligible for assistance, any effects of the collection activity must be reversed.

HFMA makes available more-substantive guidance on patient financial communications and medical debt resolution as part of its Healthcare Dollars & Sense initiative.

The Association’s guidance on medical debt resolution includes recommendations for initiating ECAs, which include liens, credit reporting, lawsuits, wage garnishments and sale of debt. Among the suggestions is to keep the hospital’s board apprised of the approach to ECAs.

“Ongoing provider efforts to educate patients about the account resolution process should include informing patients of board-sanctioned ECAs, and patient notification should occur prior to undertaking these activities,” the guidance states.

Making sure best practices are followed

Although debt collection agencies operate independently of the hospitals that contract with them, hospitals can take steps to ensure ECAs are conducted only when appropriate circumstances dictate.

“You definitely can work with collection agencies around principles,” Zimmerli said. “If they won’t agree, they probably aren’t the right collection agency for you to use.”

For example, Intermountain states on its website that it goes to court to collect on an unpaid medical bill only if there is evidence of fraud or an indication that the patient has the means to pay.

Intermountain, said Zimmerli, also requires collection agencies to agree they will:

  • Interact with patients in a respectful, compliant way (allowing Intermountain to monitor and review recorded calls
  • Proactively support and offer financial assistance based on Intermountain’s polic
  • Maintain Intermountain’s values and commitments, including adherence to all compliance regulations
  • Facilitate the recall of any placed account for any reason
  • Provide recurring performance metrics to measure success (e.g., collections, complaints, response time)

Seeking an upfront solution

Just as prevention is more effective than any cure, hospitals can enhance their patient payment processes to cut down on the need to engage in collection activities. The goal, Wiik said, should be to clear all patients financially — either ensuring they can pay or deeming them eligible for financial assistance — before arrival, or at the very least before discharge.

As Wiik sees it, hospitals generally have opportunities to transfer more patients from bad debt portfolios to payment or charity care.

For example, when Wiik was chief revenue officer at Boulder Community Hospital in Colorado, the organization would pay an uninsured patient’s COBRA premium if the patient was eligible for that coverage. As he noted, footing the bill for a $1,600 premium is more than worthwhile for the hospital if it ensures the patient is covered for a $160,000 care episode.

Other patients may qualify for charity care, steep discounts on care or perhaps an interest-bearing loan to cover their financial obligations.

“It is critical for providers to engage patients early to optimize collections,” Wiik said. “Reliance on the traditional billing cycle will result in poor patient collections and a poor patient experience.”

Ensuring financial assistance is accessible

Intermountain tracks its ability to inform patients about the availability of financial assistance. “We want people to know about it and use it if it applies to them,” Zimmerli said. For processing assistance applications, the organization uses 48 hours as a benchmark — and usually beats it.

“I’m pretty proud of that,” Zimmerli said. “We don’t want anyone to ever feel like a charity patient at Intermountain.”

In general, he said, revenue cycle metrics should be in place “for how we serve people who can’t afford to pay as well as for how effective we are in collecting from those who can.”


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