Financial Counseling

Responsive Payment Support: Finding the Right Balance for Patients With HDHPs

December 20, 2017 9:13 am

Extending health insurance benefits to 20 million formerly uninsured Americans is rightly cited as a major accomplishment of the Affordable Care Act (ACA). Even so, this achievement has prompted shifts in the healthcare industry—some intended, some unforeseen—that hospitals have yet to come to grips with.

The most obvious of these shifts is the offloading of financial risk from payers to providers and patients, largely through the proliferation of high-deductible health plans (HDHPs), but also through rising premiums and copayments. Hospitals have generally acknowledged the difficulties caused by this change, particularly those involved in the process of collecting payment from individual patients, in all their financial and demographic diversity, rather than from large, well-resourced insurance companies.

The financial consequences of mismanaging this process have long been clear: In 2010, McKinsey & Company reported that one multifacility hospital system was experiencing 30 percent annual growth in balances after insurance from insured patients, and that experience was not atypical among healthcare organizations. a In many cases, patients are now responsible for a quarter or more of a hospital’s total charges, with the result that the self-pay population has become widely referred to across the industry as a “third payer” (after the government and commercial insurers). The problem is that more than half of these patients lack the financial means to pay the amounts for which they are responsible under HDHPs. Would hospitals accept collecting less than 40 percent from a commercial health plan?

The New Threat of Increased Patient Liability

In addition to ballooning accounts receivable (A/R), increased patient liability poses a second threat to hospitals. The Federal Reserve recently found that,in 2016, spending among 54 percent of American adults equaled or exceeded their annual income, meaning that more than half the population lacks funds for unbudgeted expenses (no matter how important). b Seeking to avoid out-of-pocket costs they simply can’t pay, patients are putting off necessary physician visits and even care. This behavior puts patients’ health at risk, of course—but it also poses a financial threat to hospitals because it jeopardizes their ability to meet increasingly stringent “quality” metrics tied to pay for performance.

It may seem that hospitals can do little to help patients who feel unable to pay their healthcare bills. But taking a page from other industries where companies work hand in hand with consumers to finance their purchases, health systems can improve both their understanding of and their outreach to patients who feel strapped, the majority of whom are covered individuals with high deductibles, referred to as self-pay after insurance (SPAI). Indeed, implementing a strategic, tailored approach to billing and collecting from the expanding self-pay population is critical to health systems’ twin missions of safeguarding patient health and preserving their own sustainability.

In this new era of risk, a key objective for hospitals should be to develop a new competency of making healthcare payments simple and manageable for patients—a competency that can be termed responsive payment support.

The Problem Posed by Old Approaches

The traditional approach to billing and collections has been a mix of sending “pay-in-full” statements and bills, negotiating payment arrangements via reactive inbound calls, outsourcing significant numbers of accounts to “early-out” collections or financing companies, and, as a last resort, relying on bad-debt collections agencies. This familiar blend chips away at net revenue with its demands on employee hours as well as the various fees and profit-sharing arrangements. Nevertheless, it made sense in the time when self-pay and SPAI balances accounted for a small portion (typically less than 10 percent) of the overall payment mix, or even during the initial growth phase of such balances. However, the doubling or even tripling of this segment renders the old approach unsustainable to meet the explosive demands of patient collections.

Overall market trends are certainly to blame for much of the pain hospital finance departments are in, but continuing to manage more accounts in the same old way isn’t helping. Dropping sizeable, sometimes unexpected, bills on patients living paycheck to paycheck—or on any of the 70 percent of Americans who have less than $1,000 in savings—is too often a prelude to collection agency placements. c

Hospitals and physicians spend ample time building trust with their patients—seeking working partnerships that promote their patients’ health and well-being. These providers’ billing and collection practices should align with that care experience, with every effort made to identify and respond to a patient’s circumstances and preferences on terms the patient finds financially realistic. Referring patients to third-party financing companies and collection agencies can contribute to embarrassment, mistrust, and, ultimately, a break in the direct relationship that was built by a positive clinical experience.

The Downstream Effects of Affordability

As patients assume more of the cost burden for their care, that increased burden can have an impact on care decisions, such as putting off recommended screenings, tests, and even treatment. Just as unaffordable bills can contribute to avoidance of care, though, positive or manageable billing interactions can keep patients on course.

The likelihood that payment stress keeps patients from seeking care is well documented. d A Kaiser Family Foundation 2017 poll investigated the extent to which Americans “delayed or skipped care due to costs in the past year” and found that 27 percent of respondents had put off or postponed getting the care they needed, 23 percent said they had skipped a recommended medical test or treatment, and 21 percent said they had opted not to fill a prescription for a medicine. e

In comments on findings of a Rand Corporation study, researcher Amelia M. Haviland of Carnegie Mellon University says such patient cutbacks in preventive care “could cause a spike in health care costs down the road if people end up sicker and need more-intensive treatment.” f

Another perennial problem in health care, fragmentation, also is likely to increase as consumers decide to visit the cheapest sites (like urgent care centers) rather than the locations most appropriate for their condition. Although urgent care visits, versus emergency department visits, provide a viable means for reducing cost of health care, these clinics often lack connectivity to the information systems of the patient’s primary care provider or hospital of choice, with the result that gaps in care coordination are likely (e.g., prescriptions, lab tests).

Avoided care and fragmented care delivery could conceivably lead to readmissions, which of course carry associated penalties for hospitals.

The Benefits of Responsive Payment Support

Hospitals have the ready means to stem this tide—and not just through write-offs or financial assistance, but also through proactive engagement, automation, and technology that consumers now consider essential, such as rolling new balances into a single monthly payment as credit card, cellular, and cable companies do. Such features also could help hospitals in the realm of patient satisfaction, a major concern for hospital leadership. These considerations constitute the primary aims of responsive payment support. Responsive payment support offers three fundamental benefits:

  • It takes into account consumers’ willingness and ability to pay.
  • It engages patients with offers of tailored payment amounts and multi-modal, self-service activation—
a benefit that consumers have come to expect.
  • It automates account management, thereby operating as an extension of the hospital’s brand and mission by driving interactions and fostering a spirit of cooperation, flexibility, and partnership.

The third benefit is important because supporting this relationship, in which patients feel both respected and accountable, is the chief means by which healthcare finance executives can improve performance and help turn the troubling trend of avoided care.

To understand how responsive payment support works, one need only consider how the approach achieves each of these benefits.

Segmenting by ability and propensity to pay. Collecting from individual patients requires greater flexibility in how hospitals prioritize accounts, who qualifies for a payment plan offer, and what installment and term works best; installment amounts and payment plan terms should be rigorously analyzed regarding which payment ranges are most feasible and will produce the highest yield for which balances.

For instance, according to a recent study by Crowe Horwath, balances of $1,200 and under have been shown to yield a SPAI repayment of about 40 percent, with patients sometimes paying in full and sometimes setting up a payment arrangement. g Hospitals may choose to focus their efforts and early communication on this relatively high-yield group, adjusting their efforts as new data about responsiveness becomes available. A different approach may be warranted by a balance range of $1,451 to $5,000, which the Crowe Horwath report indicates has a collection rate of 25 percent. This range describes the average deductible for silver level plans, a popular option on the ACA exchanges, so hospitals with this patient mix will want to target these patients more assertively.

No matter the amount, qualifying patients for payment plans based on account balances and deep analyses of consumer behavior, as well as by payment history and individual financial circumstances, is a crucial first step in responsive payment support.

Offering tailored payment plans. Achieving this benefit involves proactive engagement with patients, where patients feel that the hospital is walking with them along their path. To foster this feeling among patients, institutions must acknowledge and embrace their role as financial support partners, especially for patients struggling to pay. Reaching out, perhaps even before the episode of care, with a range of payment plan options is one way to do so. A typical patient bill offers one alternative to “pay in full,” and that is to not pay at all. The difference with responsive payment support is the payment-plan offer seeks to influence a patient’s behavior by giving the patient an affordable monthly payment option tailored to his or her ability to pay.

The easy activation of a monthly payment offer is critical here, especially considering the changing demographics of the patient population. Younger consumers, in particular, expect to be able to perform account tasks without having to make a phone call, so self-activation must be available via online and mobile pathways. However, 50 percent of patients still prefer to pay their healthcare bills by writing a check, so it is critical to allow “off-line” self-activation, as well, to support the total patient population.

Automating account management. Once a payment plan is established, the process can all too easily be clouded by a lot of noise—insurance adjustments, late charges, and account recalls that change the terms and cause confusion for patients. A fundamental idea when implementing responsive payment support is to anticipate that noise and automate proactive responses. For example, patients should not have to request a new payment plan with every new episode of care, so to avoid this inconvenience, providers should automatically offer patients the option of adding new balances to existing plans or paying them in full.

With the growth in patient A/R comes a growing number of credit card payments. This increase ratchets up the risk of data breaches and puts extra pressure on hospitals’ credit card data security, including their regulatory burden (e.g., PCI audit scope and cost). To protect patient data and lower PCI audit scope, every credit card entry point for a hospital must be secured using point-to-point encryption (P2PE), which prevents card data from transmitting over the network. h

A Focus on Affordability

Most hospitals are scrambling to address the obvious threat to revenue posed by expanding self-pay. Increasingly, they recognize that the difficulty collecting from patients today is not a problem of convenience, but rather a problem of affordability. Patients’ problems with the affordability of care lead to nonpayment and avoidance of care—and can have a domino effect on hospital finances and public health. To head off the looming crises from such an effect, financial executives need to shift the mindset from billing to payment support, while embracing a new relationship with patients.


a. Pellathy, T., and Singhal, S., Revisiting Healthcare Payments: An Industry Still in Need of Overhaul , McKinsey & Company, 2010.

b. Board of Governors of the Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2016 ,  May 2017.

c. Maxfield, J., “How Much Does the Average American Have in Their Savings Account,” The Motley Fool, Sept. 25, 2016.

d. For instance, see Pear, R., “Many Say High Deductibles Make Their Health Law Insurance All but Useless,” The New York Times, Nov. 14, 2015; and Ungar, L. and O’Donnell, J., “Dilemma Over Deductibles: Costs Crippling Middle Class,” USA Today, Jan. 1, 2015.

e. DiJulio B., Kirzinger, A., Wu, B., and Brodie, M.. “Data Note: Americans’ Challenges With Health Care Costs,” The Henry J. Kaiser family Foundation, March 2, 2017

f. Rand Corporation, “Largest Study of High-Deductible Health Plans Finds Substantial Cost Savings, but Less Preventive Care,” News Release, March 25, 2011. 

g. Crowe Horwath, Revenue Recognition and High-Deductible Plans: The Greater the Patient Portion, the Lower the Collections, March 2017.

h. King, J.,  “Devaluing Data with Point-to-Point Encryption: 3 Tips for Merchants,” PCI Security Standards Council, March 4, 2016.


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