Pre-payment...The New Best Practice – Part 1

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Winter 2015

This is Part 1 of a 3-part series examining the implementation of Patient Pre-payment Practices, the Paradigm Shift in A/R Management, Collection Challenges and Effective Solutions

Why Request Pre-Payment?

• Since 2006 there has been a 400% increase in the number of Americans covered by high-deductible healthcare plans.

• There has been a 47% increase in the average patient’s deductible in the past six years. (see chart)

• Health-care reform is mainly responsible for this trend. 7.3 million people enrolled in federal and state exchanges under the Affordable Care Act this year.

• About one fifth nationwide selected bronze-tier plans, with deductibles exceeding $5,500 per person.

Collecting Deductibles, Copays and Co-Insurance

"If we billed an insurer, we would be reimbursed in seven to ten days. If a patient gets a bill for $600, we're lucky if we can get paid $25 a month." Ashley Santoro, practice manager for Cardiovascular Disease Specialists of Pittsburgh, PA

Many who are enrolled in these plans do not understand their deductible, nor are they financially able to pay the high rates. According to Nancy Galvagni, Sr VP of the Kentucky Hospital Association, “Hospital staffs have reported recently that many bronze-plan patients are confused about their obligations when asked for payment. They present their insurance card and expect that will cover all expenses. They don't realize that they owe anything. We're hearing that a lot."

"The bad debts are just going through the roof. That's been a trend," Galvagni continued. In Kentucky in 2008, the bad debt total for hospitals was $334 million. It soared to $659 million in 2012, a nearly 200% increase. (Note: 2012 is the latest period for which figures are available.)

Millions of dollars that go unpaid from caring for indigent people who aren't covered under any commercial or government insurance program.

• In the coming years, hospitals will be increasingly confronted with the task of collecting deductibles co-pays and co-insurance from their patients. As a result, many CFOs have had to change their in-house collection methods in order to protect their bottom line.

• Hospitals now frequently contact patients with scheduled procedures about their medical bills prior to admission, asking them when they will be able to pay their bills.

And if a patient says they don't have money, hospitals are asking for the amount they can remit and putting them on payment plans. However, these low or no-interest payment plans have met with mixed results.

“Payment plans are worthless…patients tend to put medical bills toward the bottom of their list of priorities. People will make an agreement (with) the best of intentions…then they don't pay."
Dr. Marianne Cowley, Retinal Specialist in Hikes Point, KY

Traditional Debt Collection Methods

• Mailing bills to individual patients = $10 to $15 per letter…(an unrecoverable expense)

• Mailing one hundred bills per month
= $1,000 to $1,500 per month
= $12,000 to $18,000 annually

• Collectability of receivables drops substantially by 40% to 80% once they are 90 to 120 days old.

• Providers are always…at a disadvantage to try to collect after the fact.

• Collection agencies are expensive, taking as much as 30% of the collected debt.

• Patients feel less urgency about settling their debt once they've received care.

• It’s almost seems that many patients have the attitude that, “If you haven't paid your bill, (the hospital) can't come and take the stent out of your heart.”

• Research has shown these patients are 50% to 70% less likely to pay a bill once they leave the facility.”

• Therefore…“It is absolutely crucial for hospitals to secure fees and payments in advance or before patients get out the door.”

Zac Stillerman, of The Advisory Board Co., Washington, D.C.

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