Preparing For Patient Self-Pay Overload

By Ken Congdon, editor in chief, Health IT Outcomes

In a recent podcast, Is Telehealth The Answer To The Pending Patient Surge, I spoke with Bob Preston, chief collaboration officer at Polycom, about how healthcare reform will cause an influx of newly insured patients into the health system. The podcast focused on how providers will be challenged to address more patient demands than ever and how telehealth technologies can help physicians see more patients within the same time window. As it turns out, treating large numbers of new patients is not the only challenge providers face due to the pending patient surge. Significant accounting issues will also arise over the next few years as a result of the reform environment - namely increased patient self-pay collections.

Initially, I thought patient self-pay debt would decline as a result of reform. I mean, it seems logical that if every U.S. citizen is required to have medical insurance by 2014, then medical charges billed directly to patients would begin to evaporate, right? Well, a recent conversation I had with Tony Reisz, president and CEO of Ontario Systems, an account receivables management company, painted quite a different picture.

According to Reisz, an increase in patient self-pay debt will emerge due to reform for two reasons. The first stems from the business community's reaction to the changing healthcare landscape. "Businesses provide most of the capital that pays for healthcare," says Reisz. "As private insurance premiums continue to rise by 20% or more across the board, many businesses will make some drastic changes to the coverage they provide their employees. The end result will be more high-deductible or consumer-driven healthcare plans. A byproduct of this trend will be more patient self-pay." The second reason Reisz believes self-pay figures will swell is simple mathematics. "More than 30 million patients will become newly insured as a result of reform, but they'll still be responsible for paying their deductibles before insurance kicks in," he says. "The infusion of all this new deductible debt will place an increased strain on self-pay collections within healthcare facilities."

Challenges Associated With Patient Self-Pay
The prospect of increased self-pay debt is troubling because it presents some specific and significant challenges to healthcare providers. For example, collecting from insurance companies, while not always easy, is a fairly structured process. Providers deal with a handful of payers on multiple claims and, in many instances, data is exchanged between these parties via EDI (electronic data interchange). Patient self-pay debt collection, on the other hand, is an extremely labor-intensive and expensive process. Outbound communications (i.e. invoices, letters, phone calls, etc.) need to be sent to each individual patient in effort to collect the debt. "As a result of these communications, collecting a self-pay debt costs an average of $17.50 per account ? this is seven times the cost of collecting from insurance companies," says Reisz. "Patients also pay more slowly than any other type of account except Medicaid. Plus, the chance of a self-pay bill actually being paid drops dramatically after discharge. Finally, the value of overall hospital receivables drops to 90% of the bill at 60 days, 80% at 90 days, and continues to plummet from there."

Four Weapons To Battle The Self-Pay Beast
Many hospitals and healthcare facilities may respond to the self-pay dilemma simply by increasing the number of collection personnel they dedicate to self-pay accounts. However, this approach is an example of working harder, but not necessarily smarter. Increased labor costs could likely depreciate the returns you could gain from a collected debt. According to Reisz, healthcare organizations need to institute a series of front-end and back-end best practices to adequately prepare for and ultimately address upcoming self-pay problems. Here are four of his primary recommendations:

• Proper Front-End Patient Segmentation Is Vital - Segmentation is a concept and practice that is employed extensively by credit card companies and third-party collection agencies, but not widely adopted by healthcare providers. Segmentation uses demographic and patient visit data to determine which patients are most likely and least likely to pay their debt in a timely manner. This practice can allow a healthcare facility to then properly prioritize and organize their collection efforts to achieve optimal returns. For example, patients deemed highly likely to pay their full debt can be targeted first for the full amount, while questionable patients can be offered discounts for immediate payment.

• Leverage Basic Technologies To Optimize Productivity - According to Reisz, basic technologies, such as automated phone dialers, aren't widely used by most hospitals. "Most hospital accounts receivable employees still place manual collection calls at a rate of 30 to 40 per day," says Reisz. "An automated phone dialer can increase an employee's call output to a couple hundred per day because the system is actually generating the phone call and moving to the next call instead of the employee flipping through pages and manually dialing numbers."

• Align Compensation With Your Self-Pay Goals - Another effective practice adopted widely by collection agencies, but rarely by healthcare organizations is the institution of a commission-oriented pay structure for collections personnel based on the amount of debt they collect. According to Reisz, most hospitals pay their collections personnel the same salary regardless of performance. Of course, a move to a commission-based compensation plan will require buy-in from the highest levels of your healthcare organization.

• Provide Easy Payment Options - Finally, according to Reisz, only about 40% to 45% of today's hospitals actually allow patients to pay online or via IVR (interactive voice response) technologies. These payment options are widely used in the retail, banking and finance, and credit card industries with great success. By providing your patients with convenient payment options, where they can punch in a credit card number rather than writing and mailing a check, you can facilitate debt collection and reduce daily sales outstanding.