Reducing Patient Bad Debt In Healthcare

By Ken Congdon, editor in chief, Health IT Outcomes

According to research by McKinsey Quarterly, consumer bad debt resulted in more than $65 billion in uncollected healthcare revenue in 2010. This figure represents a significant portion of the more than $2.5 trillion spent on healthcare in the United States each year. Many feel that this debt is largely the result of uncompensated care from the 46 million uninsured Americans — a problem that will, in part, be addressed by healthcare reform. However, a closer look at the numbers shows that this problem isn't just an affliction perpetuated by the uninsured. In fact, the fastest-growing portion of bad debt appears to stem from what insured patients fail to pay after insurers have paid their portion of medical bills. For example, McKinsey Quarterly actually references a multifacility hospital system where the "balance after insurance" is growing at 30% per year, while the "balance for patients without insurance" is growing at a rate of 19% a year — a clear indication that insured patients are just as (if not more) unlikely to ante up for medical services provided.

Now, conventional wisdom may suggest that these consumers simply can't afford or refuse to pay these bills in today's economy. Once again, McKinsey Quarterly research suggests otherwise. More than 74% of insured consumers responding to a recent McKinsey survey indicated that they are willing and able to pay out-of-pocket medical expenses of less than $1,000 a year. Instead, survey participants noted a lack of financing options (37%) and sheer confusion over what they owe (17%) as the main reasons for their failure to pay.

Technologies To Combat The Bad Debt Issue
If McKinsey Quarterly's data is accurate, then aggressive measures need to be taken over the next few years to ensure patient bad debt doesn't cripple the U.S. healthcare system. To begin this process, we must first take a close look at the challenges contributing to patient bad debt. For example, few hospitals or private practices to date do a good job of estimating a patient's out-of-pocket expenses when care is delivered, present a bill at the point of service, and collect full or partial payments immediately. Instead, most providers send a bill (often weeks later) and await the patient to mail in their payment. Moreover, few providers aggressively pursue payment. Most only mail multiple notices to a patient in hopes of ultimately receiving a payment, and few penalties or deterrents are ever levied to motivate patients to pay in a timely manner.

Some have suggested automated scale approaches to payment processing in healthcare — similar to those that have emerged in the financial services and telecommunications industries — as a way to combat this issue. However, this approach has been difficult to enforce in the healthcare industry because of the highly-fragmented nature of the provider community. Although, this may become less of an issue as more providers begin to exchange data in a standardized fashion via HIEs. Perhaps a bigger deterrent to scale automation taking hold is the complexity of clinical information. For example, a typical financial services transaction consists of about 20 to 30 fields, while a typical clinical data set can include more than 800 discrete fields.

While a fully automated payment system industry-wide may be a long way off, there are several tools healthcare facilities can implement today to combat patient bad debt. Instituting innovative patient financing options is a great place to start. Several technologies can also be leveraged to improve collections. For example, retail-oriented, point-of-service payment approaches can provide you with the means to collect more payments from patients on site. When coupled with patient liability/estimation software programs, you can gain a fairly accurate view of what the patient will ultimately owe.

Online billing tools can also be deployed to provide patients with a flexible and convenient way to pay their bills. CRM software can also be leveraged to identify the patients that are most likely to pay out-of-pocket expenses and those that are most likely to delay or default on payment. With these tools, you can customize a collection process that ensures accelerated billing and payment processing from willing and able patients, while proactively applying the pressure that will likely be needed to collect payment from deadbeat patients. Any and all of these technology options can help give you a leg up on collecting patient debt as we enter 2011. For more information on patient bad debt and the U.S. healthcare payment system, read the McKinsey Quarterly report titled, The Next Wave Of Change For U.S. Healthcare Payments.

Ken Congdon is Editor In Chief of Health IT Outcomes. He can be reached at ken.congdon@jamesonpublishing.com.