Preparing for Rising Patient Financial Responsibility

The fact that the average patient out-of-pocket cost went up to $1,800 in 2017 means that it will probably be north of $2,000 this year.

According to a recent TransUnion Healthcare cost estimate analysis, average patient out-of-pocket healthcare costs increased 11 percent in 2017, rising from $1,630 in the fourth quarter of 2016 to $1,813 in the fourth quarter of 2017. Jonathan Wiik, TransUnion’s principal of healthcare strategy, discusses the impact of rising patient financial responsibility on hospitals and health systems and the strategies revenue cycle leaders can implement to address the growing issue.

Were you surprised at the increase in patient out-of-pocket costs?

We all know it has been increasing; however, I was alarmed at the actual amount. The amount of $1,800 is very large, and the rate is also higher than I anticipated. An 11 percent rate means the average cost went up $200, and it will be north of $2,000 next year. It will be more than that, above $3,700, by 2025.

What’s also interesting is that according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2017 , 40 percent of adults would have to borrow money or come up with some other way to fund a hypothetical emergency expense of $400. I think you’re going to see consumers have a little bit of sticker shock. People know health care is expensive, but I don’t think people know that it’s that expensive, and the level of affordability is diminishing rapidly as costs are shifted to patient consumers.

Do you see that upward trend continuing?

I don’t see anything happening legislatively or from the industry that is going to necessarily slow down the rise in patient out-of-pocket expenses. There doesn’t seem to be relief in terms of healthcare costs, coverage mechanisms, or employer cost sharing, so the patient, hospitals, and physician clinics are all going to have to figure out how to creatively fund that increasing patient financial responsibility over time.

How are revenue cycle processes going to have to change in response?

First, health care is going to have to start operating like other industries. Any other bill that’s reaching that $1,800 amount has some sort of financing arm attached to it, or at least some sort of financial conversation happening in advance of the services. Hospitals are going to have to reach out to patients to help them understand their care and coverage, asking if they need assistance paying bills over time and setting up flexible payment options.

That means the conversation is going to have to change. It might go something like: “Hey, I checked your insurance, Mr. Wiik. I’ve got good news and bad news. The good news is the scheduled services are covered under your plan. The bad news is you’ve got a pretty high deductible/co-insurance—about $1,800. We realize that’s a large amount, so we’ve set up 10 payments of $180 over the next 10 months. How does that sound? We’ll collect that first payment now.” That’s better than, “It’s $1,800. How are you going to be paying today?”

What strategies can revenue cycle leaders employ to mitigate the impact of increased patient financial responsibility?

They can address the problem on a couple of fronts. They can engage patients early. Are financial navigation conversations happening with every patient? Those conversations should include a pre-service estimate that looks at the coverage, benefits, and out-of-pocket financial obligation of the patient. If there isn’t any coverage, or the patient can’t afford the coverage, then there should be some charity screening for eligibility for financial assistance.

I’m also seeing hospitals stretch that payment due over time and set up loans or payment plans over five to seven years. I feel that is too long and is really floating cash longer than any other industry. Hospitals that are doing well in this area “cap” the payment term at two to three years. Hospitals are having to figure out a way to meet the patient in the middle the best they can. Their role is to treat patients, not necessarily finance their care, but yet they’re stuck having to wear both of those hats these days.

They’re also going to have to protect their revenue, which means finding revenue that a hospital might have not known about. For example, possible options are Medicaid or insurance eligibility that was not disclosed or known, sweeping a dependent on other plans, or discovering COBRA coverage that patients weren’t aware of. There are tools available to identify these sources of coverage. They find coverage that was missed, and the yield can be as high as 5 percent of all of self-pay. That is a big bump in margin and cash flow for a hospital, and that can be the difference between being in the red and in the black. That’s insurance discovery 101. 

The other part is ensuring hospitals’ earned revenue gets paid. Lots of things can happen to affect hospital payments. For example, under Transfer DRG, whichreduces Medicare payments to hospitals for cases where patients are transferred from an acute-care hospital to a post-acute facility. In cases where a Medicare patient was discharged, or transferred, to a skilled nursing facility, but went home instead, that hospital payment is less than it would have been if the patient were discharged home.

There also are tools available to identify these cases that can be seamlessly added to protect revenue. You can see where patients actually went and what actually got submitted. Then, the bills for these cases can be resubmitted to ensure that earned revenue is paid to the hospital retrospectively and on a go-forward basis.

Finally, hospitals have to optimize payments from patients and payers. This represents millions of dollars for every hospital. Patients often struggle with payments, as they may not have insurance, have a high deductible, or simply do not understand bills or what they owe. Some hospitals are good at collecting accounts receivables; some aren’t. The ones that are good at it are closely monitoring their payments from health plans, and for patients, they are actively differentiating between the ability and willingness to pay. They are stratifying their accounts receivable portfolio.

In addition to loans and payment plans, hospitals are using needs-based discounting, more commonly referred to as sliding scales. For example, patients with earnings at 250 percent of the federal poverty level might get a 50 percent discount, and so on. 501(r) regulations and IRS scrutiny have amplified the need to ensure patients are accurately screened for charity prior to extraordinary collections actions, so it is critical to document willingness or ability to pay in your revenue cycle.

This last bucket is the scariest one. Patients who have the ability to pay but aren’t. They put hospitals in a tough spot. Hospitals want to keep those patients but don’t want to incur debt, and patients should always pay for services within their ability. Innovative hospitals are running credit checks to assess the financial positions of patients. For anything else you buy for $10,000 or $15,000, there’s a credit check. Health care is unique in that these inquires are less common, even though the balances owed are equitable—or higher—in most cases.

There are also alternative models where credit is not run. Under those models you can use community-based or alternative methods to predict income to stratify accounts. This allows for an accurate noncredit view of payment history or data attributes that shed some light on the behaviors of the patient in how they pay their bills. Not doing anything and relying on envelopes in the mail with the hope that patients will pay $3,000, $4,000, or $5,000 down the road is an ineffective strategy that needs to change. Hospitals have to pivot to meet patients as payers.

Do you foresee any changes to the Affordable Care Act (ACA) that may affect these strategies and funding mechanisms?

I saw Sen. Tom Price, former secretary of Health and Human Services, speak recently at a conference in New Orleans. He made some compelling statements. He doesn’t foresee any future healthcare reform until the next presidency. Does that mean there won’t be any changes to the ACA. Absolutely not. We will continue to see budget reconciliation efforts, which are tax reform-like changes that defund and remove the ACA’s underpinnings. However, we will not see the “repeal and replace” fireworks of 2017. 

In general, I don’t know that the traditional way of billing is going to meet the needs of patients anymore. We all get that healthcare bill in the mail, and it’s hard to understand. It’s getting better, but it’s difficult to pay it. Can you pay via mobile? Can a text come to you? Can you set up a credit card online? What is the best payment option based off what the patient can afford? We’re in an age where people want to know in a transparent way what that payment is going to be, and then how they’re going to pay it. The key is going to be able to leverage technology and make the payment as frictionless as possible for the patient.

Karen Wagner is a freelance healthcare writer based in Forest Lake, Ill. 

Interviewed for this article:

Jonathan Wiik is principal of healthcare strategy, TransUnion, and an officer of HFMA’s Colorado Chapter.