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The Self-Pay Conundrum: How to Balance Margin and Mission

Keith Mertz, for HealthLeaders Media, February 16, 2009

As hospitals watch their self-pay accounts receivable and bad debt increase, they find themselves in a bind. On the one hand, they know that the cost of collecting from patients is high, and that the likelihood of getting paid drops after patients leave the hospital. On the other hand, they must be sensitive to community relations and their social mission. These concerns have been heightened by adverse publicity regarding some nonprofit hospitals' collection practices and by efforts in some states to adopt legislation that will dictate the amount of charity care they must provide.

Many hospitals are looking for ways to collect part of a patient's bill either pre-service or at the point of service. But it's tricky to design such a process so that it deals fairly and consistently with patients without overburdening them financially. One way to approach this challenge is to use new kinds of technology that automate the process of estimating each patient's financial responsibility. Such programs can also help staff locate alternative sources of payment, develop realistic payment plans, and find financial assistance for those unable to pay.

Eligibility still a big problem

The first step in improving the self-pay collection process is to determine which patients can pay their bills and which will require financial assistance. This process starts with insurance eligibility verification. Many facilities still struggle with assigning the correct insurance coverage status to accounts on the front end. They may also fail to recognize that some patients' coverage has changed by the time bills are generated. The emerging trend is to check eligibility multiple times from preregistration through discharge. Doing so ensures that patient's insurance information for billing is always correct.

Traditionally, hospitals checked eligibility only once or only on specific patients to keep down per-transaction costs. However, some vendors now offer subscription-based services (unlimited online checks for a flat fee) that remove this economic barrier. Hospitals that switch from one-time eligibility checks to multiple verifications throughout the revenue cycle consistently find that 5% to 10% of self-pay accounts marked as "uncollectible" actually had coverage for the dates on which services were rendered.

Today's eligibility products have greater capabilities than those offered in the past. One example is the ability to present to staff not just a summary of patients' benefits, but also their year-to-date benefit accumulation status (e.g., deductible status, out-of-pocket status). This kind of additional information enables hospital staff to have a more informed financial counseling conversation with patients.

A decision tree for categorizing patients

Lack of insurance, a high deductible, or a balance after insurance does not mean that a patient cannot pay his bill. But patients have varying abilities and degrees of willingness to pay. So some of the self-pay collection programs assign a "propensity to pay" score to each account to consistently and objectively place a patient into the appropriate payment pathway.

For example, self-pay patients might be classified as follows:

  • Those who can pay their bill, and probably will
  • Those who can pay their bill, but mostly likely will not
  • Those who have the means to pay only a portion of their bill
  • Those who cannot pay their bill at all

Specialized vendors hired by hospitals use credit histories and other publicly available data to "score" a patient's ability and probability to pay. This credit check is a "soft hit" that does not affect the patient's credit score or credit history. The stratification scoring system should be customized to reflect each health system's patient population, instead of employing the data vendor's generic approach.

Propensity-to-pay scores can be used both as a pre-service financial clearance stratification tool and a back-end collection aid to determine whether an account should be worked in-house or outsourced to a collection agency. At the front end, account stratification helps financial aid counselors determine how to help patients meet their financial obligations. Specifically, it helps them decide which patients should be asked to pay and which should be further reviewed for charity, Medicaid, or other financial assistance.

If a patient has an elective procedure scheduled, it makes sense for hospital staff to check insurance eligibility and estimate the bill before calling the patient for preregistration. If the patient is defined as self-pay and his propensity-to-pay score indicates that he probably can meet his financial obligation, this is the best time to initiate a conversation about making a pre-service deposit.

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