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With soaring numbers of self-pay patients, hospitals are deploying complicated payment programs.

In the same week, two hospital systems in the Midwest are splashed across the news: One receives a positive review for offering patients interest-free payment plans. The other is slammed for allegedly charging high interest rates on patient debt.

Who's the outlier here? Hospital finance experts maintain it's the former. The fact is hospitals are still under an intense amount of public and government scrutiny for their billing and charity care policies. At the same time, hospitals are experiencing a rise in self-pay patients due to economic reasons and an increase in patients with health savings accounts and high-deductible health plans. Patients are paying more out of pocket than ever before. If a hospital wants a high rate of return on what it is owed and to avoid carrying too much bad debt, it needs to offer a smorgasbord of payment plans to meet a range of financial needs.

In some cases, hospitals are seeing patients who have deductibles of $2,000 to $10,000, says Rod Bazzani, executive vice president of TransUnion's healthcare group in Chicago, which helps hospitals implement revenue cycle strategies that support moving the collections process from the back office to front so that a patient's liability is identified early on. "Now as a hospital I have to do something I am not skilled at, which is collecting from thousands of consumers, and managing big balances," from the growing uninsured or, more important, the underinsured population, he adds.

To that end, some providers are overhauling their payment programs, including St. Vincent Health System, a Catholic nonprofit health system in Indianapolis, which received the aforementioned positive press for its new payment policy implemented in February. "We are no longer charging interest on payment plans or reporting patients to creditors," says Gregory Snow, vice president of revenue cycle. The system also no longer garnishees wages. Prior to the change, St. Vincent, which is a member of St. Louis-based Ascension Health, offered two payment plans for patients who did not fall under charity care or a public assistance program. One plan was interest free but required a four-month payoff. The other offered an interest-bearing loan.

"Obviously economic times are different now," says Snow, noting that Indiana's 9.4% unemployment rate factored into creating a new policy. "You have to adapt service levels and programs to meet needs of patients at any given point of time. For the next several years we are going to be in unique circumstances."

Under the new policy, patients who do not qualify for public assistance or uncompensated care are automatically approved for 6- to 72-month, interest-free payment plans without ever filling out an application for approval. Patients up to 200% above poverty level qualify for charity care. Very little now goes to third-party debt collection, says Snow.

So how can a hospital meet its margins with so many concessions? Snow acknowledges that St. Vincent's self-pay collections have increased as a result of the new payment policy. Prior to the program's start, the 17-hospital system placed an average of $44,000 per week of new or additional payment plans. Since then, that number has jumped to $500,000 per week of new or additional payment plans. But Snow is convinced St. Vincent's reputation and bottom line will profit in the long run. "When you place with an agency, you damage the brand and displace a patient. Are you carrying a receivable?" Yes, he replies, but at the same time, less is going to bad debt.

Besides, he says, more than 70% of patients on payment plans have credit scores of 600 or higher. With those rates, he's betting St. Vincent will recover more than it would with a collection agency.

"Normal industry rates on self-pay collections are 16% to 25% or more on the dollars collected. The ROI on that is huge," he says. In fact, he says, for patients with credit scores above 600, the default rate is approximately 4% while patients with credit scores below 600 have a default rate of approximately 40%.

"We will come out ahead and see a positive economic upside from our existing patient base, and it will ensure patient loyalty to the system." Thus far, the overall default rate for St. Vincent's program is lower than expected, at approximately 12.7%, says Snow.

Bazzani says that automating the collections process is also critical if hospitals are to move more patients out of the bad debt bucket and into charity care, which federal and state governments are so closely monitoring. Two trends gaining some momentum are hospitals starting to bring collections in-house and using technology to do a better job of segmenting, analyzing, and collecting dollars, he says.

Snow, for his part, believes receivables will continue to increase due to economic conditions and become more, what he calls, "guarantor" in nature. "Hospitals, CFOs, and revenue cycle departments are going to have to put more emphasis on the management of guarantor and residual balances," he says. But he agrees that the industry isn't there quite yet when it comes to deploying patient-centric payment models. "A great many people are looking at it, but I think there is some hesitancy. The margins of hospitals are very tight these days."

Michelle Ponte

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