After she took a spill on the soccer field and landed on her noggin, Milton Silva-Craig took his daughter to the hospital emergency department to have her injury assessed. The patient registration representative confirmed his demographic information and verified his insurance. Then the woman instructed him that the hospital normally takes $150 at intake. Many patients would likely reach for a credit card, however, more patients are starting to ask, "Can you explain what that’s for?"
That’s what Silva-Craig did, but he’s no layperson. Silva-Craig is the executive vice president of credit and information management consulting firm TransUnion Healthcare, a wholly owned subsidiary of credit and information management company TransUnion, and so he viewed the situation with an eye on payment approach and risk. What he found was that when he pushed back with a few questions, the payment collection process sort of dissolved. It went something like this:
- Yes, the woman had verified his insurance.
- Yes, she had verified his co-pay amount.
- No, she couldn’t tell him if he had met his deductible amount.
- No, she couldn’t tell him if he had co-insurance.
- No, she couldn’t tell him about his credit rating or likelihood to pay.
Moreover, had this been a more complex medical scenario, he adds, she likely wouldn’t have been able to give him an estimate on the cost of treatment either.
It turns out the $150 the front office was asking for was an average patient payment amount, which the hospital arrived at in order to obtain at least some of the patient portion of a bill at the point of service.
Kudos to the hospital for at least making some attempt to collect payment at the point of service, however, as consumers become more responsible for the cost of their care, this approach isn’t going to fly. Hospitals and health systems must give their staff the tools to answer questions like the ones Silva-Craig posed.
Payment transparency or lack thereof, opens hospitals up to a boatload of financial risk as the payment environment shifts. Consider that in just four years, the health plan environment has changed drastically from one in which the majority of consumers had little knowledge (or interest) in the cost of their care, to the age of high-deductible, consumer-directed health plans. As consumers grapple with funding more of their own care, they now want to know their care costs. In many hospitals and health systems, these are answers the front office doesn’t have, but they really should.
John McLaughlin, managing director and practice leaders with LECG Corp., a global consulting and business advisory firm, says that managing this risk as the payment environment evolves is vital, albeit challenging in healthcare.
"A health system today is as complex as running a $5 billion company," McLaughlin says. "However the difference is, in corporate America there’s a push for enterprise risk management … that’s not the case in healthcare."
Enterprise Risk Management or ERM is a method, framework, and process to manage risks to an organization by taking a holistic view of the various uncertainties involved across the organization. Before a hospital or health system can address the risks associated with its payment process, McLaughlin says healthcare leaders must know where their financial risks lie. To do so, McLaughlin recommends pulling together a team from all areas of the hospital (financial, administrative, clinical, customer service, etc.) and applying the following principles:
1. Establish the organization’s objective(s) (e.g., to increase profits by 5%).
2. Evaluate the hospital’s risk tolerance and add a tolerance metric which is approved by the board. (How much potential loss are you willing to take on?)
3. Evaluate the events that can lead to a risk (i.e., Accountable Care Organizations or bundled payments).
4. Determine solutions for mitigating those identified risks.
5. Enact solutions and assign an owner for each risk area.
"An [ERM] tool can be used for this, but it can be done without one," he says. In order to make this risk management session productive, you will need to provide the team with your gross charges and profits for each procedure, the costs and opportunities to reduce them, and the reimbursement levels.
Once the risks have been identified, one of them is likely to be the area of payment transparency and that’s where your front office may need to change.
"The whole conversation that I had at the ER registration could’ve gone better if the woman had had the data I wanted in her hands. Then we could’ve had a meaningful conversation," he says. "But with only limited information, she wasn’t empowered and when I pushed back she gave up. That now puts a lot of risk on the hospital as to whether I pay my balance after I leave."
Silva-Craig’s colleague Jim Bohnsack, vice president of product development at TransUnion, says hospitals and health systems already have many of the tools in place to provide patients answers to their payment questions. However they lack the ability to pull all of the pieces together in the front office at the point of service.
"One of the pieces everyone does to verify insurance benefits and eligibility is a HIPAA 1270/1271 … they check it on a binary level for a ‘yes’ or ‘no’, but there is a ton of other information that can be pulled from that transaction," Bohnsack says.
To move beyond a two-dimensional check of a patient’s ability to pay, hospitals and health systems should use the existing eligibility information and cross reference it with the information from your payers’ contracts. Then the system should assess the patient’s ability to pay, and factor in an estimate of the cost of a procedure, Bohnsack says. By merging all these systems, a hospital can provide the patient with a far more accurate estimate of what they may owe for their care. Moreover, they have the tools they need to explain how they arrived at the estimated cost.
It is the explanation and the transparency around the bill that not only leads to hospitals getting paid the correct amount, but also yields a better patient response to the bill. Over the years, many healthcare leaders have pooh-poohed the idea of estimating the cost of a procedure, saying the number would be inaccurate due to all the possible avenues of treatment.
However, by using the gross charges McLaughlin mentions above, hospital administrators should be able to arrive at a reasonably accurate amount. Moreover, Silva-Craig notes that if a bill is based on one procedure, for instance natural childbirth, and another procedure is performed, such as a C-section, when the billable amount changes the patient will have a clear understanding of why.
As financial leaders search for the next place to reduce costs, it may be time to spend money to achieve that end. By allocating $20,000-$40,000 toward adding technology that pulls all of your existing systems' information together for your front-office workers, you can improve not only your point of service collections but also your patient collection interactions.
For more insight from healthcare finance leaders, see the 2011 HealthLeaders Media Industry Survey.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
