Got bad debt? Your payment system may be to blame. Out-of-pocket consumer spending on healthcare is increasing every year, which means healthcare systems and physician offices have many individual small payers to keep track of, as opposed to a few governmental contacts paying large amounts.
Some of these small payers will inevitably turn into bad debts. As more businesses shift employees onto high-deductible, consumer-directed health plans, healthcare organizations may see even more bad debt. Some portion of the bad debt is preventable, however, by investing in eligibility verification technology and utilizing electronic fund transfers.
"Healthcare collection rates are abysmal. This is easy money just left on the table," says John Reynolds, president of FIS Healthcare, a banking and payment technology firm. "When we look at hospitals, healthcare systems, and physician practices, they are all falling way behind in their ability to collect on the consumer side."
Although some healthcare systems employ payment technology for patient collections, the majority of healthcare organizations still use a largely manual process, Reynolds says.
"Manual processes and error play a big role in the inefficiency of the collections processes. If healthcare started using the electronic exchange of information, many organizations could increase collections, and they might be able to reduce staff. This is an area of enormous opportunity for improvement in healthcare," he says.
The first step is verification. It's estimated that three-quarters of hospitals and health systems collect less than 30% of their payments at the time of service, according to a poll by TransUnion Healthcare. Collecting what you can up front is essential, but to do so you need to accurately verify a patient's insurance eligibility.
For most organizations, the verification process is done manually by the front office. A staff member either calls the insurance company or checks eligibility through the payer's website. The process can take several minutes, which is why it's usually done only once. However, eligibility verification software and web-based programs can swiftly handle this step and determine the patient's financial responsibility.
Additionally, some programs can create payment plans, find alternative sources of payment for the patient, or point a patient to a financial assistance program.
Ensuring that the patient's insurance coverage hasn't changed is important, Reynolds says, and it requires multiple verifications from preregistration through discharge. Organizations using a manual process are highly unlikely to have the time and personnel to do the verification more than once for all patients.
"We knew verifying eligibility on the front end was extremely important, but the reality is we have very busy secretaries trying to capture this information and very little time to do it," says Michael Gonzales, billing and operations manager for Radiological Associates of Sacramento Medical Group. For this group practice, with 23 locations and 2,000 patient visits per day, the manual process was a challenge.
"Asking the secretaries to search each insurance company website or make a phone call to the insurance company [to verify eligibility] while checking in patients and taking them to the exam rooms was a lot. So quite often the patient's information didn't get verified until it got to the back end, and that would cause delays or denials in payments," he explains.
Gonzalez estimates that 4.3% of the group's monthly payments were lost to incorrect eligibility information. The group added a real-time eligibility software program and within three months reduced eligibility-related claims errors by 56%. (Note that these programs don't eliminate the need for staff to compare a driver's license against the insurance ID card to prevent insurance fraud.)
Upgrading the eligibility verification process is just one area to look at in your payment process. Financial leaders should also examine how they are paid. Just 10% of payments to health providers are made electronically, according to the National Process Report on Healthcare Efficiency. If all healthcare providers and payers processed claims electronically and took payments via electronic funds transfer or e-checks (provided by ACH Direct), healthcare as a whole could save $11 billion, according to the report.
"Insurance companies are very good at promoting electronic claims submission but often while data goes out electronically from the provider, it comes back as paper. The provider gets a paper explanation of payment along with a check," Reynolds says. "However, from a technology perspective there's no reason why all of this can't be handled electronically through EFT or ACH, or that the insurance company can't produce an ERA [electronic remittance advice]. There doesn't need to be any manual intervention with payments."
Although EFT has been available for years through financial institutions, Reynolds says it hasn't been used by many healthcare providers because people are accustomed to the interest float. During the several days that paper checks are in transit, the payer collects interest on the funds. Essentially, because the healthcare collections system is inefficient, payers found a way to profit from it, at the expense of healthcare providers.
"Using EFT eliminates [float]. It not only increases the speed of the payment but it also improves the accuracy of data," says Reynolds. The latter is accomplished, he explains, because the EFT transaction sends data into the practice management system.
This creates a record in the EHR that includes: the treatment given; what was billed to insurance; what payment was expected from insurance; how much was actually paid by the payer, and how much was collected from the patient—all information which healthcare organizations will need to provide in the future to improve consumer transparency.
"With the growth of consumer-directed healthcare, we expect the use of EFT to take off. Having all this information and putting it into a consumer-facing application that integrates healthcare information and financial information is the key to transparency … and the patient's overall care experience," Reynolds says.
Many healthcare organizations may already use EFT and e-checks for some transactions, such as financial dealings with vendors. However, getting individual payers to complete your payments electronically may require financial leaders to renegotiate contracts and include an electronic payment clause.
With millions of dollars being designated for large technology initiatives, such as meaningful use and ICD-10, upgrading the organization's payment system may seem like a project that can wait. However, upgrading this technology can keep your bad debt to a minimum. And that's money that can be used for other essential projects.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
