Why HFMA's 'Serious Condition' Warning Matters to Your Revenue Cycle

A new HFMA report diagnoses the healthcare industry as being in "serious condition," providing a link between declining national affordability and rising patient bad debt and collection costs facing providers.

An HFMA analysis reveals that the healthcare industry is in “serious condition” when it comes to affordability and capacity to meet present and future service demands.

The U.S. Healthcare Vitals Tracker, a new initiative from HFMA, scores the nation's healthcare industry at a dismal 35.9 out of a possible 100, a steep decline from its high of 90.8 in 1997. The primary driver of this decline is falling affordability.

For revenue cycle leaders this means more bad debt, higher costs to collect, and greater financial risk for providers.

While issues like rising insurance premiums and administrative waste may seem to fall under the purview of payers and policymakers, there are significant implications for revenue cycle departments.

How Affordability Issues Affect Your Revenue Cycle

A core problem for revenue cycle leaders is the cost-shifting that has occurred over the past several decades. As healthcare costs increase, the financial burden is falling primarily on patients, who are notoriously difficult and expensive to collect from.

Here are three of the primary drivers behind falling affordability, according to the report, and their impact on revenue cycle management:

• Insurance design fuels bad debt: The trend toward high-deductible health plans is transferring more healthcare costs directly to patients. This means the average patient is now responsible for a larger portion of their bill. This increases the likelihood of accounts ending up in collections and ultimately being written off as bad debt, putting direct pressure on KPIs related to cash collections and days in A/R.
• Administrative waste drives up patient costs: Administrative costs, which result from complex billing and insurance processing practices, are also affecting healthcare affordability. These costs translate to higher premiums and out-of-pocket expenses for patients, which force providers to expand collection efforts.
• Patient Dissatisfaction Increases Cost to Collect: Purchase satisfaction is at its lowest point since 1997, according to data analyzed by HFMA. Confused and dissatisfied patients are far more likely to delay payments, dispute bills, or require multiple phone calls and statements to resolve their account. This impacts health systems’ costs to collect.

Strategic Responses for Revenue Cycle Leaders

While there’s no silver bullet available to revenue cycle leaders to combat broader affordability problems, there are some steps to take to mitigate the associated risks to health systems’ financial stability.

• Greater transparency to reduce payment delays: By proactively providing accurate cost estimates before delivering services, providers set clear expectations. If patients understand their financial responsibility before bills arrive, they are more likely to pay promptly and less likely to dispute charges.
• Accessible financial assistance to reduce bad debt: Many patients, particularly those with HDHPs, are underinsured. They have coverage, but lack the cash on hand to pay a high deductible. By making financial assistance flexible and easy to access, revenue cycle leaders increase the likelihood that patients will pay, even if it is over an extended period of time.
• Personalized communication lowers costs to collect: Automated communications that are delivered according to patients’ preferred methods have helped some health systems reduce the cost associated with sending statements out.

The HFMA report reveals that revenue cycle leaders must adopt new strategies beyond traditional collection tactics. By moving financial conversations with patients upstream, health systems can improve the patient experience in ways that increase their likelihood of paying their bills.