Leigh Walton, a partner with the law firm of Bass Berry and Sims and the co-chair of that firm's Healthcare Practice Group, discusses the prospects for healthcare M&A in the coming year and beyond.
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.
Applying hospital collection policies fairly
An automated approach to self-pay collection has several advantages over ad hoc methods that rely on staffers' understanding of hospital policies. First, use of the latest advanced technology can greatly reduce the amount of staff time required to do the job properly. Second, automation makes it possible to apply hospital policies fairly and consistently across the board, minimizing the possibility that staffers will treat patients in a manner inconsistent with hospital policy or not deal with some of them at all. And third, patients are more satisfied with their hospital experience when they understand their financial responsibility before services are provided or before they are discharged. That way, they don't undergo "sticker shock" upon receiving their bill in the mail.
If a patient has the ability to pay, today's technology can create a pre-service estimated patient bill. The bill estimation process should take into account the payer's contractual allowable charge for services, as well as the patient's current benefits (i.e., deductible and out-of-pocket status, copays, and coinsurance). This ensures the maximum credible estimate and prevents collection problems that result from an estimated bill being significantly different than the patient's final bill.
The size of the deposit that a hospital requests will vary according to hospital policy and each person's ability to pay. The propensity-to-pay classification can also play a role in calculating the deposit amount. For example, if an affluent patient has avoided paying medical bills in the past, the counselor might be prompted to ask for a larger deposit before the service is rendered. Again, technology can be used to calculate the recommended deposit automatically.
Many patients will not be able to pay off their balances all at once. An advanced self-pay collection program can calculate an appropriate monthly payment amount based on the patient's ability and willingness to pay. Again, each hospital should set its own payment schedule parameters, using its knowledge of local conditions. For example, the amount that patients with a certain income can pay might vary from region to region, depending on differences in the cost of living.
After determining the appropriate amount to collect, the hospital should make it easy for the patient to pay. When hospitals provide multiple payment options, both up-front and post-service, including credit and debit cards, e-checks, payment plans, and online payment, they increase the self-pay collection rate and lower the costs of collecting. Wherever possible, monthly payments can automatically be processed by debiting the patient's bank account or credit card.
Finally, after all insurance payments have come in, the hospital billing staff must reconcile them with the estimated bill that has been presented to the patient. Hospitals need to establish internal policies on how and when a bill estimate will be adjusted. For example, they might not revise the estimate if the insurance payment is 10% to 20% less than the estimate, but will change it if it's more than 20% less. If the payment is more than the estimate, the hospital has to send the patient a new statement and adjust the monthly payments.
Automation can determine charity and aid status
Many hospitals lack adequate staff to identify patients who might qualify for charity or other financial aid opportunities. For some hospitals, this is both a significant revenue issue and a community relations problem. Use of a propensity-to-pay score and other automated screening solutions can help flag those patients who should be evaluated for other sources of coverage, such as Medicaid, victims-of-crime programs, disability insurance (part of Social Security), or other state or private programs. Nationally, about a quarter of the uninsured—about 12 million people—are eligible for public health insurance programs but are not enrolled, according to the National Institute for Health Care Management.
Technology to automate this patient advocacy process should be adopted as part of the pre-service and point-of-service registration processes. For example, registration staff should be alerted so that they know when to gather information on household composition and income for an automated charity status determination. If the system determines the patient to be charity-eligible, a charity form can be automatically generated for the patient's signature prior to service.
When a hospital seeks to improve its self-pay collection policies, automation is the key to ensuring that hospital policies are followed and that the burden on staff is minimized. This does not eliminate the human interaction that is indispensable to achieving the desired outcome and to ensuring patient satisfaction. But it does make the process much easier for both patients and staff. And, by helping patients pay their bills, hospitals can actually improve their community image while boosting their self-pay collections.
Keith Mertz is Director of Product Management at RelayHealth. He can be reached at Keith.Mertz@RelayHealth.com.
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That's the message I so often get from CFOs when we talk about the drivers of healthcare costs generally and within the organizations for which CFOs work. I'm not dropping any bombshells here, but docs just don't think like you do and they certainly aren't motivated by the same things.
To be sure, physicians and CFOs start out as adversaries almost by the very nature of their responsibilities. It's the CFO's job to map a strategic financial direction for their hospital, and whether you head the financial ship at a for-profit or, more likely, a nonprofit hospital or health system, that involves some measure of margin be earned. You try to subsidize your organization's flexibility and its ability to compete through debt, philanthropy, and other creative financial engineering, but it can all get shot to hell if operations doesn't come through with a profit. Many of you believe, with some justification, that doctors, in many cases, just aren't on board.
HealthLeaders Media's annual Industry Survey backs up that claim, at least from the CFO's point of view. Download the finance section of that survey and see for yourself. From the importance CFOs place on physician inefficiency as one of the top drivers of healthcare cost escalation, you'd think that CFOs and docs are regularly screaming at each other across a boardroom conference table. I'm skeptical that's going on in many places, but there's clearly a disconnect and a level of enmity between the groups.
All this happens as weaker revenues, slower growth in inpatient volumes, tight labor markets, and rising capital and operating costs combine with weak investment markets and the recession to accelerate the pressure on hospitals, according to Standard & Poor's, which has issued multiple reports lately detailing the storm hospitals are facing. Emerging challenges such as rising pension costs and state budget stress, with the related impact on Medicaid rates and eligibility, will make it even harder for the sector to stay healthy, according to S&P's latest report.
In the medical staff model that so many hospitals are saddled with these days, in which physicians in private practice have little if any incentive to align their actions with the financial health of the organization, that kind of attitude is not surprising. At their most elemental levels, physicians and those manning the finance suite can operate at cross purposes. Physicians want what they think is best for their patients—even when the perfect is the direct enemy of the good. For example, using a preferred brand of medical device for which the hospital gets no volume discount, even when a similar item would be just as good.
Looking out for patients' best interests is an admirable trait and, as a future patient, I wouldn't have it any other way. Finance types want great patient care, but they want it at a bargain. Somewhere between these two points of view, there has to be a happy medium for the organization to thrive.
Hospitals have made great strides in aligning strategies between physicians and the finance suite. There are a lot of great ideas out there, and in many cases, they're simple in concept. Making physicians—through "ist" programs—employees of the hospital, has decreased stress between financial types and physicians. Hospitalists, intensivists, and laborist programs, among others, have helped physicians align the hospital's financial goals with excellent patient care. Recognizing the value in these programs, hospitals have turned toward making physicians their direct employees in many cases where it's practical. New physicians these days seem to prefer that option anyway.
Even physicians who aren't interested in being employed are being brought into the financial picture early and often. For example, incorporating docs on committees that decide standard-of-care questions to help align the hospital's bargaining power with suppliers and other vendors is the very least hospitals should be doing at this point in time.
As with all things adversarial, fostering communication between warring factions goes a long way toward aligning interests where that alignment is possible. Using these and other creative solutions, I'm convinced that next year we'll see a decline in the share of finance folks who see physicians as the problem. As many of their high-performing brethren have already discovered, hospitals that survive this recession will utilize physicians as the solution to their cost conundrum.
Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
Medical-related capital spending projects are being put on hold throughout North Texas and the rest of the nation, according to local hospital builders and the American Hospital Association. Nearly half of 639 hospitals nationwide that were surveyed between late December and Jan. 6 have postponed projects that were to begin within the next six months, according to the AHA. And many have stopped projects that were in progress. Hospitals mostly rely on borrowed money, philanthropy and reserves to fund capital projects, but an increasing number of hospitals are finding it difficult to get money from these sources, the AHA said.
Richard W. Schwartz, MD, MBA, professor of surgery at the University of Kentucky College of Medicine, analyzes results from the HealthLeaders Media Physician Leaders Survey. +
It's been six years since health insurers started offering health reimbursement arrangements, but are consumer-directed plans merely a way for employers and health plans to shift more costs onto members? +
Leaders in the healthcare quality arena are a positive bunch when it comes to their assessments of their organizations. Such optimism, however, can demonstrate a gap in perception between patients and the people charged with improving the quality of care provided to those patients. +
Seventy percent of CEOs are concerned that reimbursement cuts will have a strongly negative impact on their organizations, according to the HealthLeaders Media Industry Survey 2009. So it's not surprising that finding a reimbursement solution was the top wish among CEOs to fix the healthcare system (18%).
But CEOs can't sit idly by hoping their wish will come true and the government will bail them out. Odds are it won't happen. Healthcare organizations have two options in today's environment, says Bill Ott, senior consultant with Numerof & Associates, Inc. in St. Louis, MO. "You accept your top revenue line and look at cutting costs, or you say, 'How do I grow that top revenue line?'"
According to the survey, 78% of CEOs plan to fuel financial growth over the next five years by expanding outpatient services, 61% plan to start or increase promising business lines or facilities, and 42% plan to launch a strategic marketing campaign to grow market share. Sounds good. These strategies are consistent with the notion that the days of big box healthcare are numbered. Consumers want to have care that is closer to home and more convenient. Who doesn't want to avoid going to the hospital if at all possible? I do. I've even been known to put off going to a primary care doc.
But what exactly do CEOs mean by promising new business lines and strategic market share? Is it investing more in their most profitable services like cardiac and orthopedics, or ensuring that advertising reflects their strategic priorities better? Cardiology and orthopedics were viewed as the service lines with the most revenue growth potential in the next three years by 23% and 16% of CEOs, respectively. This is in line with what senior leaders across the industry sectors—finance, technology, quality, physicians, marketing, and health plans—said, as well.
Focusing on the business lines that bring in the most revenue isn't exactly what Ott thinks about when he considers strategic marketing and growth strategies, however. He says CEOs should take a step back and redefine the healthcare business they are in—fixing people when they are sick. "There is a lot more competition than just hospitals out there," he says. "What hospitals are experiencing is this leeching of business that traditionally used to be theirs that goes out to alternative care providers now. If they are really serious about growth strategies, they are going to have to embark on strategic marketing like they have never done before."
For example, some businesses cater to people who are trying to manage their diet for health reasons and sell them a week’s worth of diet-specific meals, week after week. Hospitals have dieticians on staff and provide this service for inpatients, so why should someone else have that business? asks Ott. "No one says you can't do business unless people come to the hospital," he says. "They have to break out of this mindset that a hospital is defined as this big building with a lot of rooms that people come and have surgeries performed in."
Granted, some hospitals have jumped into the retail game, and I can even purchase Tylenol or a knee brace at my pediatrician's office for a lower price than the local Walgreens. But are healthcare providers—hospitals in particular—really focused on taking back some of this business? Think how much money—not reimbursed by insurance companies—goes to treating back pain or obesity. Shouldn't hospitals be more focused on carving out business lines where it doesn't matter what the reimbursement rate is?
As it stands, CEOs may not view retail clinics as a positive trend, but many don't view them as a real threat, either. Sixty-nine percent viewed their impact on their organization as neutral in the next three years, with 18% viewing them as having a slightly negative impact and 5% viewing them as having a strongly negative impact. So do CEOs just have their heads stuck in the sand?
Carrie Vaughan is leadership editor with HealthLeaders magazine. She can be reached at cvaughan@healthleadersmedia.com.
Note: You can sign up to receive HealthLeaders Media Corner Office, a free weekly e-newsletter that reports on key management trends and strategies that affect healthcare CEOs and senior leaders.
Some are finding it necessary to change their strategic focus and think with more innovation in order to remain competitive in today's healthcare market. Abiomed, a technology company that created the first artificial heart, is one such organization, which had found itself in a crowded market with similarly-focused firms.
A report from the Internal Revenue Service found that a small minority of nonprofit hospitals provide the bulk of uncompensated care for the poor. The IRS also found that the top executives at a group of 20 hospitals it examined more closely earned an average of $1.4 million a year. At least one of the 20 hospitals was compensating its top executive excessively, the agency said. The findings rekindle concerns about the tax-exempt industry at a time when government aid to corporations is drawing fire. The IRS declined to name any of the hospitals in the report.
When a stray pit bull attacked 12-year-old Dontae Adams last August, tearing a chunk of the boy's upper lip from his face, his mother took him to the University of Chicago Medical Center. Instead of rushing Dontae into surgery, however, the hospital's staff began pressing her about insurance, Angela Adams said. Adams said she demanded that the medical staff admit Dontae but that they refused. The emergency room staff gave Dontae a tetanus shot, a dose of morphine, prescriptions for antibiotics and Tylenol 3, and told Adams to "follow up with Cook County" in one week, according to medical center documents.
HCA Inc. is seeking to raise $300 million in a bond offering to repay bank debt and to amend terms of some of its loans. The sale would be HCA's first since its November 2006 buyout, when the Nashville-based company raised $5.7 billion in what was then the biggest high-yield offering in 17 years. Ed Fishbough, an HCA spokesman, said that the company was pleased with response to the offering. "This is a step we're taking as part of a prudent and conservative plan to pay down some of our debt that begins maturing in three-and-a-half years," he said.
