Last March, USA Today ran a story with a headline screaming, “Why more than half of hospital bills don’t get paid.” Now that is a headline sure to grab the attention of every hospital CEO and CFO.
I lack an MBA, but that is not a good formula for any business to financially succeed.
The year 2016 seemed to show a growing number of hospitals filing for bankruptcy or shutting their doors. The year 2017 has been promised to bring steep premium and deductible increases for individuals and families, whether the Affordable Care Act is dismantled or reconstructed by Congress.
What sounds good in theory does not always pan out for the general public. This underreported, deductible-growth story in 2016 apparently was not sexy enough for the nightly news. However, the fact that working citizens having a growing financial liability for their medical care did factor into many stories that played out in 2016.
We know that health plans are paying a smaller percentage of the contracted rate or the total bill when their insured seeks treatment at a hospital, urgent care center or physician. The rising dollar responsibilities for individuals and families began placing financial hardships not only on monthly budgets for the insured, but also for the hospitals that were no longer seeing the full contracted rates or reimbursements that had been received in the past.
Healthcare comes with its own glossary of terms. On the hospital financial side, perhaps none is bigger than Revenue Cycle Management. Prior to the 21st century, many hospitals referred to this area as Patient Financial Services, but the hospital C-suites preferred to jazz the term up a bit. Walk into any Revenue Cycle Management meeting in a provider business office and you’ll notice buzzwords like revenue diagnostic codes, per diem, case rate and reimbursement analysis ping about the room like a SuperBall.
According to The Advisory Board website, a hospital traditionally would receive 90 percent of the expected reimbursement, whether a contracted rate or total billed charges, to be paid by the patient’s health insurance company. With higher deductible and co-pays now being deployed by health plans, that 2017 number hovers around 70 percent for the health insurance with 30 percent of the financial liability on the patient.
Hospital CFOs are coming up with new terms to add to their 21st century glossary, like “Doubtful Accounts” and “Uncollectable Bills.” Many CEOs and CFOs realize trying to recover these growing dollars is about as easy as getting water from a stone.
To put this in a simple business term, imagine one business entity being delinquent on underpayment of bills. That problem is easy to solve. Pursue that one entity with a business appeal and legal action, if necessary. Now, with the cost-shifting from entity to patient, imagine the Excedrin-sized headache when the problem spreads to thousands of patients, many of whom simply do not have the capital to pay the hospital.
The hospital business office, with stress to shrink their overhead, is simply not capable of handling this growing task. The old options of just writing these bills off to charity or farming out to collection agencies are not sustainable if the hospital wishes to keep its doors open. In financially poor areas, many private hospitals shutter their emergency room doors in a last-ditch effort to try and control the patients walking into their business.
There is little question the ACA played a major role in the acceleration of the cost-shifting from health plan to patient. Employers mandated by Uncle Sam to provide coverage sought out affordable plans to stay competitive in their business field. Expensive health plans would mean shrinking the slim profit-margin or passing the higher cost onto the consumer or client, which in the highly competitive market is not a desired option in Capitalism 101.
Larry Van Horn, the executive director of health affairs at Vanderbilt University’s graduate school, said in the USA Today article that roughly 25 percent of the U.S. population has a $2,000 deductible. Sadly, I suspect a large percentage of Americans do not even comprehend the term “deductible” until it kicks in – and them – where it counts, their bank account. What that means is the health plan will not pay a penny until the patient and/or family has paid the deductible amount to medical providers. Once the patient or family has ponied up $2,000 to pay bills, then, and only then, does the health plan begin cutting checks to the doctors and hospitals.
This is a problem when the majority of the country has citizens with less than $1,000 in savings accounts, according to the website gobankingrates.com. While our country is great at teaching school kids reading, writing and arithmetic, perhaps there needs to be a stronger push in educating our high school students about financial planning as well as the basics of how healthcare works in the real world. Clearly, the old model is a recipe for disaster as far too many citizens have no idea how financing healthcare in the United States works.
Sure, there is the prospect that Silicon Valley technology will one day help the everyday healthcare consumer. We are already beginning to see smartphone apps that provide a clearer understanding of what rates per service will cost them as well as shopping options, similar to how we may now pick a hotel room digitally with just a few presses of a button. But the technology requires a two-way street of providers buying in along with health plans and consumers.