04/17/09 Myths About Patient Receivables
Revenue from patients is the fastest growing revenue class in health care. But because patient receivables have traditionally been a relatively insignificant portion of a hospital's cash flow, they are subject to many misconceptions and misunderstandings.
In the March 2009 issue of HFMA's Revenue Cycle Strategist newsletter, authors Steve Levin, president of Connance, Inc., and David Franklin, Connance's chief development officer, draw upon their organization's research to set the record straight on some of the most common patient receivable myths. This week's HWYTK summarizes these myths and the realities.
Beginning this week, and continuing through June, HFMA also invites HWYTK readers to take part in an ongoing poll of questions relating to revenue cycle issues. The poll, sponsored by Craneware, will ask a new question each week on such topics as chargemaster management, pricing, and revenue compliance. Visit the polling site each week to submit your answer.
Myth 1: Patients Who Do Not Have Credit Scores Do Not Pay
The facts tell a different story. Research involving more than 100 U.S. hospitals indicates that households lacking full credit files represented 30 percent to 40 percent of receivables and 25 percent to 30 percent of cash collections. And households with payment responsibility after insurance and without full credit bureau files pay only 14 percent less than those with a full credit file.
Households without a full credit file are a complex mix. They include students and recent graduates, recently divorced or widowed households, recent immigrants or foreign workers on visas, and those who have never applied for credit. But many of these households regularly pay bills from landlords, utility companies, cell phone providers--and hospitals.
Although households that lack full credit files pay less, the total amount of cash they pay is meaningful. The cash amount paid probably understates the true potential because many business offices are set up to less vigorously pursue collections among this population.
Myth 2: Less Affluent Patients Are the Root of Bad Debt
Not so, according to research on patient receivables at five different hospital systems across the United States. Middle- and upper-income patients are equally guilty of not paying their hospital bills.
For households with income over $70,000 that have payment responsibility after insurance, collection rates range from 33 percent to 50 percent. Despite income differences, the collection rate for middle-income households ($35,000 to $70,000) is not significantly lower. And among uninsured patients, upper-income households pay only 7 percent to 8 percent of their balances.
Household income is more of a threshold variable in explaining payment behavior. Below a certain level, income does correlate to payment. But above that threshold, additional income does not predict increased collection.
Skyrocketing unemployment is hitting households at all income levels and is increasing amounts of charity care and bad debt write-offs for hospitals. "Improving Self-Pay Conversion Rates for Medicaid, SCHIP and Other Social Safety Net Programs," an April 9 HFMA audio webcast, explores social safety net options and how hospitals can optimize enrollment processes to align with three distinct phases of the "eligibility cycle." Learn more and register today.
Myth 3: People Either Pay in Full or Pay Nothing
In fact, partial payments grow quickly as the balance size of a bill increases. The collection experience for patient bills under $100 is as expected: People either pay or do not pay. But in the highest balance band, more people are paying partial amounts than are paying in full. And of total cash collections, the upper two balance bands represent almost 60 percent of all collections.
These data confirm that it is critical to identify early the minority of patients in the upper balance ranges that are likely to pay anything, whether in part or in full. Substantial business resources can be wasted in pursuing no-value accounts. But the revenue potential from partial payment of large-balance accounts makes these accounts a great place to test the discriminatory value of business office analytics and scoring systems.
The realities of patient receivables mean that business offices should focus on three principles when addressing self-pay collection efforts. First, embrace analytics. Some of the newest predictive models can accurately predict the true cash value of an account, the type of collection effort needed to maximize recovery, and the qualification of accounts for charity discounts. Second, use multiple work routines. A one-size-fits-all approach to collection activity leaves money on the table. And third, update policies and procedures. As patient bills get bigger, discounts and settlements are increasingly critical to overall performance.
For additional tips on keeping bad debt in check, see HFMA's educational report "Strategies for Reducing Bad Debt." |
