In past blog posts we looked trends in patient financial responsibility for patients covered under employee-sponsored insurance plans. One post examined increasing out-of-pocket costs and the other looked at increasing premiums and deductibles for patients covered under employer-sponsored insurance plans. While the trends of the cited Kaiser Family Foundation survey imply that overall patient financial responsibility is increasing, we could only speculate on these trends’ effects on provider financial health.
Now, a new benchmarking study from Crowe Horwath claims that increasing patient responsibility after insurance negatively affects provider net revenue. In other words, when the payer mix shifts towards the patient, provider revenue suffers. The creators of the report used a metric called Self Pay After Insurance (SPAI) to indicate the amount a patient owes after commercial insurance settles a claim. This is the same as out-of-pocket-costs except that it only measures for patients who are covered by commercial payers.
With 835 remittance data from 199 healthcare facilities, the study benchmarked the SPAI numbers against facility collection rates. They found that higher patient responsibility as a percent of the total charge resulted in lower net revenue for providers from Q3 2015- Q3 2016. This suggests providers have more success collecting from commercial payers than patients. This is significant because employer-sponsored coverage is moving towards models that result in even higher out-of-pocket costs for patients.
Patients and Payers: Two Separate Financial Engagement Strategies
Resolving a balance with a patient is much different than settling a claim with a payer. Generally speaking, the number of commercial payers contracted with a particular healthcare provider varies by size and location but is often a small number of payers that cover the majority of the local population. In any case, the number of payers will always be less than the number of patients and the remittance process is highly automated; ICD-10-compatible settlement engines do most of the heavy lifting while the business office manages the exceptions.
Patients, however, are unfamiliar with most insurance-related terminology, and are less equipped to spot innocuous billing errors or understand why a claim was rejected. For every A/R dollar that shifts from the payer to the patient, a provider will likely need to accommodate more patient questions and confusion which costs valuable FTE time and increases A/R days. If you think of each individual patient as an individual payer, then you have thousands of individual payment streams coming from multiple sources (online, POS, mailed checks, etc) which require money and resources to process.
Perhaps the difference between the two categories with the most financial impact on providers is that patients sometimes default on their bills or only partially pay them. While defaulting on a medical bill may impact that patient’s credit score, the practical costs for a patient are far less than the liabilities of an insurance company refusing to pay a bill they owe. When the proportion of revenue coming from patients was low, this was not a huge problem; now, the payer mix trends along with collections data indicate that it is quickly becoming a big problem.
A Picture of Healthcare Revenue Cycle in 2016
The Kaiser survey and the Crowe Horwath report illustrate what many providers have noticed for years: that the shifting payer mix is putting a greater financial burden on patients and providers. Providers are having to spend more resources to collect and manage patient payments that in the past would have come from commercial payers. We can break down this trend into 3 sequential parts:
- Increase in High Deductible Health Plans leads to Increase in Out-of-Pocket Costs (Patient A/R)
As the Kaiser survey showed, more employees are being offered (and choosing) high deductible health plans, which result in higher out of pocket costs for patients.
2. Higher Out-of-pocket Costs Shift the Payer Mix From Commercial Payers to Patients
When patients pay a greater percentage of their bill as a result of being covered by a HDHP, a provider’s payer mix shifts from the commercial payer to the patient. At scale, this increases patient A/R and decreases payer A/R.
3. Higher Proportion of Patient A/R Results in Lower Provider Net Revenue
The Crowe Horwath report shows that the cost to collect patient A/R is higher than the cost to collect payer A/R, therefore provider net revenue drops as the percentage of patient A/R as total revenue increases. This is because the costs of managing, collecting, and processing patient payments are higher and a percentage of patients default on their bills or only pay a partial amount.
What About Uninsured and Self Pay Patients?
It is important to note that both of these resources look only at patients covered by commercial insurance. They do not take into account overall trends in patient coverage, including the increase in the number of covered patients as a result of the Affordable Care Act (ACA). While newly covered patients may save providers money by shifting A/R dollars back to the commercial payers, they may also cost providers money by generating high levels of patient A/R with ACA-sponsored high deductible health plans.
How Should Providers Address These Challenges in 2017?
As US patients grapple with higher average premiums and deductibles, providers face the challenge of managing a greater amount of patient A/R as a percentage of total revenue. To address this challenge, providers should have two strategies: one for increasing patient payments, and one for decreasing the costs of processing these payments. The former includes patient-friendly billing, financing options, payment plans, and flexible payment options. The latter includes automating back-office processes, vendor consolidation, and optimization of FTE time.
Healthcare providers spend money and human resources on recovering revenue owed by commercial payers and patients. For two identical charges of the same amount at the same provider, that provider’s final revenue will differ based on what percentage of the charge is owed by the commercial payer versus what percentage is owed by the patient. The Crowe Horwath report indicates that the provider will recover less revenue for every percent that shifts from the commercial payer to the patient.