Optimizing for Patient Payments:

When Health Plans accounted for over 95% of net patient revenue, it made sense for Health Systems to focus on minimizing cost-to-collect. But as patient out-of-pocket expenses continue to rise, leading Health Systems will optimize for patient payments using different metrics. They will focus on improving net collections to maximize cash today while delivering a superior payment experience that increases patient satisfaction—driving additional visits and referral volume tomorrow.

A Changing Healthcare Landscape:

If the key to improving the patient responsibility portion of revenue cycle performance is minimizing cost-to-collect, why haven’t Health Systems stopped spending money on patient collections? The answer is obvious of course—because their patient payments would quickly amount to zero.

This begs the question: When it comes to improving patient payments, is cost-to-collect still the right metric for your organization? It was logical to focus on cost-to-collect when more than 95% of net patient revenue came from Health Plans. Payers are both able to pay and contractually obligated to do so.

This approach capitalized on the shared incentive of Health Systems and Health Plans to reduce administrative efforts to manage payments. Unfortunately, this payer-centric model is no longer the best fit, in light of growing patient out-of-pocket volumes.

For many of our clients, patient out-of-pocket has grown to 15% or more of net patient revenue. The majority of these balances exceed $1,000, testing the limits of affordability for many patients. In fact, 61% of Americans cannot afford a $1,000 unplanned bill without having to borrow money or sell off possessions. If your organization is laser focused on managing to cost, it’s not addressing the payment barriers for 60% of patients who receive a $1,000 bill. It’s time to find a better strategy.

Rather than trying to minimize cost-to-collect, a better strategy will measure net collection rate (total patient payments less cost-to-collect) and accommodate higher balances by empowering patients to pay over time.

A Better Strategy:

Patientco data reveals that as bill balances climb above $500, patients are more likely to make a partial payment than to pay in full. Most of these patients are willing to meet their financial responsibilities. They simply lack the means or payment options to do so. Flexible payment terms may impact your organization’s balance sheet with increased A/R Days or the need to offset financing fees, but they will also grow patient payments.

A tangible example: Offering a 24-month, zero-interest loan may cost your organization 20 cents on the dollar. But isn’t collecting 80% of the payment dollars preferable to zero or only a small partial payment?

Now, put yourself in the patient’s living room. When they open an offer with flexible terms and lower interest than most consumer credit cards, their healthcare instantly becomes more affordable. Furthermore, they don’t have to worry about getting calls from a collection agent or a hit to their credit score. After a superior patient financial experience, that patient is much more likely to return for future care. They are also more likely to recommend your Health System to family and friends.

While net collection rate is a better success metric than cost-to-collect, it’s only part of the equation. By optimizing net collections and patient satisfaction, your organization will capture more payment dollars and grow patient loyalty. This increase in patient loyalty is essential because it generates more referrals and return visits.

The Bottom Line:

Given these insights, what should your organization do today?

1. Measure the right thing.

Don’t assume your patient payments or net collections are fixed. Likewise, don’t always reach for the cost-reduction lever. Instead, try using net collection and patient satisfaction rates to bring more value to your organization.

2. Improve patient financial access.

Make it easier for patients to pay by expanding access to convenient payment methods, flexible payment options, and tailored financing solutions.

3. Revisit the role of collection agencies.

Healthcare is the #1 source of debt-collection calls in the U.S. The true cost of poor consumer experience is realized in the future.

Organizations focused on growing patient satisfaction through the financial experience will closely examine their use of collection agencies. Your organization might have a cost-to-collect of $0, but that doesn’t matter if you’re not generating enough cash or creating a positive patient experience.

By optimizing both net collections and patient satisfaction, your Health System can put more dollars in the bank today and fortify patient loyalty tomorrow.

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