Patients are struggling to pay their portion of healthcare costs, discouraging care and placing a crippling bad debt burden on healthcare providers. These financial stressors call for new approaches to better engage with empowered patient-consumers on their terms.
A relatively new and very serious challenge has emerged for health systems, hospitals and other providers – patient bad debt. According to analysis by Definitive Healthcare, “the vast majority of facilities expect to recover less than one fifth of what patients owe.” The report goes on to cite the results of Sage Growth Partners’ survey of 100 hospital executives, in which 36 percent of provider participants reported facing more than $10 million in bad debt, and 6 percent reporting bad debt of over $50 million.
Much of this severe revenue shortfall can be attributed to hospitals’ outdated billing and collection systems. Systems that fail to respond to the fact that patients behave very differently than the institutional payers these systems were designed for. According to an American Hospital Association fact sheet from earlier this year, hospitals alone have delivered more than $620 billion in uncompensated care since 2000.
The facts are clear. Patient copays and balances after insurance are difficult and expensive to collect. Even more so are un- and under-insured patient obligations which often force patients into bankruptcy. And as an increasingly important source of provider revenue, patient payers are exerting profound pressure on business-as-usual. The high cost of collecting from patients threatens the very viability of some providers and places others at a severe competitive disadvantage in an industry that’s attracting disruptive new entrants.
Traditionally, hospitals and health systems have pursued similar strategic agendas consisting of two essential components: reducing costs and improving topline revenue - usually through horizontal mergers or acquisitions to grow market share and improve efficiencies. In an industry where most revenue originated with institutional payers, this approach to strategic planning was a reliable method to successfully manage operating margins and keep up with the ever-increasing costs of delivering care.
A New Economic Reality for Healthcare
Most of us, particularly baby boomers and some Gen X and Gen Yers, remember when employer-sponsored health plans paid for all or most of our healthcare. With low premiums, low deductibles and affordable copays, we didn’t think much about how much our healthcare cost.
Back then, a provider’s patient and revenue volume was effectively driven by insurance companies, whose financial incentives made it easy for members to choose the insurance company’s in-network provider. The provider, in turn, was expected to meet the insurer’s requirements for reimbursement. Hospitals got paid. Insurers made enough to pay claims and satisfy shareholders, and patients got the care they needed without severe personal financial consequences.
Things started changing in the late 1990s. The costs to deliver care began to outpace employer and employee premiums, adversely impacting insurance companies’ ability to offer plans with low premiums and low costs. Prices for employers and their employees soared. Then, in 2004, the industry introduced High Deductible Health Plans, with lower, more affordable premiums but much higher out-of-pocket costs for covered patients.
Designed to reduce costs by encouraging more cost-effective behavior among patients, these plans have led to the emergence of an entirely new class of patients-as-consumers and placed unprecedented financial pressure on providers.
In this recent Advisory Board report analyzing provider financial difficulties, author Rob Lazerow points out that, “In contrast to previous periods of margin pressure, structural shifts within the industry—rather than temporary declines in the overall economy—are driving today's revenue challenges. As a result, hospitals and health systems are seeking new strategies for capturing revenue growth.” This “structural shift” is causing many, if not most providers to expand their menu of strategic options to include:
- Cost Management/Reduction – One of the original strategic imperatives, cost reduction might be driven by M & A activity, technology or alternative methods of treatment such as outpatient services
- Clinical Outcomes and Risk Management – A key consideration driven by industry-wide adoption of Electronic Medical Records (EMR) systems
- Payer Networks and Reimbursement Leverage – The ongoing evolution of the influences and relationships among patients, employers and insurers (payers)
- Growing Competitive Landscape – Threats from new, disruptive and vertically integrated providers
- Shrinking Doctor and Nurse Labor Pool – The growing influence of physicians and other caregivers and the increasing unionization of the healthcare industry increasing wages
- Population Health and Patient Demographics - Disease states, millennial behavioral patterns, telemedicine and other innovations
- Survival – Insufficient revenue, systemic cost and regulatory burdens
- Patient Financial Engagement – Embracing consumerism in Healthcare
The overriding variable that affects all these strategic levers is patient financial engagement. Driven by high costs and a generational indifference to the primary-care model, patients have become one of the most important determinants in any strategic endeavor. Attracting, delighting, retaining – and collecting from patients is now one of healthcare’s most important strategic objectives.
The industry is just now awakening to this new reality. In another Advisory Board report detailing their 2019 survey of 90 C-Suite Healthcare Executives, the rapid evolution of executive sentiment is reflected by the observation that the “Top priority has shifted from cost control to revenue growth.”, while cost containment has slipped dramatically. In other words, hospital execs are thinking much less about saving their way to prosperity in favor of growing their way, largely through innovation.
Understanding the outsized impact patients now exert in healthcare, we examined how a patient’s financial experience is affected by each of the strategic levers listed above.
Cost Management/Reduction – Healthcare finance is so complicated it commands a specialized discipline called revenue cycle management, or RCM. RCM was developed over the years when institutional payers dominated as the principal source of revenue. As mentioned, collecting from patients is a different animal entirely. Here, patients are looking for more consumer-friendly experiences. Meeting their expectations while cutting costs calls for the adoption of technology that automates key functions and offers patients the kind of online self-service they enjoy with companies like Amazon or Apple.
Clinical Outcomes and Risk Management – As with any consumer “purchase”, the product itself has the highest value to the buyer. Here, the industry-wide adoption of Electronic Medical Record (EMR) systems has dramatically improved providers’ ability to track and manage patients’ clinical experiences. Systems from companies like Epic, Cerner, Allscripts and others can be expanded and enhanced with the addition of an integrated Patient Financial Engagement platform like Loyale Healthcare’s Patient Financial Manager so the clinical and financial dimensions of care can be managed holistically, in real time at reduced cost while inviting the patient to participate – leading to better payment behavior.
Payer networks and Reimbursement Leverage - As the patient’s influence on healthcare revenue has grown, so has their influence on the institutional payers who used to be a primary revenue source. Insurers are responding to patient and employer demands for more affordable care, which is increasingly shifting to outpatient facilities and other less expensive care delivery settings. This underscores the importance of delivering holistic care experiences that include the clinical and financial dimensions of care to meet the expectations of today’s empowered healthcare consumer
Growing Competitive Landscape – Haven Healthcare, the joint venture of corporate giants Amazon, Berkshire Hathaway and JP Morgan Chase, is just one example of disruptive new entrants in the healthcare industry. Motivated by the high costs and inherent inefficiencies in healthcare, these consumer-centered companies pose a serious threat to the industry’s status quo. Already, millennials have demonstrated their willingness to abandon the traditional Primary Care Provider model for more affordable and convenient care. Traditional providers have the opportunity to counter this competitive threat by leveraging existing resources to deliver experiences that unify their superior clinical expertise with the other dimensions of care that patients care about. Other threats appear in new, vertically integrated companies like CVS Health, the product of the merger between CVS and Aetna.
Shrinking Doctor and Nurse Labor Pool – Even here, in what would appear to be a completely unrelated aspect of care delivery, more consumer-centered experiences matter. Simply stated, consumer-responsive providers will attract more volume and generate better financial performance. Providers who attract more patients and more patient revenue will have the means to more effectively recruit and retain, while physicians, nurses and other caregivers will be attracted to the financial and reputational benefits of affiliating with a winning provider.
Population Health and Changing Patient Demographics – As boomers are ageing, millennials are expressing more interest in alternative treatment settings to reduce cost. At the same time, providers are pursuing community wellness initiatives designed to get out in front of the health problems afflicting the populations they serve. It’s a difficult balancing act, but much easier to achieve when care is perceived to be more accessible because it’s more affordable. In a survey conducted by Change Healthcare last year, 64 percent of respondents said they were neglecting care because of cost. With technology like Loyale’s, providers can change patient perceptions to encourage care, early diagnosis and more effective treatment.
Survival – For too many hospitals, particularly those in rural settings or that lack the operating scale of a larger network, these are tough times. These institutions don’t have the luxury of pursuing long-range strategies like holistic patient engagement. But they can drive dramatic change to their financial performance with automated solutions that support patient self-service and encourage more favorable patient payment behavior. Loyale’s Affordability Workbench was developed especially for providers with these kinds of urgent needs.
Patient Financial Engagement – As with all the strategic levers detailed above, merging a patient’s financial experience with all the other dimensions of care is essential to maintaining a competitive posture in a rapidly evolving industry.
Optimally, patient financial engagement entails a robust end-to-end experience that supports reliable pre-treatment price transparency and payment options that bring care within reach. As patients move through their care journeys, patient financial engagement will enable patients to partner with providers to track and manage their entire experience, including changes that may occur along the way. When treatment is complete, the same system continues to support the patient with timely, personal messages and collection workflows that recognize the unique requirements of each patient.
For us at Loyale Healthcare, the high cost of collecting from patients is symptomatic of a much larger issue. Namely, the inadequacy of today’s revenue cycle systems to deliver patient-friendly experiences. We developed Loyale Patient Financial Manager and the Affordability Portal to fix that. Working with some of the largest provider networks in the country, we’re demonstrating that price transparency, payment plan options, an exceptional self-service experience and personalized patient communications are game changers, especially when delivered seamlessly from the beginning of the care experience to the very end. Better financial engagement leads to lower costs, better income and more durable relationships. That sounds to us like just what the doctor ordered.