The Wall Street Journal recently reported that a Los Angeles area hospital filed for bankruptcy. This regional medical center failed for many reasons, but according to court documents, a key factor was the inability of even its insured patients to pay what they owed the hospital.

High-deductible health plans have flourished since the Affordable Care Act was signed into law in 2010. A study conducted by The New York Times and the Kaiser Family Foundation indicates that while the number of uninsured decreased by approximately 15 million from 2013 to the end of 2015, attempts to offset costs have involved requiring customers to pay more of their bills via higher deductibles and co-payments. The ACA has thereby made health insurance more accessible, but at the same time exposed patients and service providers to greater financial risk. Though insured, more families and individuals are faced with seemingly unaffordable bills. Though providing services, more hospitals and medical centers are finding it difficult to obtain payment.

For providers and customers alike, health care providers need to develop more innovative and sophisticated payment models, or adapt the models that have long been common in other industries.

Problems for the patients
As The New York Times and Kaiser surveys indicated, customers who opt for lower monthly premiums are often caught short when they access health services. More than a quarter of middle-class Americans find that they are liable for $1,000 or more before coverage sets in. When an estimated 60 percent of Americans have less than $1,000 in savings, unbudgeted medical expenses constitute a systemic risk. A rising number of health consumers struggle to meet their payments. They simply cannot, or believe they cannot, pay their bills. All this has severe implications for medical service revenues. Frustration and fear around high deductibles can diminish patient satisfaction and reduce volume, or even prevent necessary utilization. Moreover, if patients utilize health care, but default on their bills in large enough numbers, more hospitals will end up like that bankrupted Los Angeles-area hospital.

Problems for the providers
Health care leaders are well aware of the cash flow challenges caused by self-pay. Gary Breuer, vice president of revenue cycle at AMITA Health, notes, “at a simplistic level our patient liability amounts are growing in the 6 to 7 percent range every year. So, in 2013, I was trying to collect $47 million. In 2014, I was trying to collect $50 million. I need to run my 2015 numbers, but I think it’s telling the same story.” Self-pay shortcomings exist across the economic spectrum, from underemployed and lower-income sectors, to upper-middle-class budgets. Given that more employers will opt for high-deductible plans, alongside similar patterns in the ACA exchange programs, bad debt will continue to rise unless providers devise better ways to collect. Policymakers are hard-pressed to produce remedies beyond subsidies, which are politically unpopular anyway. It falls to the providers themselves to implement new financial planning tools for managing this crisis.

As Breuer says of his peers across the industry, “Everybody is acutely aware of the self-pay receivable collection issues, and is actively looking for strategies to try and improve it. One answer, we’ve concluded, is that we have to make it far easier for our patients to implement a payment plan.”

Provider-driven solutions
First and foremost, health care providers must acknowledge that they have effectively become finance companies. While other industries have integrated financial planning and payment instruments with their core business, the medical market has resisted this necessary evolution. Perhaps for cultural or moral reasons, where care is seen as a right rather than a commodity, neither patients nor providers have reconciled finances and medicine. The right to care is meaningless, however, without functioning hospitals and clinics to provide it.

Hospital billing systems have traditionally aimed to collect around 10 percent of their annual revenue directly from patients. But because of the shift toward self-pay patterns, the charges providers must bill and collect have risen to as much as 30 percent of annual revenue. According to Breuer, many hospitals are successfully collecting on only half of that amount. To survive in this new context, hospitals and medical centers need to take a page from the automobile and financial services industries and deploy better point-of-service and bill-pay investments that promote the patients’ use of digital self-servicing mechanisms.

The first and most traditional move many hospitals have made is toward outsourcing: many are relying more heavily on third-party collection agencies to track down the dollars. This option greatly increases the cost to collect, however, and is not a sustainable answer to the problem. Better point-of-service collection is the way to collect self-pay more effectively without jeopardizing the relationship with patients. To date, the success of point-of-service execution varies widely. The industry standard can and should be raised.

Success means recognizing that direct payment is the model for meeting this margin and that the culture of communicating this to patients has to be changed. People do tend to think of health care service as a right, so they can become frustrated when faced with confusing arrays of figures, and they often resist paying their balance until their insurance has adjusted their claim. Some might be unable or unwilling to comply.

But there is a significant percentage who are willing to meet their costs if they are made clear and manageable. Estimates indicate that up to 40 percent of present “no-pays” want to pay, but either do not understand their charges, do not have the cash on hand or face other financial barriers. It is this good-faith portion of the market that providers need to concentrate on.

Need for technology in advance
Above all, it must be made far easier for patients to establish and manage payment plans. This means making the patient obligation clear, setting up financing mechanisms to collect payments manageably and making these options available via easily comprehended self-service functions. Hospitals are already using technology to assess patients’ ability to pay up front and determine arrangements that patients and hospitals can afford. What needs to be added is automation of the process so that patients can self-activate pre-authorized payment options.

If it were possible, of course, individual counseling with competent financial advisors working out plans with every patient would optimize customer satisfaction. But even where direct personal consultation isn’t viable, hospitals do have the data, analytics and technology that can identify patient financial need and craft appropriate payment solutions. Under Breuer’s guidance, AMITA Health has decided to integrate OnPlan Health’s solution into their existing billing system to try to capture payments from that “good faith 40 percent.” According to John Talaga, OnPlan Health’s CEO, the solution’s 65 percent self-service activation rate demonstrates that patients are often willing to pay when it’s on their terms.

“The two keys are to make approved payment arrangements more transparent, and to make it easy to activate and manage through that self-service tool — online, mobile or paper — so consumers don’t have to call someone if that makes them uncomfortable,” he said. OnPlan has innovated broader self-pay options by drawing on historical and financial data to determine in advance a patent’s ability to pay. Then, for those likely to need help, a monthly payment arrangement — or set of alternatives — can be presented. This can be activated conveniently and then monitored and managed in order to avoid default. Once in place, any new service provided can be automatically incorporated into the established payment plan.

Consumer-centric solutions like this can be incorporated into existing operations without disruption of what was working, but can automate and control the payment plan negotiation, redirect staff time to patient care or customer service and cast a wider net in terms of who receives payment plan offers.
The primary goal of these solutions is to engage patients differently and increase cash collection from patients while reducing fees paid to collection companies. In addition, these solutions help acculturate patients to the new realities of high-deductible health care. Eventually, pre-service plan options will be able to provide clear estimates of costs for upcoming procedures, allowing patients to sign up for plans in advance, thereby saving them the anxiety caused by out-of-pocket surprises.

When deductibles ran $100 to $500, insured Americans were generally comfortable with medical-related visits and procedures. In the new health care economy, however, fear is taking its toll as deductibles extend to $1,000 and even $5,000 — beyond the liquid assets of average personal and family budgets at most income levels. Health care providers need to adjust to this new reality by providing the automated payment plans, full online billing and advanced payment processing that consumers have come to expect from other service-providing industries.

About the author: David Dennis is a freelance journalist who specializes in health care industry financial and regulatory issues.