Innovators Wanted: Mounting Patient Financial Responsibility Driving Provider Demand for Positive Disruption and Change (Part 1 in a 3 Part Series)

DEC 17

It’s no secret that the rising tide of patient financial responsibility stemming from a relentless cost shift to the consumer is putting a tremendous burden on hospitals and health systems.  According to the National Business Group on Health, approximately 30% of large employers now offer only high-deductible plans – up from 22% in 2014.  Similarly, Bronze plans offered on the public exchanges in 2015 had an average deductible of $5,181 for individuals, according to HealthPocket and cited in a November article by Health Affairs.  As a result of these market dynamics, there has been a 193% increase in consumer payments due to providers over the past four years.  Patients, as a consequence, have become the third largest payer for hospitals behind Medicare and Medicaid, which has added to the financial burden providers already face relative to low operating margins and historically high levels of uncompensated care and bad debt.

The problem is further exacerbated by the fact that provider organizations are increasingly forced to collect on thousands upon thousands of small balance patient accounts comprised of deductibles, co-payments, and balances due after insurance.  The sheer volume that hospitals must manage can be extremely labor intensive without the proper technology and processes in place.  Even in instances where hospitals have an established system with the proper underlying infrastructure, traditional approaches comprised of mailing statements and calling patients to follow up on bills is largely ineffective.  In fact, it is estimated that providers collect only 11% of patient balances larger than $500.

This dynamic stems from the fact that medical expenses are often a low priority for consumers, following mortgage, car, credit card, and even cell phone payments.  The collective mentality consumers share regarding their medical expenses is fairly well-engrained.  Today’s shifting landscape, however, is creating an ever-present reminder that personal financial ruin due to medical debt and bankruptcy is an increasing reality for patients.  That dynamic, coupled with the fact that hospitals must better manage patient receivables to maintain their financial stability, is creating a hotbed of innovation within the broader revenue cycle management (RCM) continuum for consumer-facing capabilities that can simultaneously drive cash flow for the provider while consistently delivering high levels of patient satisfaction throughout the billing and collections process.

Over the next several weeks we will be posting a three part series that explores areas of innovation occurring across the patient pay landscape – encompassing everything from creative patient financing solutions, personalized engagement, and concierge-style customer service and support to patient-friendly payment portals and the flexible, industrial-strength processing infrastructure required to accept consumer payments across a range of mediums (e.g., credit card, debit, ACH, Check 21, mobile-enabled payments, etc.).  Included below is our first installment to this blog series:

Part 1 of a 3 Part Series: Innovative Approaches to Patient Financial Engagement Leveraging Affordable Financing Alternatives

In its perennial report highlighting the top healthcare industry issues of year, PwC predicts that new, innovative consumer-oriented options to financing the cost of medical care and prescriptions will be among the most important forces guiding the industry in 2016.  The report goes on to note that consumers, more than ever, are eager to adopt solutions and tools that more effectively support the financing, saving, and planning process required to maintain control over the skyrocketing levels of out-of-pocket medical costs.  Consumers have long financed a wide range of purchases – ranging from homes to cell phones, cars to living room furniture – so why is the financing of out-of-pocket medical expenses such a relatively novel concept, especially in the non-elective care area?

The answer is multi-faceted.  On one hand, there is a myriad of highly complex compliance and regulatory risks that naturally compound as one traverses both the healthcare and consumer finance industries – two segments that have more than their fair share of regulatory red tape and onerous reporting requirements.  A complex web of state and federal regulations must be carefully navigated to maintain compliance and limit the business risks associated with a violation.  IRS Code 501(r), Fair Credit Reporting Act, Telephone Consumer Protection Act, Gramm-Leach-Bliley Act, and Equal Credit Opportunity Act / Regulation B are among the more notable regulations that one must navigate before providing credit to patients.

On the other hand, the industry has been slow to adopt new, disruptive approaches to patient pay collections that deliver flexible financing alternatives, convenient payment options, and helpful tools to the consumer that engender positive engagement and a higher probability of payment.  By comparison, the standard approach to collections often involves the hospital sending out several statements to patients with their bill before eventually giving up or more often, outsourcing the outstanding balance to an RCM company.

As a result, the market opportunity for these outsourced RCM vendors is incredibly large and attractive based on the significant market tailwinds surrounding patient pay collections (as highlighted, above).  Specifically, traditional early out and bad debt collections vendors have enjoyed a steady stream of demand and growth as hospitals have increased their utilization of external, third party support to assist in their collection of patient pay receivables.  The pricing model for these services is typically based on a percent of collections – a model that creates alignment with the provider as cash flow generation is held out as the central priority.

The issue, however, is that this percent of collections model often fails to properly engage the patient with helpful payment options, tools, and support during what is generally a very stressful and confusing time for the consumer.  The predictable result is lower patient satisfaction and diminished loyalty to the provider which can result in a significant issue for hospitals in today’s increasingly patient-centric environment characterized by greater levels of accountability and regulatory oversight.

While we believe there remains a significant ongoing opportunity for these traditional outsourcing models, recent investment activity and a host of new, emerging innovators within the patient financing and engagement ecosystem suggest that this RCM sub-segment is ripe for positive change and disruption.  Companies that offer compliant and affordable 0.0% APR financing options leveraging patient-friendly tools, easy-to-navigate portals, helpful educational content, and a personalized, “white glove” approach to customer service are particularly well-suited to disrupt the existing environment, particularly in the non-elective care area where few viable alternatives exist.  These models provide a retail-like experience for the healthcare consumer with the “frictionless” payment environment long enjoyed by other industry verticals (e.g., banking, automotive, credit card/retail, etc.).

Hospitals similarly benefit as the existing percent of collections model is replaced by a model that provides an immediate cash infusion with ongoing improvements to bad debt, net yield rates, and above all, patient satisfaction.  As we noted above, traditional collection practices entail the utilization of brute force – a likely vestige of an industry that was primarily geared toward insurance billing and collections until the patient became such a critical factor to the financial health of hospitals.  In an increasingly patient-centric environment it’s imperative that a softer, more supportive approach be exercised to drive repeat patient volume and positive satisfaction metrics (e.g., HCAHPS scores).  In that respect, loyalty is not only built through the provision of outstanding, high quality care, but also by supporting the patient through the often painful (no pun intended) billing and collections process.  Patients that have an excellent end-to-end experience are much more likely to return for future services and refer others to the hospital, creating a positive, virtuous cycle.  Further, establishing a longitudinal relationship with the patient via a co-branded payment plan can be leveraged in a variety of ways as that point of engagement and trust translates into greater cross-sell opportunities over time.

Providers that align themselves with an innovative patient financial engagement partner will reap the benefits of a dramatically improved patient experience along with the inherent financial benefits that accrue through a new, innovative financing model.  The challenging triple goal of creating alignment among the provider, vendor, and patient has been achieved as the consumer now has flexible and affordable payment options with easy-to-access tools and customer support.  We strongly believe vendors that provide these types of solutions will continue to disrupt and thrive within the existing patient pay landscape.

Let us know what you think.

Seth Kneller
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