Providers have been historically uncomfortable in their role as collector.  Some providers are shifting to take on a more direct role and other are employing multiple strategies to intermediate their role in collecting payments for services. However this shift in collecting payments presents inefficiencies that pose problems and increased risk for patients and providers.

To focus on their core competencies and avoid the tension between the patient/provider role and the creditor/debtor role, healthcare organizations often sell their collections and/or outsource their collections services.  Current realities require sophistication and excellence in collections:

• Providers typically collect but a fraction of what they charge self-pay patients.
• Bad debt as a percentage of revenues is increasing 10 to 20% per year.
• Cost of collecting is 15% rather than 2% in the regular retail world.
• Who bears this cost – collection agencies, consumers, and/or providers?

 

Providers choose from a proliferation of new accounts receivable programs and firms offering revenue cycle management services.  Three primary categories for receivables (A/R) collection, first party, third party and debt buyers, dominate the landscape, but most providers use creative combinations of the three.   

Providers have learned that outsourcing does not eliminate their accountability, as time and time again tactics of aggressive collectors reflect negatively on the provider.  They look for other ways to avoid the collections game, including offering a variety of financial products and services to patients: 

• Traditional pay out agreements, often with a discount for prompt payment
• Branded credit cards
• Regular credit cards offered within the hospital
• Lines of credit offered by the provider or a for-profit subsidiary of the provider
• Lines of credit offered by third parties – in these arrangements the third party usually gets the debt at a discount

 

Significant and increasing regulations govern collection practices. Federal minimum standards were set under the Fair Debt Collection Practices Act, and four states passed laws in 2007 to address late payment and interest fees, charity care and discount payment policies, property liens and governance.  

Simultaneously, advocates at the local level have mobilized to address the injustices they see in individuals’ bills. Programs which train patients how to question coverage and negotiate for discounts have succeeded in reducing bills by up to 90%. While these solutions do not necessarily scale to a national level, they provide an insight into the risks and opportunities created by the current system’s set of financial intermediaries.

 

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The McKinsey Quarterly, June 2007, “Overhauling the US Healthcare Payment System”; page 2, 3

• Who is providing instruments of credit to consumers targeted for medical debt?
• What is the relative value of the credit offerings for health care providers and consumers? Are there others who gain value from these transactions, e.g. insurer or payers.  If so, how?
• What are the costs and cost drivers around collections?
• What are the factors at play in decisions around collections processes and vendors? How do providers decide when to outsource?  
• How do other countries handle the collection of small medical payments?  Broader question:  What are other countries doing on patient portion?
• What are the current practices that tie incentives and accountability to uncovered costs of health care?

• Outsourced collections
• Government guarantees of debt
• Regulation around DSH
• Revenue cycle management firms
• Private Label Credit Cards (In Health Care)