Self-pay accounts receivable in healthcare includes true self-pay (ie, patients with no health insurance) and the patient responsibility after insurance. In the past, health insurance plan benefits covered much more of the patient’s bill, up to 90% or more; however, in the past few years, high-deductible health plans have become more common and more attractive for plan members because of lower monthly premiums. Thus, the patient responsibility after insurance has shifted from 10% of the collectible accounts receivable to upwards of 30%.
The Affordable Care Act (ACA) has transitioned more true self-pay patients to exchange plans, and these plans often carry high deductibles, high copays, and high coinsurance. Although the number of true self-pay people is decreasing by as much as 40%, especially in states with Medicaid expansion, patient responsibility for payment after insurance coverage is increasing rapidly, mainly because of the proliferation of high-deductible plans and the inability of beneficiaries to pay their bills.
In its benchmarking data from more than 800 hospitals nationally, Crowe Horwath found that true self-pay patients pay approximately 6% on the dollar, whereas patients who owed out of pocket under their insurance plan paid approximately 16%.1
Although the total number of true self-pay accounts receivable (traditionally 3% to 5% of the total accounts receivable) is decreasing, the total patient responsibility for accounts receivable has risen dramatically, placing even more emphasis on payment collection from patients.
Strategies for Collecting Copayments from Patients
The traditional way of collecting the patient’s responsibility for a medical service rendered is to collect copayments at the time of service, and then collect the rest after the claim has been adjudicated by the insurance company. When copayments are applicable for repetitive services, clinics’ front desks often have trouble collecting these payments. The staff may be hesitant to ask for payment if there is no mechanism to collect it, or if there is a lack of process to remind staff to do so.
The patient’s portion of a claim that is due after the insurance plan has paid its share may be collected through statements sent to the patient. If a patient is not paying, a patient services team will reach out to the patient to assess the financial situation and possibly set up a payment plan and/or turn the patient over to a collection agency. This process works fine if the patient is making substantial payments and sincerely wants to, and has the ability to, pay off his or her balance.
Increasing patient balances, however, have an inverse relationship with collection rates; as the account total increases, the collection rate decreases. In fact, according to data from Crowe Horwath from 2015, the self-pay after insurance collection rate for outpatients who owe more than $5000 was approximately 4.7%.1
Patients may not feel they can pay off their entire bill, so they pay very little or nothing. This tipping point varies based on the total amount that is perceived as achievable according to their income or debt. So, what can we do with patients’ balances if they have shown they cannot, or will not, pay? There are many different ways this can be addressed.
Patient services staff typically offer prompt-pay discounts for accounts resolved within a certain time frame. Everyone loves a discount, especially those who have the intention of paying the entire bill. Discount is a standard practice that takes place for most patients after their account has reached a certain age, or if no payment has been made after several statements.
Many billing offices have made a practice of performing a “discount marathon” once annually (usually just before fiscal close) by calling all patients with an account older than 1 year and offering steeper discounts. At first, this may appear to involve a 10% to 20% loss, but when the cost of carrying these balances is analyzed, the discounts are offset by the reduced carrying cost; these balances were not being collected, or the amount collected was equal to or less than the cost. Therefore, at this point, you need to offer a significant discount or write off the amount owed.
Factoring in the Cost of Collection
The cost of collection is definitely something to consider. You are paying staff members to collect balances and forward to the statement company every month (assuming you are not printing statements and stuffing your own envelopes), and you are paying a company to send out the statements.
Estimates on the statement process vary greatly, but most estimates range from $5 to $15 per statement. At $15 per statement, a $1000 balance stretched over 6 months can cost $90 to collect, which is 9% of the profit. For revenue cycles that do not closely monitor these accounts and continue to send statements regularly, the cost can overshadow the profit, especially when you consider the opportunity to not receive any payment.
In lieu of this, some billing offices choose to outsource the collection of patient balances or sell them to a company that specializes in collections. You may want to engage early-out vendors, who take the self-pay accounts receivable as soon as they become accounts receivable and, in turn, take a percentage of what they collect for their troubles.
Other companies buy the accounts receivable for a discounted price, meaning they give the provider a percentage of the account balance, which varies based on the amount of the bill, length of collection, and the patient’s propensity to pay.
Although the cost of these services is greater than if the collection were performed internally, using these services eliminates any cost associated with accounts that may not pay anything, as well as the cost of having a collections department. Comparing your current self-pay collection rate and the average age of these accounts against the vendor’s cost of collection can help determine if this is a viable solution.
In contrast to selling or outsourcing self-pay accounts receivable, lending institutions may provide 0% or low-interest rate loans to patients to cover their estimated responsibility. The institution has to have an adequate process and knowledge base to create estimates based on residual responsibility after the insurance payment. Although some patients may qualify for this option or prefer it, in our opinion, the most effective way to combat growing self-pay outstanding balances is total financial counseling.
Financial counseling is not a job description—although it can be—but is rather a program that ensures that insurance plan and patient responsibilities are verified, understood by all, and planned for. The process includes verifying eligibility and patient benefits through the patient’s insurance plan, if he or she has one.
To take it a step further, financial counseling assesses the patient’s current financial situation, evaluates all payment options, and develops an estimate for the patient’s portion. Financial assistance programs and additional insurance options are also evaluated to reduce the financial burden on the patient.
Using this information, the patient is then educated on his or her current situation and all of the possible available options. Once the patient is educated on potential options and current responsibilities, proactive payment plans can be agreed on for collection during the treatment course.
The older an accounts receivable account becomes, the less likely it is to be collected. Therefore, if the collection process begins earlier, you would likely expect a higher collection rate on self-pay after insurance accounts. As an added bonus, early collection means less accounts receivable are available for the statement process, which saves money. This is a win–win situation.
Managing and collecting self-pay balances is difficult. Physicians and hospitals do not like to enforce the payment of services, but the changing insurance environment has made it a necessary evil. Establishing a financial counseling program in the practice increases the collection rate, eliminates some work in accounts receivable, and provides an additional service to patients.
It is often uncomfortable to have conversations about financial situations with people in general, but when someone has a serious illness, it may feel heartless to stress the importance of paying a bill when such a life-altering event is taking place.
Patients are often stressed about the cost of their care and their financial situation as much as they are about their actual medical health.
In a 2003 study published in JAMA, Alexander and colleagues found that 63% of patients desired a conversation with their physician about their out-of-pocket costs, and, in general, 79% of physicians believed that patients want to discuss these costs.2 By contrast, only 35% of physicians and 15% of patients had ever discussed out-of-pocket costs.2
Whether we discuss it with them in the clinic or not at all, the patient still has a balance, and still receives a bill. The problem does not go away unless the organization is willing to write the balance off, which you cannot do for patients who have health insurance, without performing the collection process.
So, we have to ask ourselves whether discussing the patient’s financial situation before treatment is uncomfortable for them or for us. If we are truly here to help the patient, it includes helping them with every aspect of their care, including paying for it. When we help patients, we also help ourselves.
- Crowe Horwath. Revenue recognition and high-deductible plans: the greater the patient portion, the lower the collections. March 2017. www.crowehorwath.com/folio-pdf-hidden/Revenue-Recognition-and-High-Deductible-Plans-HC-17512-005A.pdf. Accessed July 18, 2017.
- Alexander GC, Casalino LP, Meltzer DO. Patient-physician communication about out-of-pocket costs. JAMA. 2003;290:953-958.