Bad Debt Driving Revenue Cycle Management Innovation at Hospitals

While the expansion of the insured population brought about through the ACA was predicted to be a financial benefit for hospitals, one unforeseen challenge has been the persistence of bad debt and uncollectible accounts, especially for hospitals in states that declined to expand Medicaid. High-deductible health plans and larger co-pays pose a financial obstacle for insured patients, and many hospitals have chosen to adopt innovative new collection and payment strategies.


Bad-debts-as-percentage-of-hospital-expensesHospitals have also adjusted their financial assistance programs to increase patient participation and reduce administration costs. Florida Hospital and SSM Health Care are just two of several health systems that offer interest-free loan programs developed with assistance from outside vendors. Florida Hospital partnered with ClearBalance in 2007 for a program in which the vendor agreed to pay the patient’s bill amount in full, improving hospital cash flow, while the hospital was responsible for interest payments and the rest of the principal if the patient became delinquent. SSM Health worked with Commerce Bank to launch its own zero-interest loan program in 2014, which functions in much the same way as Florida Hospital’s. An SSM official recently said in an interview with Becker’s Hospital Review however that the health system is more concerned with outsourcing management of a monthly payment program and helping patients pay for care rather than increasing revenue. Nonetheless, the strategy has been successful for both health systems, as enrollment in financial assistance plans has grown substantially after introducing the program.


Largest-RCM-VendorsPatient advocates have long sought to make billing easier to understand, arguing that a more straightforward and convenient payment process would not only increase patient satisfaction but positively impact hospitals’ bottom line. While there’s still much work to be done, some basic changes have proven effective. An online payment system can reduce confusion among patients by automating insurance processes, offering a variety of payment plan options, and clearly outlining the patient’s financial responsibility. By storing patients’ banking or credit card payment information, hospitals are also better equipped to process future charges. In 2014, Memorial Hermann Health System deployed online payment software from technology firm Simplee. In only a few months, self-service payments increased 57 percent, while the costs of collection declined 24 percent.

Price transparency is another strategy hospitals have explored in the hope that informed patients will have fewer “surprise” bills and make smarter financial planning choices. Although the ACA requires hospitals to make public a price list of standard items and services, the legislation does not expressly describe how the information should be presented, distributed, or explained, and often a hospital’s chargemaster data does not reflect what most people actually pay. As a result, some hospitals have tried to offer more realistic cost estimates based on past cases. In late 2015, the Florida Hospital Association launched the “Mission to Care Initiative,” which includes a website featuring a price estimate tool for the 50 most-common medical procedures at the state’s hospitals. In addition to the chargemaster price, it provides the average insurance charge, the length of stay, and number of patient cases used to form the estimate. While such pricing tools have obvious limitations, they offer a useful financial baseline to patients who know they will undergo medical procedures in advance.

At the core of all of these strategies is a simple directive: create more informed patients. Only patients know their exact financial needs, and hospitals must take the initiative and ensure they understand all available options, as well as continually engage them through the billing process. The same proactive and cooperative approach that guides effective medical care applies just as well to patient collections.

Definitive Healthcare has the most up-to-date, comprehensive and integrated data on hospitals, physicians and other healthcare providers. Our hospital database tracks nearly 7,600 US hospitals and includes financial metrics such as revenues, accounts receivable, and bad debt.

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