Patient as the payer: Navigating the payment shift

Hospitals and health networks have hardly been immune to the change and uncertainty confronting the entire healthcare industry, and today we are experiencing an especially significant transition. Policy debates and legislative and regulatory shifts continue to be a daily reality, but macrolevel developments like demographic trends (e.g., aging patient populations, the rise of millennials and Generation Z as active consumer groups), rising costs, evolving care delivery models, healthcare consumerism and technology advances are affecting nearly all aspects of healthcare in the U.S.

This content is sponsored by CareCredit.

One trend is especially important for large institutions and those with more established, conventional models for activities like billing and collections. Rising out-of-pockets costs are shifting more payment responsibility from traditional payers like insurance companies to individual healthcare consumers. Much has been written about the impact of this "payment shift" on patients and their decisions about healthcare purchases, but the shift also has serious implications for the organizations that provide that care. For many, it may be wise — or essential — to rethink financial policies, approaches to patient communications, and processes for billing, collections and revenue cycle management. Leaders who recognize this and take steps to help their organizations adapt can navigate the shift successfully and continue to thrive.

Soaring costs
U.S. healthcare spending is currently on a growth trajectory that shows no sign of slowing. CMS projections1 published in February forecast 5.5 percent growth annually through 2026, when spending will reach $5.7 trillion. This growth rate is expected to surpass that of gross domestic product during the same period, with healthcare accounting for nearly a fifth of GDP (19.7 percent) in 2026.

A more troubling fact may be that in conjunction with this overall growth, individuals are also paying a greater share of healthcare costs directly. In addition to premiums, copays and coinsurance for health insurance coverage, many healthcare consumers are paying a significant amount out of pocket for deductibles. CDC data released in February2 show that enrollment in high-deductible health plans by individuals aged 18 to 64 with private health insurance grew rapidly in the first nine months of 2017, from 39.4 percent in 2016 to 43.2 percent in September 2017.

According to a Kaiser Family Foundation survey,3 premiums for individual employer-sponsored coverage rose in 2017 as well, climbing an average of 4 percent — a growth rate exceeding that of both wages (2.3 percent) and inflation (2.2 percent). On average, employee contributions for this coverage were $1,213 and deductibles (for individuals with a deductible) were $1,505. This represents an increase of 37 percent in just five years (from $1,097 in 2012), and 148 percent compared to a decade ago (from $606 in 2007).

Patients — and providers — under pressure
Out-of-pocket costs can create significant barriers to care and lead some individuals to delay or decline treatment. The Federal Reserve reports that 44 percent of Americans could not cover an unexpected expense of $400 without borrowing money or selling possessions, and the average unexpected major medical incident costs $1,000.4 In a hospital setting, many treatments are unexpected, but others can be planned in advance, allowing patients time to prepare financially. Even in these cases, however, the funding challenges suggested by the Federal Reserve data may lead patients to delay treatment, which can affect health, quality of life and possibly earning power (if mobility and strength are effected).

For providers, high out-of-pocket costs can cause frustration when patients decline or defer recommended treatment plans, potentially impacting care quality and outcomes. Costdriven treatment decisions can also have a financial impact, representing lost or decreased revenue and threatening profitability, growth or even viability. Patients who do move forward with care may still struggle with costs, so hospitals may need to wait longer and work harder to collect payment. In fact, a 2017 study found that 73 percent of providers say it takes a month or more to collect balances due.5

Expectations across the generations
Collecting new or increased fees directly from patients represents a departure from health providers' traditional revenue models, which focus primarily on insurance reimbursement. While most organizations are not currently structured for consumer financial operations, many are implementing new policies such as collecting payment prior to service, attempting to optimize post-care collection processes, and candidly discussing patient financial responsibilities up front. Health system executives, care providers, and other industry leaders who recognize the "payment shift" and are open to new approaches and solutions like these could be wellpositioned to deepen patient relationships, improve care quality and advance their organizations' business goals

The reasons to prioritize initiatives of this kind, despite the potential for disruption, go beyond financial statistics like those mentioned earlier. Patient needs and expectations are also shifting, along with population demographics. For example, proprietary research CareCredit conducted in 2016 found that 44 percent of younger millennials (aged 18-24) don't know their deductible, and more than half (53 percent) typically pay outof-pocket costs with a debit card, meaning their ability to cover costs may depend on the cash they have immediately available.6 The same study found that older millennials (aged 25-34) are much more likely than members of other generations to have spending accounts like HSAs, FSAs, HRAs, and HIAs, indicating they expect and may be prepared to pay out of pocket expenses. Both findings suggest that health providers that are comfortable discussing and collecting out-of-pocket costs may be able to offer younger patients a better experience, as well as positively impacting accounts receivable.

Opportunity and innovation
For patients of all generations, the need to assume greater responsibility for the costs of care can lead to a stronger understanding of, and more active involvement in, decisions about healthcare. At the same time, advances in technology and the introduction of new treatments are giving many patients more and better options for care. This combination of greater responsibility and additional options may lead individuals to proactively search for ways to maintain or improve their health.

For planned healthcare expenses, patients may look at their spending as an investment in their own health and wellness. Many inpatient and outpatient procedures can be viewed this way, and health providers that assist patients in considering, preparing for and managing their investment in a life-enhancing procedure could offer a differentiating patient experience — and have a positive impact on the bottom line. Simple steps like being candid about costs, beginning financial conversations early and documenting and sharing clear financial policies can go a long way. In addition, healthcare practitioners can offer solutions to help patients manage outof-pocket payments. This has been CareCredit's focus for more than three decades.

From elective to essential
In today's healthcare environment, many expenses can be approached the same way as other large, planned purchases: They can be underwritten and financed. Special financing options from CareCredit allow patients to purchase healthcare products or services today, and make monthly payments over time.* For many hospitals and health networks, and some individual practices, this concept is a familiar one, as organizations may offer payment plans that allow patients to pay over time. This kind of self-financing can benefit patients and providers alike, but organizations assume both the risk and costs involved with collecting many payments over time.

In contrast, third-party financing can provide similar benefits for patients, while minimizing effort and risk for providers. CareCredit pioneered this approach more than 30 years ago in the dental market, in a time when most patients were responsible for the costs of care, and procedures like extractions, crowns, and root canals could represent a substantial expense. Over the next two decades, CareCredit expanded into other specialties where out-of-pocket costs were common, such as veterinary, cosmetic, and hearing and vision. Today, the CareCredit acceptance network includes 210,000-plus provider and healthcare retail locations spanning dozens of specialties, and providers can accept payment for deductibles, copays, coinsurance, and other out-of-pocket costs, whether they are small or substantial, and planned or unexpected.

Because CareCredit is a dedicated credit card for health, wellness and personal care expenses, our 10.5 million-plus cardholders have a credit limit they can use to pay out-of-pocket costs whenever they need or want to do so, for themselves, family members or even pets. Physician practices and other organizations in the CareCredit acceptance network receive payment in two business days. In addition, CareCredit offers useful resources to help network members succeed, such as the Pay My Provider portal, which makes it easy to accept online payments via a custom payment link that can be included in patient communications.

The solutions CareCredit offers today — and the needs of the providers and patients we serve — have changed dramatically compared to where we started three decades ago. Evolving and adapting to these changes has allowed us to better serve patients and partner with providers today and prepare for what may come tomorrow.

Making the shift
In an industry as complex, large and essential as healthcare, change is the only certainty. Medical directors and industry leaders who view the current landscape and seize the opportunity to adapt to key trends will have an advantage and can position their organizations for sustained success. While patients and providers alike may be wary of the "payment shift," new solutions can help them navigate the transition together, partner in an engaged and empowered approach to care and work to achieve positive outcomes on all sides.

1National Health Expenditure Projections 2017-2026, Centers for Medicare & Medicaid Services, February 14, 2018
2Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January–September 2017, Centers for Disease Control and Prevention, National Center for Health Statistics, February 2018
32017 Employer Health Benefits Survey, Kaiser Family Foundation, September 19, 2017
4Federal Reserve Board, Report on the Economic Well-Being of U.S. Households in 2016, May 19, 2017
5InstaMed, Provider Healthcare Payment Survey 2017, conducted by LHK Partners
6Generational Health and Wellbeing research study, Q2 2016, conducted by Chadwick Martin Bailey on behalf of CareCredit.
*Subject to credit approval

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