Shifting the balance of patient payments: How 2 hospitals are using payment plans to manage high deductibles

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With the continued rise of high-deductible health plans and self-pay, patients are facing greater out-of-pocket expenses for their care at a time when the majority of them can't afford to pay those sums outright. One recent survey determined that over 60% of Americans have less than $1000 in savings, and 20% don't have a savings account at all. But lacking adequate savings for a major hospitalization does not mean patients are uncooperative or unwilling to pay.

A patient's story
Consider this scenario, which a fully insured patient faced in 2013 after giving birth to twins: Kristi received her bill from the hospital after returning home with her new babies, but was dismayed to see a balance of $5,500 still due. (Her company's health insurance plan had a family deductible of $7,500.) Paying the entire balance would have nearly drained her savings, and she didn't know she could call the hospital and request a payment plan. When Kristi's sister urged her to do just that, she and the hospital agreed to her paying $458 per month over 12 months. But the story doesn't end there. Just two months into the plan, which she had been paying on time, Kristi received a letter from a collection agency saying that she was in default on an unpaid balance of $2,000.

She didn't understand. The hospital had agreed to the monthly installments. But when Kristi spoke with the collection agency, she learned that she was only on a payment plan for her services as a patient, with one of the twins as the second patient. The remaining $2,000 balance for her second baby had been billed separately and was not included in the payment plan. Kristi then had to set up a separate plan. Frustrated at the lack of coordination, she felt the process was like dealing with two different hospitals.

Convoluted scenarios like this one abound in healthcare, complicating the collection process and alienating patients. No wonder then that in a 2010 report on "the next wave of change" in healthcare payment, prescient McKinsey authors advised hospitals to invest proactively in "innovative patient financing, better front-end retail-revenue-cycle approaches, and consumer-friendly collections."

Two hospitals take action
Two hospitals, Rush-Copley Medical Center in Aurora, Illinois, and Munson Healthcare in Traverse City, Michigan, have taken steps to prevent stories like this one, and have succeeded by meeting cash-strapped patients on their own terms.

In February of 2015, Rush-Copley implemented a service that automatically qualifies patients in need of payment plans for a set range of plan options and emails those offers directly to the patients (under the hospital's brand); Munson did the same in March of 2015. Traditionally, setting up payment plans has fallen to hospital staff, who must add to their list of duties conducting ad hoc financial negotiations with overwhelmed patients. When patients did not know about these options or didn't have time to call and negotiate these arrangements, their accounts would likely have been sent to collections. Neither of these paths reflects the broader shifts in healthcare toward greater consumer empowerment, greater responsibilities for self-care, and greater control.

Alignment and results
The new paradigm for patient financial responsibility is designed to give more control both to hospitals and to patients.
• When qualified patients receive their offers, which include a range of payment plan options, they understand immediately what is expected of them;
• the hospitals have decided in advance on the acceptable range of plan lengths and amounts, but the ultimate selection is made by each individual patient;
• and the costs of later care are automatically rolled up into the initial plan, while allowing patients to pay off the balance sooner or switch to a different option.

As a result of this segmented approach to payment, 70% of Munson's plans are now patient-activated, and the duration of the typical payment plan is an average 10 months, down from nearly 2 years. Rush-Copley's patients now pay off their balance at an average of 11.5 months, down from an average of 18 months (a reduction of 28%), and the organization has also improved its overall patient pay by 10%. And both hospitals are seeing a high collection rate overall: 46% of the total number of patients who qualify and receive a payment plan offer either set up a plan or pay in full.

Munson's story
Munson's revenue cycle department had already been segmenting patients by propensity to pay before adopting the new approach. Beforehand, Munson had spent considerable time contacting the patients with a higher propensity to pay and negotiating a payment plan with each of them. For the remaining accounts, they had worked with a financing company to offset accounts receivable; in that arrangement, Munson lowered its AR, but would pay the financing company nearly 15% of the balance and had to take back uncollected receivables.

They opted to incorporate the new consumer-centric system into existing operations because it wouldn't disrupt what was working—but it could automate and control the payment plan negotiation, redirecting staff time to patient care or customer service and casting a wider net in terms of who received payment plan offers.

Besides increasing their overall cash collection from patients and eliminating the financing company fee, Munson has seen other benefits from the change. For instance, because 70% of their payment plans are patient-activated, Munson's customer service representatives are more productive, and have more time to spend on financial assistance applications or charity care screenings. Now, too, patients are avoiding the embarrassment and frustration of negotiating a plan with a staff member, as they know immediately what their options are. Those increases in control and privacy have improved both patient engagement and satisfaction—two things a call from a collection agency kills on contact.

From a strategic standpoint, adopting a proactive approach to payment plans "positions the organization to succeed as the overall industry demands more and more direct payment from its consumers," says Karen Popa, Munson's Corporate Director of Revenue Cycle. "In fact, we're currently working on a new payment project that combines insights into consumer behavior with the industry imperatives toward price transparency. This pre-service payment plan option would give patients our best estimate of the costs of their upcoming procedure, and enable them to get ahead of the bill by signing up in advance for a plan. The service would coordinate with the patient's insurance payments so that the final balance would be adjusted to reflect the pre-service payments—but meanwhile, patients have gotten past the anxiety phase and are in a plan that's manageable for them."

About the author
John Talaga is co-founder and CEO of OnPlan Health, an automated payment solution that directs and collects balances that patients can afford. Before OnPlan Health, John had co-founded HealthCom Partners, a leading provider of patient billing software and services that pioneered online account management for over 700 hospitals and health systems. John is a member of HFMA (First Illinois Chapter), Healthcare Information and Management Systems Society (HIMSS), and American Association of Healthcare Administrative Management (AAHAM), and has been a speaker at numerous conferences, including the American College of Healthcare Executives (ACHE), Healthcare Internet Technology Conference, HFMA and AAHAM.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.​

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