Why You Cannot Afford Business as Usual: How HDHPs and Poor Collection Practices Can Combine to Erode Your Profit Margin

The next generation in healthcare insurance coverage

High Deductible Health Plans will fundamentally change the collection processes for providers of healthcare services. According to the Kaiser Family Foundation, in 2011, 17 percent of covered workers were enrolled in HDHPs compared to 13 percent in 2010 and only 8 percent in 2009. At this rate, 1 out of 5 covered workers will be enrolled in an HDHP in 2012. General Electric, for example, moved all 300,000 of their covered employees into a HDHP in 2012. No longer will providers be able to wait and collect patient balances after insurance payments. Indeed, often insurance coverage will not begin until the patient has satisfied a $2,000, $5,000 or even $10,000 deductible. These plans, as their name implies, have a much higher deductible amount than traditional health plans.

Regardless, these plans are attractive to employers due to lower costs and premiums than traditional health plans, as well as the greater responsibility for healthcare that is assumed by the employee.  

"The only constant is change." While true in most aspects of life, this saying certainly applies to the American consumer. Although some people maintain a "cash only" lifestyle, the majority of people in America rely on plastic in the form of debit and/or credit cards to purchase services. A recent study by CardWeb.com noted that the average person has three bank-issued credit cards, four retail credit cards and one debit card. Plastic is now responsible for over 50 percent of consumer purchases. Even the game of Monopoly has a version where an electronic card device has replaced the banker and each player uses a plastic card instead of Monopoly money. For providers of healthcare, credit, debit and HSA cards will assume equal importance with the insurance card.

Patient's use of debit and credit cards to pay for co-pays, deductibles and "non-covered" services will explode in the next decade. Healthcare finance officers note an increase in bank fees related to accepting debit and credit cards. Many of these same finance officers do not know the various rates and fees they are paying to accept plastic payments, have not reviewed their merchant agreements in years and are missing an easy way to implement cost saving opportunities. 

The three legged stool for improving point-of care collections

Standardized policy and procedure for front office staff. The front desk is often the most hectic spot in a medical practice or a hospital emergency department. In addition to greeting patients, coordinating patient flow and processing paperwork, this harried staff is also often responsible for collecting patient balances. While collection processes may vary by organization, a simple, standardized instruction algorithm on how to process various cards can create immediate cost savings. Failure to collect deductibles and co-pays at the time of service can cost organizations millions of dollars.  At the same time, untrained staff often process debit cards as credit cards which in many cases quadruples the cost of each transaction. In other cases, additional fees are incurred by inappropriate processing of cards and/or lockbox arrangements.

Competitive merchant banking arrangement. Understanding a merchant banking statement can be akin to trying to read Latin in its original form. As many of these agreements have been in existence for many years, they are often no longer appropriate for the mix of services and average charge per transaction conducted by the provider. An organization should know what percentage of its credit card transactions are qualified (lowest rate), mid-qualified (higher rate), and non-qualified (highest rate). A regular review of the rates and fees should be conducted similar to the reviews that providers conduct of their managed care contracts and payor mix.  In some cases we have calculated saving projections of $80,000 to $100,000 for mid-sized practices simply by optimizing rates and fees to the current mix of services.  

Management tools. If you manage the nickels and dimes, the dollars will follow. In addition to solid policies and procedures for front office and collection staff and a competitive merchant banking arrangement, regular monitoring of discount rates and fees should be conducted. Further, the card processor should provide management tools to allow customers to have transparency into costs and transaction volume. Web-based tools can provide standardized management reports to monitor trends as well as to provide for automatic reconciliation. When reviewing these services for many providers, we find organizations reconciling credit card statements manually when many card processors have the ability to automate this process.   

New solutions to address these challenges

Many new tools and card providers are emerging to assist healthcare providers with the point of care collection challenge. Niche capabilities are emerging to address this challenge. For example, Novarus Healthcare has partnered with Priority Payment Systems, a Goldman Sachs-backed merchant banking processor, to offer medical providers simple ways to improve and standardize collections processes.

The continued adoption of HDHPs will stress the current collection practices of many providers who have traditionally collected balances from patients after insurance payments are received. A comprehensive strategy is required for balancing the need to collect from patients at the point of care with the provider's mission and patient population. Like the rest of our daily transactions, a strategy for optimizing the cost and convenience offered by credit cards will be critical for providers in the era of HDHPs.

Novarus Healthcare will be hosing a series of webinars to discuss these trends and further opportunities for developing capabilities for to address the challenges and opportunities presented by HPHPs. For more information, please email thearn@novarushealthcare.com.

More Articles on High Deductible Health Plans:

Survey: Roughly 75% of Employers Will Offer High-Deductible Health Plans Next Year
Consumer-Driven Health Plans Grew 13.9% in Last Year
HDHPs Reduce Health Spending by 14%

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