Financial Reporting Is Changing for Healthcare Providers - Now, Self-Pay Really Matters

Over the past 10 years patients have seen a steady rise in their out-of-pocket healthcare expenses. Not shockingly, a key contributor to this increase is the popularity of high-deductible health plans, which employers are gravitating toward in order to control their organizations’ costs. A recent Kaiser Family Foundation/HRET survey of Employer-Sponsored Health Benefits, reports the average out-of-pocket expense for a patient has risen a staggering 130-percent since 2008 (see figure below). The consequence? As this increased medical financial responsibility has fallen to patients—many of whom have mortgages, auto loans, utility bills, student loans … the list goes on—providers are finding themselves at the bottom of the priority list when it comes to settling accounts.

The fact is, many Americans today do not have money saved and as such do not have the necessary funds set aside to pay for emergency expenses. Because of this, an unexpected expense such as a healthcare bill is impossible for many to pay. After all, no one plans to get sick or get injured in a car accident so a majority of doctors’ visits and/or trips to the hospital are unplanned. In a recent Financial Security Index Survey Bankrate reported that only 39% of people polled said they had $1,000 in savings to pay an emergency bill. Now take this information and look at the average balance of $1,813 (according to a recent TransUnion healthcare study) a patient must pay after insurance and you can see the challenge providers are facing as they work with patients to satisfy their obligations.

Given this increased difficulty for patients to pay, along with the challenges that come with congressional policy which strips away funding, to the exchanges with the Affordable Care Act (ACA), more revenue shortfalls are on the horizon for providers. To make matters even worse, changes with Medicaid funding and restrictions around eligibility are poised to add an estimated 14 million people to the ranks of the uninsured.

New Accounting Standards

With these challenges accumulating for providers, the IRS has now released new accounting standards on how to report bad debt. Traditionally, the difference between what a patient was billed and what the patient paid was often reported as “bad debt.” According to Modern Healthcare, even though the Internal Revenue Service (IRS) does not consider this bad debt a part of a provider’s community benefits, many networks do include this figure in reporting, alongside charity care and shortcomings in Medicare and Medicaid reimbursements. The Minnesota Hospital Association, for example, reported $374 million in bad debt last year according to its 2017 Community Benefit Report.

However, in recent changes to IRS procedures for reporting bad debt and revenue, providers will no longer be able to report bad debt based on the amount billed minus the amount paid. Providers will now report what the patient population has historically paid minus payments made.

For example, if a patient was billed $1,000 for a CT scan and historically the patient population only paid $100, but the patient paid $50 of that amount, only $50, not $950, may be reported as bad debt.

Reporting of this new amount will not only challenge a provider’s ability to express how much bad debt they actually incur, a figure used to justify 501(c)(3) status, but it also will cause a dramatic change to how healthcare systems report their finances to lenders, investors and stakeholders.

This change in methodology means that providers must make every effort possible to work with patients to ensure they can pay as much of the amount they are owed as possible. This makes the self-pay amount collected by providers more important than ever. The days of sending statements and making token phone calls to get patients to pay their portion will no longer be enough.

Harnessing Technology

Accounts receivables departments must be more strategic about how they collect patient balances in an effort to make the percentage of the amount collected as efficient as possible. Bottom line: Providers must find ways to do more with less. Since hiring additional people to get more work done is simply not an option, the focus shifts to leveraging technology that automates processes and provides staff with tools to collect more efficiently.

As providers look to technology to help solve these problems, they should focus on strategies that utilize manual intervention only when a resolution action has been determined. Simply put, automate as much as possible with behind-the-scene tools like segmentation strategies, missing insurance scrubs and determining the status of a claim through automated payer website scrubs to drive accounts to a resolution action. Once you have determined what they action is to resolve the account then bring in the manual resource to resolve it moving the account forward.

The future of healthcare certainly looks to be challenging for providers but with the right discipline and leveraging automation technology providers can be in a position to get through it successfully.

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Shawn Yates serves as Director of Product Management for Ontario Systems, a company that develops a variety of information systems for providers. Yates defines the company’s strategy for product and service offerings in the healthcare market. He can be reached at shawn.yates@ontariosystems.com.