Dr. HSA

News & Views on the Rise of Medical Consumerism

Providers:  Beware of Increased Bad Debt as HSAs Take-Off!

May 2005 - Vol. 2

Adoption of high deductible health plans (HDHPs) will begin to put a strain on the healthcare providers' already-burdened revenue cycle as the number of patients with Health Savings Accounts (HSAs) increase. Currently, most

providers have the financial weather all to handle small balance write-offs associated with ambulatory co-pays-generally $25-or they rely on outside collection agencies to chase these residual patient responsibilities. Yet new collection difficulties are emerging.

David Harris, National Healthcare Revenue Cycle Partner, PricewaterhouseCoopers LLP, NY, NY © 2005 All rights reserved.

According to the Hospital Accounts Receivable Analysis (HARA) report, providers' bad debt expense has been slowly increasing over the last year-finishing 2004 at 5% of net patient service revenue. This percentage can increase if providers aren't ready for HSAs.

HSAs require HDHPs with a minimum $1,000 deductible for singles and $2,000 for families. Out-of-pocket maximums can go as high as $5,000 for singles and $10,000 for families. HSA's lower monthly premiums and tax advantage savings similar to IRAs will attract consumers into HDHPs. The segment with the highest adoption is individuals with private insurance, small groups (50 or less employees) and mid-size groups (between 50 and 100 employees). However, large unions such as Northern Teachers Teamsters with 12,000 members are offering HSAs.

Managing four-digit deductibles is a lot harder than collecting $25 to $50 co-pays at point-of-service or through the provider's patient statement process.

For example, medical claims for patients that haven't met their deductibles will be returned as zero payments-commonly referred to as rejections or denials. If providers do not have a good process in place to quickly change these accounts to self-pay, the claims will sit out on the accounts receivable as a third-party responsibility, when they're really a patient responsibility.

Making matters potentially worse, if the provider refers its uncollected third-party receivables to an outsourcer and the company determines it's a patient responsibility, it often returns the account to the hospital for collection because they typically get paid for working insurance balances and/or don't process patient billing. When the provider comes around to finally billing the patient, it could be several months, or years, later and the likelihood of the patient paying this bill decreases exponentially. As a result, the account will be referred to a collection agency that typically targets larger balances and in some cases, creates customer service issues for the provider.

Providers can protect themselves from this scenario if they utilize the HIPAA 835 Transaction and Code Sets (TCS) operating rules to process electronic explanation of payments (EOPs) from their insurance companies. The typical way an insurer would report back a patient-related denial (and in my opinion an HSA-related denial) would probably be with a:

•  Claim Adjustment Group Code = PR (Patient Responsibility, and

•  Claim Adjustment Reason Code = 1 (Deductible Amount).

If a patient has met their deductible, but not their out-of-pocket maximum and they're out-of-network; the typical insurer would reply with a:

•  Claim Adjustment Group Code = PR (Patient Responsibility, and

•  Claim Adjustment Reason Code = 2 (Coinsurance Amount).

 

If the service is elective and considered cosmetic under the IRS guidelines for HSA approved medical expenses, the insurer would reply with a:

•  Claim Adjustment Group Code = PR (Patient Responsibility, and

•  Claim Adjustment Reason Code = 96 (Non-covered charge)

These reason codes should be integrated into the workflow processes to facilitate efficient A/R capture. We may even find that reason codes will need to be adjusted and so recommendations to the appropriate committees (at the Workgroup for Electronic Data Interchange and ANSI X12N) should be made accordingly.

The healthcare industry currently automates financial class updates in the Medicare remittance segment. Now the focus must turn to doing this in the commercial and self-pay categories, especially in the new consumer-driven environment.

Healthcare is rapidly moving away from a third-party to a first-party reimbursement system where the first dollar of medical care will be paid by consumers. As of March 2005 over one million HSA plans have been sold (Galen Institute). It is essential that providers redesign their information systems, policies and procedures for dealing with this shift in financial responsibility.

Using HIPAA's operating rules as a foundation for effectively communicating with insurance companies is considered a leading practice and a primary focal point for the new HSA workgroup at the Medical Banking Project. Time is running out and providers must act now and start working with their larger employers and payers to prepare for increased market penetration of HDHPs as HSAs transform the healthcare industry.

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Related:

See sample ANSI 835 Implementation Guide - click here