Dr. HSA

News & Views on the Rise of Medical Consumerism

Will Banks Replace a Healthcare Provider's Traditional Business Office?

October 2006 - Vol. 7

The revenue cycle is often thought of as the Achilles' heel of healthcare. Many patient complaints arise out of failed attempts by provider business offices to bill and collect for services ranging from emergent to routine care. Insurance companies also experience poor customer satisfaction among their members as a result of the inability of a provider to get billing done correctly the first time it submits a bill for services rendered.

The area of greatest concern is the provider's patient financial statement and the insurer's explanation of benefits or EOB. Often, these statements inform customers that "THIS IS NOT A BILL" or they contain clinical diagnoses and procedure codes with inadequate descriptors to communicate the specific services provided. As a result, they are discarded with the trash or buried in a file cabinet with other "junk mail" that is perceived as being not yet worthy of disposal.

In 2000, the American Hospital Association (AHA) and the Health Care Financial Management Association (HFMA) started the Patient Friendly Billing ® Project to help providers address this problem. The project is ongoing and HFMA continues to invest heavily in working with its membership to improve the way they bill patients.

Is it the Provider's Fault their Revenue Cycle's Broken?

Healthcare's revenue cycle is complex compared to other industries such as retail, manufacturing and food services. Below are just a few obstacles that healthcare providers grapple with each day in an attempt to get paid:

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

•  A highly regulated industry with constant monitoring pursuant to the False Claims Act, 31 U.S.C. §§ 3729-3733

•  Complicated third-party reimbursement systems with multiple payers

•  Paper-intensive environment with claims requiring several attachments depending on the type of service provided

•  Significant manual intervention by the provider's business office and the insurer's claims adjudication department

•  Bills may contain line items for products from multiple suppliers as well as services from several clinical ancillary departments

•  Complicated network agreements that are often negotiated without business office involvement

•  Gross charge, or list price, has little or no correlation with what is actually owed the provider

To make matters worse, the industry pays its employees less than many fast food franchises, and experiences high employee turnover as a result of low pay, poor training and inadequate supervision. Since the inception of Medicare, the healthcare revenue cycle has undergone more changes than the Ford Thunderbird. Heightened scrutiny by government payers has resulted in compliance-minded hospital executives initiating complex, time-consuming changes to the way the business office functions.

If anyone thinks managed care contracts are difficult to administer, imagine what it's going to be like in 2 to 3 years when the majority of commercially insured patients have high deductible health plans. It's no wonder that hospitals' days in accounts receivable (or Days Sales Outstanding) are 49 days-according to the Hospital Accounts Receivable Analysis (HARA) report published by Aspen Publishers. Other notable statistics are:

•  25% of total accounts receivable is over 90 days old,

•  It takes hospitals more than 11 days to create a bill, and

•  Hospitals wrote off 6% of their gross revenue as uncollectible in the 1 st quarter of 2006.

Who is responsible for this mess? Are providers' business offices partly to blame for the double-digit growth in healthcare expenditures? How are we going to fix it?

On September 18th , The Wall Street Journal had an article entitled Double Bypass - Health-Care Consultants Reap Fees from Those They Evaluate which scolded benefit consultants for double dipping. The article references benefit consultants taking commissions from large payers while, at the same time, being paid a salary or retainer by the employers who have hired them to help structure employee benefit plans.

This is just one example of a payment system gone awry because most medium to large employers are self-insured and only use insurers to administer their health benefits. Although I'd like to fix blame on the middleman (i.e., brokers and benefit consultants), I believe we must all assume responsibility for not paying close enough attention to this issue. After all, what happened to the last patient statement or EOB you received in the mail?

In Walks Consumerism

Please step aside Managed Care and Regulation because there's a new player in town, and its name is Consumerism. Three major tenets of consumerism are:

1.    Price,

2.    Quality and

3.    Convenience.

The three go hand-in-hand when setting the stage for real market transformation. Lasik eye centers and plastic surgeons have already sipped the Kool-Aid and have been operating in a competitive marketplace for some time. However, most healthcare providers have barely thought of how to prepare for the next mega trend to walk through their doors.

Information Strategies, Inc. quarterly survey of more than 150 Health Savings Accounts (HSAs) custodians indicates that total accounts will pass 3.6 million by January 2, 2007 managing $5.2 billion. The Consumer Driven Market Report expects Health Reimbursement Accounts (HRAs) to exceed 11.0 million by 2007. A Walters Kluwer Financial Services survey reveals 8 in 10 employers will offer HSAs or plan to do so within 12 months. Congress is actively working on several legislative bills to improve HSAs and increase adoption.

Richard Clarke, President and CEO of HFMA, recently explained to membership that putting consumerism into effect is a vastly complex endeavor requiring collaboration among government, providers, payers, employers, and consumers themselves. He went on to say that a "clear" challenge will be managing the impact of increasing patient financial obligations as a result of high deductible health plans (HDHPs).

According to the HARA report, self-pay receivables as a percent of gross revenue increased to 8.25 percent in 2006 from 6 percent in 2005. There seems to be a direct correlation between the rise of self-pay accounts receivable and the rise in Consumer Directed Health Plans (CDHPs).

Many industry insiders believe we're moving away from a third-party reimbursement system to a first-party payments model for all but Medicare/Medicaid patients. As employers raise employee premium contributions and co-pays for traditional insurance products, many employees are considering taking on more risk in managing their overall healthcare spending (premiums plus out-of-pocket expenditures related to deductibles and co-insurance) and are signing up for HDHPs-which carry a much lower insurance premium than traditional PPOs and HMOs.

Some providers are reporting an increase in third-party denials by insurers for Patient Has Not Met Deductible. As a result, self-pay receivables are on the rise-especially those greater than 90 days because providers have to first bill insurance before they can bill patients on most HDHPs. Other than the business office personnel of a plastic surgeon, healthcare business offices are more accustomed to collecting from insurance companies than from patients. Providers have invested an enormous amount of capital in patient accounting systems and bolt-on compliance/managed care contract modules to assist their business offices with billing third-parties.

Getting a denial 45 to 50 days after bill submission for the reason - "Patient has not met their deductible"- is not going to cut it for most providers. Many providers are asking the question why become part of a provider network and accept discounted rates if they're still going to have to get paid by the patient. Most providers do not even have a process in place to collect money from patients at point-of-service. The rise of HDHPs as part of the consumerism movement is among the biggest threats to providers' cash flow and ultimate financial well-being.

There are several areas providers must address if they are to succeed in a consumer-driven marketplace:

•  Price transparency

•  Charge master reviews to insure competitive pricing-based on cost, not unrealistic gross charges

•  Greater CDHP awareness through training and education of all employees-including clinicians

•  Verification of both insurance coverage and plan design prior to service

•  Point-of-service cash collections at admitting and registration

•  Estimated bills prior to service

•  New provider network agreements to take into account HDHP

•  Financial verification policies, procedures and information systems throughout the revenue cycle

•  Re-engineered billing and collection processes to shorten bill lags and reduce response time from third-party payers

•  Redesigned patient dunning cycles

•  New patient statements

The list goes on and on but I don't want to bore you with all of the gory details. The best way providers can prepare for consumerism is to adopt HRAs or a combination of HRAs and HSAs for their employees so they can experience this phenomena first-hand. Oh no! I'm starting to sound like a benefits consultant. Since physicians tend to be in the upper income brackets, HSAs make a great deal of sense for hospitals and large group practices.

How Will Banks Become Involved?

Finally, the answer you've been waiting for. Most industries outside of healthcare rely heavily on financial service companies to help them manage their cash flow. As the industry moves away from a third-party reimbursement system to a first-party payment model, providers should involve banks in managing their revenue cycle.

Banks and the many financial service companies that support them such as First Data, Discover, Visa, MasterCard and American Express to name a few, have long been involved in automating payments. It should come as no surprise that the same companies involved with managing a hotel's front-desk and business office can also be involved with providers' billings and collections.

Innovative health systems such as the Veterans Hospital Association and HCA figured this out long ago and have been using banks to help manage their accounts receivable. Due to the unanticipated success of HSAs, banks are aggressively preparing to become more involved in the healthcare revenue cycle. During the last twelve months, several large banks entered into strategic alliances with healthcare companies or made strategic acquisitions of healthcare related assets. Last November, American Express entered into contract with Empire Blue Cross Blue Shield to provide a payment solution for the health plan's HSAs.

In April, PNC Bank acquired Health Administration Technologies, Inc, a well-known clearinghouse used by physicians and hospitals. GE Capital announced at the beginning of this year it was buying IDX Corporation, one of the most widely used physician and hospital patient accounting systems. Just this month, Bank of America, announced it was buying HealthLogic Systems, an industry leader in helping providers move away from paper to electronic data interchange (EDI) supported transactions. In fact, I encourage you to speak with your bank about what it can do to further your financial performance.

Banks and financial service companies would not be making a notable investment in healthcare if they did not believe there's opportunity to become involved in the revenue cycle. Think about this question - "what makes the most sense when a provider is dealing with a patient insured by a HDHP with $5,000 deductible and $10,000 out-of-pocket maximum.. a traditional hospital business office or large bank?" The CIO Executive CouncilT, representing over 200 chief information officers (CIOs) at leading US firms, believes a banking ATM approach should be used to implement our National Healthcare Information Network (NHIN). When you look at what banks are good at, you begin to see the correlation between healthcare payments and financial services. Banks are good at:

. Customer service

. Bookkeeping (i.e., monthly statements)

. Retail distribution channels (i.e., convenience)

. Transactions processing (pennies versus dollars)

. Networks such as Visa/MasterCard (the Bank's version of NASCO)

. Successful proprietary networks such as Amex, Discover & FDR

. Customer Relationship Managers (CRMs) in commercial and large corporate settings

. Experience in asset management and a major strength when considering HSA custodians

>> What's your point of view? Email Dr. HSA. We look forward to hearing from you!

About the author...

David Harris is a Partner with the Healthcare Advisory Practice in PricewaterhouseCoopers' New York office. He has over twenty years industry experience in the health care and information systems field. David is the National Partner for PwC's revenue cycle practice that specializes in, payer, hospital and physician revenue cycle operations improvement, operation turnarounds/workouts, process redesign and business office integration, as well as denial management. He is responsible for the thought leadership, products and methodologies used by PwC's more than 100 revenue cycle professionals with in-depth knowledge of patient access, clinical documentation, health information management, inpatient and ambulatory coding, billing, claim adjudication, collections, A/R management and information systems. David also leads the Medical Banking Project's HSA Workgroup as part of a new consumer-focused effort being developed at the Project.