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83 Executive Briefing Finding and Fixing the Leaks in Your Hospital's Revenue Cycle A s healthcare costs outpace com- mercial and government reim- bursement rates, and as high-de- ductible health plans become the norm rather than the exception, many hospitals have found their revenue cycle infrastruc- tures have sprung unexpected leaks. For insured patients, management con- sulting firm McKinsey & Company estimat- ed the rate of bad debt is increasing at well over 30 percent each year in some hos- pitals. Consumers with high-deductible plans pay more in healthcare costs than employers and payers, and as a result, hos- pitals and health systems are faced with a critical payer group from which payment has proven significantly more difficult — and more expensive — to collect. Like updates to old plumbing, full rev- enue cycle system replacement can be both enormously disruptive and expen- sive. This is enough to deter hospital leaders from making necessary repairs to fix the leaks. In the meantime, small but persistent revenue cycle leakage from insurance denials, underpayments and missed eligibility have led to substantial losses for many healthcare entities. To stay financially viable amid the turbu- lence of healthcare reform, hospitals and health systems need to shift backend rev- enue cycle tools and processes to the pa- tient at the start of the encounter, and stop revenue cycle leaks before they start. The Rise of High Deductible Health Plans Today, nearly 25 percent of employees are enrolled in high-deductible health plans, according to Mercer. The financial burden for those with high-deductible plans has significantly increased over the last decade. Kaiser Family Foundation re- ports the average annual out-of-pocket costs per worker rose almost 230 percent between 2006 and 2015. As more policyholders choose high-de- ductible plans with increasingly larger out- of-pocket maximums, more insured pa- tients have reported financial duress due to unaffordable medical bills. Kaiser Family Foundation found even among Americans with insurance, 20 percent had difficulty paying medical bills in the past year. While the majority of uncompensated care is still associated with the uninsured popu- lation, a 2015 analysis by Crowe Horwath found consistent growth in the share of uncompensated care associated with the insured. The proportion of total uncom- pensated care associated with the insured population increased sharply from 2013 to 2014, with bad debt and charity rates rising 22 percent and 130 percent, respec- tively, in Medicaid expansion states. This trend is expected to continue, if not accelerate, in the coming years. Accord- ing to Kalorama Information, patient out- of-pocket spending totaled $416 billion in 2014 and is expected to reach $608 billion by 2019. The Cost of Patient Collections As the financial burden for medical bills shifts from payers to patients, hospitals are spending more money and time col- lecting medical payments from patients. A recent report by the Consumer Finan- cial Protection Bureau found medical debts accounted for 52 percent of debt collection actions that appeared on con- sumer credit reports in 2014. The cost to collect from a patient is materi- ally higher than it is to collect from a payer, and those costs increase as accounts age on the back-end of the revenue cycle. Ac- cording to a 2015 survey by Black Book, 83 percent of hospitals outsource collec- tions to a third party. Typically, secondary bad debt collectors charge services fees between 25 to 30 percent on revenue re- covered for hospitals. Though most of the healthcare industry recognizes the importance of patient col- lections and the challenges it presents, point-of-service collections remain an un- derutilized strategy. Only 35 percent of hospitals collect prior to care, represent- ing just 19 percent of patient-owed fees, according to a 2015 report from Availity. Self-pay accounts are expensive to col- lect and insurance coverage often flies under the radar. As self-pay responsibil- ity for insured patients increases, health- care providers need to update their col- lections approach to make their revenue cycle more efficient. Why Hospitals Miss Coverage "The biggest place where hospitals are losing money is in designating accounts as self-pay that in fact qualify for federal or commercial coverage," says Johna- than Wester, group vice president, reve- nue cycle management for TransUnion's healthcare division. Between 1 and 5 percent of all accounts written off as un- compensated care come from patients who are eligible for coverage. Hospitals can miss patients' commercial coverage and federal eligibility for a vari- ety of reasons. Emergency medical visits are urgent and unscheduled, with little op- portunity for hospitals to verify patients' eli- gibility or demographics before treatment. Some patients may not even be aware that their demographic or disability status qualifies them for federal coverage. For in- stance, of uninsured children who qualify for children's Medicaid coverage, the par- ents of nearly half of those children are un- aware their child qualifies for benefits, ac- cording to a 2016 Medica Research study. Medicaid expansion has further exacer- bated hospitals' challenge of capturing retroactive eligibility. Medicaid coverage may be effective retroactively for up to 90 days before a patient applies for coverage, meaning patients who identified as self- pay at the time of care may have billable coverage within the next three months. Hospitals can bill Medicaid for services during that 90 day time period, but this Sponsored by: