The landscape of healthcare is constantly changing. Once, providers were concerned about the impact of health maintenance organizations. Now concern turns to accountable care organizations, changes to fee-for-service reimbursement models — not to mention the annual threat of Medicare reductions due to the sustainable growth rate. Additionally, most markets have experienced shifts in practice ownership, as primary care physicians and specialists have fluctuated between independence and selling to hospital systems.
The future of healthcare faces new challenges. The media reports ongoing and projected shortages of primary care providers and an increasing number of other providers leaving medicine and declaring bankruptcy. Even hospital systems are not immune, as healthcare futurists predict that one-third of existing hospitals will close by 2020.
Healthcare clearly is subject to the laws of evolution. Organisms — in this case, healthcare providers and systems — must continue to change in response to their environments. Evolution in healthcare goes beyond diagnostic equipment and legal structures. It extends to the continued evolution of clinical and economic policies and procedures. Survival depends upon adapting to the new economic challenges.
An example of this ongoing change is the growth of the high-deductible health plan. As indicated by their name, these plans have significantly higher deductible amounts than standard insurance plans. Often, insurance coverage does not begin until a deductible of $2,000, $5,000 or even $10,000 has been met. Enrollees and their employers may be able to fund healthcare savings accounts to help cover these deductible amounts. Employers, however, are clearly adopting HDHPs as a strategy for making their employees "market savvy" in their healthcare spending.
Employers are moving more of the workforce to HDHPs for several reasons in an effort to control costs. Employers are attracted to these plans due to lower costs compared with traditional group insurance plans and the greater accountability these plans place upon employee choice.
According to a study by the Kaiser Family Foundation, 17 percent of covered workers in 2011 were enrolled in HDHPs. That amount was up from 13 percent in 2010 and 8 percent in 2009. This rapid growth suggests that two out of five covered workers in 2014 will be enrolled in HDHPs. The rapid growth of these plans will impact providers on multiple fronts.
Healthcare providers must change several paradigms to successfully address the growth of HDHPs. The first paradigm concerns patient accounts receivables. Historically, patient collections were considered a "back office" function: Providers collected proportionately lesser balances from patients after insurance had paid its share. More recently, providers have added point-of-care collections, primarily collecting copays and deductibles from the patients when services are provided. As HDHPs become more common, providers will either collect more from patients — preferably POC collections — or watch their accounts receivable balances balloon as their cash flow tightens.
A less visible but real cost of HDHPs to the provider can be an increase in merchant or credit card fees. Consumers are moving away from traditional cash and checks to credit/debit cards and other forms of electronic currency. As HDHPs increase patient financial responsibility, more people will turn to credit cards to finance these amounts. Unlike cash and checks, accepting plastic has real costs to providers. While most providers must accept credit cards in the current environment, their merchant agreements may not have been reviewed since they were executed. Many of these merchant agreements were based on "average tickets" or the average amount of a credit card charge. Because HDHPs significantly increase patient contributions, the average ticket amount also increases. Merchant agreements assuming a lower average ticket will likely obligate those providers to pay higher processing fees.
Old vs. new formula
As noted above, patient collections were once considered a back office function. With copays and deductibles, POC collections involve collecting predetermined amounts from the patient commensurate with each visit. Some patient balances are not obtained at the POC. Offices may fail to collect for noncovered services or deductibles that vary depending upon a patient's insurance plan and projected balances that vary from actual amounts due. Nonetheless, a provider's business office must still collect these balances.
Most providers naively limit the credit card question to "Do we take them?" Once executed, merchant agreements are rarely reviewed, and rising merchant fees are simply considered a cost that the office has little ability to manage. Most processors provide little or no information to providers, which would allow them to monitor and impact their credit card costs. The only information most providers receive regarding their credit card costs are their monthly statements. This situation is somewhat akin to your family cell phone bill: When a carrier comes out with a more favorable plan, it doesn't notify you about it — you must be proactive and ask.
As HDHPs become more common, the importance of POC collections increases. In prior years, front office collections focused on copays, a relatively small fraction of the patient's bill. Now that collections include high deductibles as well as copays and fees for noncovered services, POC amounts will increase. It is not unlikely that they will double. Provider collections from debit and credit cards will increase correspondingly. A thorough understanding of the variables that drive the costs of debit and credit card processing will be critical for providers in the new environment.
Why should you review your credit card agreements? Because old agreements and out-of-date average ticket amounts obviously impact the cost of accepting plastic. However, these rates and fees paid by the provider are often not the primary driver of credit card costs.
Variables in card processing
There are a number of variables that contribute to merchant banking expenses incurred by providers. The creation of policies and procedures, educational programs and associated reporting around variation in these variables is critical to managing these costs.
Point-of-care collections
• Standardized policies and procedures can make a significant impact on providers' merchant banking costs. While the number of locations and employees handling payments is important, these variables can be managed with standardization. Too often, an organization considers POC positions as "entry level." These positions often receive minimal training and little support. Standardized policies and procedures, as well as consistent training on the proper processing of credit and debit cards, can make a large impact on credit card fees.
• Providers must be precise in their projection of patient balances. With HDHPs, providers are challenged to estimate the cost of services prior to insurance adjudication. Fortunately, there are third-party solutions available to providers to assist with these calculations. When the costs of services are accurately predicted, providers can request and collect payment for these services while the patient — and his or her credit card — is present.
• Finally, POC staff must have the support of their organization in requesting and collecting patient balances. Too often, providers have not had clear policy on collections at the time of service. Some providers do not want to enforce collection at the point of service due to concerns about patient satisfaction scores. Clear policies and procedures along with associated staff and patient education can minimize confusion and complaints.
Merchant contract (rates and fees)
• As stated earlier, providers must review their merchant agreements. Many agreements are antiquated and fail to reflect the providers' current business operations. Many providers have multiple legacy agreements. These contracts reflect historical practices and are not designed to lower processing costs in the new environment. Like all agreements, merchant agreements should be reviewed to ensure alignment with current business practices.
• There are a variety of fees associated with the array of credit cards on the market. Under most agreements, debit cards are less expensive to process than credit cards. In addition, some cards require additional information to process and will trigger higher fees if such information is not included.
• Qualification management programs are a cornerstone of success in the new environment. QM begins with understanding a provider's current credit card spend and determining the volume of transactions that are downgraded. QM next reviews collection policies and procedures and provides meaningful recommendations toward standardizations that minimize transaction downgrades and thereby reduce fees.
Back office procedures
• Management tools must be provided by the merchant processor. These tools should be online and updated daily. This information allows providers to determine activity volumes, including details on transactions, changes in card mix, volumes by location and a focus on managing transaction downgrades.
• Beyond merchant transactions, providers have computer systems that handle patient billing and financial accounting. Merchant data should be used to populate both systems. Credit card payments can post to a billing system via a standard HIPAA X12N 835 electronic file. Daily card volume can also post to accounting systems and be used in bank account reconciliations.
Providers aiming to thrive under this new paradigm of healthcare economics must focus their resources on the POC process and increasing collections at the time of service. For hospitals, surgery centers, physician offices — all healthcare providers — an area of afterthought has become an area to leverage. Savings opportunities exist in multiple areas: standardizing card processing practices at the point of care, lowering rates and fees paid to card companies and qualifying patients according to risk profile.
Variables affecting your cost include consolidated net revenue, payer mix, number of locations, frontend collection practices, staff training and standardization, use of backend portals and associated technology, reconciliation process, reporting process and current rate and fee structure. The more complex the portfolio, the greater the savings potential.
Providers must also have a merchant that understands their particular challenges and partners with them to ensure success. For providers and systems to survive, they will have to adapt to this new paradigm. With the right merchant processor, they won't have to struggle alone.
More Articles on Hospitals and Collections:
Banner Health Moves to Consolidated Bills for Patients
Why You Cannot Afford Business as Usual: How HDHPs and Poor Collection Practices Can Combine to Erode Your Profit Margin
Bad Debt Exceeds 2% of Total Cost of Services for Most Hospitals