Two Thirds of Patients’ Hospital Debts Unpaid
Holly Fletcher of The Tennessean has written a very informative feature on the hospital revenue cycle, including a seven-deck slideshow that translates the process into layman’s terms. (The Tennessean is the best daily newspaper for understanding hospitals, because Nashville is home to over for-profit hospital chains which control 60 percent of the beds in that industry, so the journalists know what they are talking about.)
Ms. Fletcher describes an insane system of billing which has been focused on getting dollars out of the byzantine bureaucracies we call health insurers. The main economic reason insurance should be for rare, unforeseen, catastrophic events is that claims processing is expensive. It is not just shuffling paper around, but also managing fraud, waste and abuse. This adds to what is called the “load” of insurance.
When it comes to getting money from patients directly, hospitals are hopeless, with two thirds of their accounts receivable remaining unpaid: “Billing practices are not designed to collect small, incremental payments from hundreds or thousands of patients. They are designed to bill a handful of large entities — insurance companies — not individuals who walk in the door.”
One might think this was a problem that is not too difficult to solve: Just call the supermarket or department store and ask them to recommend a point-of-sale technology vendor.
However, the insurance system makes this very difficult. Hospitals do not know how much to charge patients until the claims are adjudicated. After all, a hospital does not know how much of a patient’s annual deductible has already been paid. Further, insurers process hospitals’ claims in bulk, looking for variance which will cause them to challenge hospitals’ claims. Also, hospitals are highly dependent on Medicare, which imposes its own rules. Hospitals are unable to bundle prices into one bill. As Fletcher pits it: “One might not go back to a restaurant that gave you a bill for the appetizer then a bill for the bread then individual bills for the entrée and drink.”
This causes great harm to patients who get surprise hospital bills. It is so bad that the Attorney-General of New York has just announced an agreement with the nation’s three credit rating agencies that they will wait 180 days before using an individual’s medical debt against his credit score. Hospitals too often make claims against patients that end up unsubstantiated after insurers resolve disputes.
The policy solution requires turning the business model upside down. Most hospital procedures are scheduled. For auto insurance, customers send binding estimate to their insurers, which approve the repair before it gets done. Hospital insurance would likely look similar, if the government did not regulate it perversely.
Years ago I worked in a hospital that owned an ambulatory surgery center (ASC). The ASC would require patients to make a deposit prior to surgery. After the insurer would adjudicate the claim, I would receive a list of patient names and amounts to create refund checks.
Even back then hospitals were not that technical. At the time an accounting clerk would type the checks out on a typewriter. I created a mailmerge program on Word Star and ordered continuous checks on tractor paper and ran them through a Okidata dot matrix printer. It sped up the process by a huge margin and everyone thought I was a computer genius!
I wonder why we don’t see more of that? It would be a solution. I think charging so much the patient gets a refund is too much. But they could nevertheless reduce credit risk significantly by charging something.
Actually, the problem is getting much worse. High deductible health plans essentially means that many patients are responsible for the first $1,000, $2,000 or even $5,000 in medical spending. According to an article in Modern Healthcare, it is rather difficult to collect a medical bill when it exceeds 5% of a patients’ household income.
I don’t think anybody should be surprised about this. As more Obama care covered individuals are coming into the system who are subsidized by the government because they can’t afford the premiums on their own, how can they afford the exorbitant deductibles of $3,000, $5,000 or $10,000? I’d be willing to bet most all Obamacare individuals can’t afford a stay at he hospital. it remains to be seen if the number of personal bankruptcies is truly affected by Obamacare or are we in the same boat we were 10 years ago.
We have written about that in the blog. At the margin, the amount of medical bankruptcies is likely slightly worse.
I also wonder whether the high deductibles coupled with the high premiums makes people more prone to think they have paid enough into the system and, “well, screw the hospital!”
The article did suggest that when people don’t understand the prices they are less likely to pay.
Devon’s last point is ‘spot-on.’ Back a decade ago, most of the persons who had high deductible plans were fairly affluent and knew what they were doing…i.e. they had money in the bank to cover a high deductible when they actually got sick.
Today, many of the persons on the Exchanges and also many employees are not in a high deductible plan by choice. They do not have money in the bank to cover their deductible. Thus leads to the resentment that Devon describes.
Great article, John.
The insurance industry has turned to high deductible plans somewhat out of desperation. If you raise the deductible to $5,000, that wipes out a lot of smaller claims and thus keeps premiums from increasing so rapidly.
As you point out, the downside of this strategy is more bad debt and more ugly collection episodes.
This leads us to a question which I have posed for several years:
In a British or Canadian system, or our own VA system, hospitals are on global budgets and there are no deductibles or bills to collect.
However, there is much evidence that these hospitals are worse in the quality of care.
So the question is, how can we keep the high quality of most American hospitals while reducing the debt load on patients?
Or, to put this another way, how can we go back to low-deductible health insurance without a ruinous increase in premiums?
Bob, you ask, “how can we go back to low-deductible health insurance without a ruinous increase in premiums?”
ha ha, when you get this answer email Hillary as rapidly as possible. It’s math.
Actually Hillary Clinton does have a proposal to help reduce hospital debts.
Her campaign proposes that any insured person who faces a large medical bill can get a tax credit for any amount exceeding 5% of their income.
This proposal assumes that we cannot get the insurance industry to back off of its high deductibles, but we can help the middle class people who wind up with a high deductible plan and then get sick.
Imperfect of course, but are there any conservative alternatives?
But it’s yet another erosion of the tax base without an offsetting way to pay for it. More free stuff to buy votes. Shameful. If she were honest enough to offer an honest way to pay for her proposal, I would have more respect for it whether I agree with it or not.
NCPA has long argued for a universal tax credit, much easier to calculate than percentage of income.
While I’m sure much of the unpaid debt is legitimate, I’m equally sure much of it is a shell game. When I’ve seen a doctor I’ve handed him my insurance card knowing full well my deductible won’t be met and that the card means very little. Except this: I get a different, lower rate when I submit my card. Meaning there is a list price charged to the uninsured that is higher. Akin to going to McDonald’s a getting a Big Mac for 3 bucks with a card and 10 without it. Were that the case McDonald’s could claim a $7 loss, as I am sure the hospitals do.
Here’s another true egregious case. I lost my wife several years ago in a tragic very unexpected way. She was on life support for 4 days, then died. The bill sent to the insurance company: ~$100,000. What they paid: ~ $6,000. Not another bill appeared and no questions were asked. On paper a $96,000 loss. Not.
Mr. Johnson hits one of the main points to be addressed in health care reform.
First, the issue as presented is a misnomer… Obamacare, etc. are health insurance reform efforts only and do nothing to address care.
Some of the fixes are indeed common sense… indeed in other industries there is legislation that actually forbids the kind of conduct that is baked into the billing system in health care provision.
There needs to be posted pricing that is the same for everyone. If anything, providers should be able to offer a discount for immediate payment as the provider saves all the billing overhead.
I had a similar problem to Mr. Johnson on a much less serious scale (young son injured) when I first moved to this country from Canada. Over time, I actually paid the inflated prices and ruined my credit for years.
Now my wife is a CPA in health care management and the write-offs are ridiculous; they know they’ll never get paid. The system needs an accounting practice closer to cash accounting where you recognize the income you receive. Target, for example, recognizes payment for merchandise and the losses are for stolen merchandise, not the fact that they wanted to sell the TV for $1000 MSRP and only received $600 on sale. In health language, they lost $400.
So that’s a big fix on the provider side. On the insurance side, Republicans have been pitching for years the need to sell insurance across state lines. Of course that does away with all the little state fiefdoms of Insurance Regulators so it has a big vested interest working against it. While this too only fixes a part of the problem, at least this is not a program of having taxpayers foot the bill which is what the Hillary supporter above expressed.
Another simple fix: why do insurance policies have co-pays and deductibles? Many folks think they’ve already paid their share with the co-pay. And of course the Obamacare high deductible plans are going to people who can’t pay the deductible. They should not even be offered to the group that is buying them as one writer pointed out above… these folks are being them to get the cheapest premium inline with what they can afford so they certainly can’t afford an unbudgeted extra $5,000 bill. Co-pays probably need to go up and deductibles go away all together.
The fix on health care, like most problems, comes from identifying what the real problems are and then having the will to fix it regardless of which political party one is with and which of their favorite lobby groups gets hurt… health care is supposed to be about “caring” for people.
Some people can’t afford the deductibles because they have been trained that way. Most of them have no big problem paying auto insurance premiums. If you have to
Pay out of pocket to treat a cold, you don’t, and since you don’t have a doctors note, you go to work. However, if your health care is paid by others, you go to the doctor and get three days off work. Costs of health care go up, your productivity goes down, and those paying the bills start to look for ways to escape the burden.
I was approached by a woman recently who wanted me to give her money to buy Pampers. My son wore one Pamper his entire life, and the hospital put that on him. I used cloth diapers, because I could not afford disposables.
What happened to individual responsibility?