Why more than half of hospital bills don't get paid

Hospitals and medical practices share a growing problem with those they treat: Patients aren't paying their bills.

Working people are on the hook for an increasingly large portion of the cost of their care, as insurance policies pay for less. It's a trend that is not reversing — and it’s causing financial distress for families and CEOs alike.

In health care, the billing process is called revenue cycle management. It’s a complex system of diagnostic codes, services, insurance benefit analysis, billing departments and software.

Hospitals and providers, historically, received 90 percent of the reimbursement from insurers, according to The Advisory Board. The patient portion was more of an afterthought.

That dynamic is shifting as more people come under high deductible health plans. The ratio could settle around 70-30 — with patients paying nearly a third of their bills, said Ken Kubisty, senior vice president at Advisory Board Consulting and Management.

For every patient dollar being billed, hospitals have historically failed to collect 65 cents.

The old process, in today’s era of high deductibles and cost-sharing, is more aptly described as "revenue cycle mismanagement" — and it's impacting hospitals and medical groups around the country.

Wayne Smith, chairman and CEO of Franklin-based Community Health Systems, talked about the company’s struggles with “doubtful accounts” — or those unlikely to be paid — on a recent earnings call. A decline in collections, patient-paid co-pays and deductibles — as well as an increase in personal bankruptcies — led CHS to raise its doubtful account projection by $169 million.

Smith talked about "a decline in the growth for patient payments over time; and decreased collections from continuous self-pay growth" in states that didn't expand Medicaid. A spokeswoman did not respond to requests for an interview.

CHS is not alone, and the problem is not simple.

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.

On top of that, patients aren’t psychologically or financially prepared to pick up larger tabs. Nearly one in three Tennessee adults had outstanding medical debt in 2012.

There has to be a collective mindset shift, said Larry Van  Horn, executive director of health affairs at Vanderbilt University's Owen Graduate School of Management. Hospitals have to be more transparent in billing and pricing while patients have to be prepared to set money aside to pay for health care.

“People are not saving and people are going to need to plan for health care expenses just like they do for all kinds of services they already (pay for) out-of-pocket,” said Van Horn.

An evolving marketplace

There are several reasons that bills go unpaid, including shifting payment responsibility, complicated billing and pricing practices.

The nature of insurance began changing well before the Affordable Care Act, bringing more people into high-deductible health plans — and upending the decades-old order of most reimbursement coming from insurance companies.

“(Providers) are lousy at doing business with patients because in reality they didn’t have to in the past,” said Kubisty.

High deductibles are frequently the norm as employers restructure coverage to manage costs and more people shop on the federally-run exchange.

Nearly a quarter of the U.S. has a $2,000 deductible, said Van Horn.

That’s a staggering bill to pay before insurance coverage kicks in considering nearly two-thirds of Americans have less than $1,000 in savings, according to gobankingrates.com.

A new group of underinsured people has emerged with the rise of high deductibles. They carry insurance cards in their wallet but struggle to meet the responsibility that comes with high deductibles.

The patient has not paid for, or even known, the true cost of care for decades. Consumption of service was divorced from payment unlike other services or goods.

Surgeries, checkups and procedures are unlike any other service or product Americans purchase.

“We’ve made choices and become accustomed to a level of consumerism, without setting aside money for health care,” said Van Horn. “It’s going to take time for people to get their head around it, to understand they have to prepare for it."

Struggling for a solution

Patients are being thrust into the role of shoppers who buy necessary services that carry luxury price tags.

Van Horn said “the move toward high-deductible health plans is unstoppable.” He thinks that in 15 years that’s all people will have.

It’s a transition with hefty consequences for personal and corporate finances, as illustrated by Smith’s recent comments.

The old system was designed to send past due accounts to collection agencies or write them off. But as patients are billed for more of the cost of their care, a new system balancing their responsibility with their ability to pay has yet to emerge.

But it should reflect the necessity of care as well as the necessity of payment.

“Patients have to adapt to a new reality. That’s true. But so are providers. So are hospitals. They are chasing more dollars from patients,” said David Frederiksen, CEO of PatientFocus. “It’s important to be persistent and polite with patients."

Medical debt takes financial toll on Tennesseans

Frederiksen is trying to improve the way hospitals interact with patients once the bills start arriving. Nashville-based PatientFocus will explain a bill to patients and try to get them on a payment plan to keep them away from debt collectors.

“As long as they are willing to send me something every month I will keep them out of bankruptcy, in terms of this,” he said.

There will still be people who can’t, or won’t pay. Frederiksen said he expected the majority of people would opt for a payment plan but that’s not been the case.

About 10 percent of people choose a longtime payment option. About 30 percent choose to pay in full. The rest choose not to pay. They get thrown back to the hospital for a decision about whether to send the account to debt collection agency or write it off.

Obstacles ahead

Solving the revenue cycle riddle will not be easy or cheap.

Streamlining billing into a single itemized list is essential to helping turn patients into bill-paying customers.

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.

But that’s how health care is presently billed. An open heart surgery could bring individual bills from the cardiologist, the surgeon, the lab, the anesthesiologist, a consulting doctor who helped read charts and more.

“Just tell me what I owe. Quit nickel-and-diming me every 10 minutes,” said Frederiksen. “It will wear you out."

Hospitals need to engineer user-friendly billing practices and processes, experts said.

The tools and models exist but they are not widely used, said Kubisty, who added his consultancy is seeing interest from hospitals on how to implement better billing processes.

Duke University Health System — which fares better because officials strategize with patients about a payment plan before a procedure, according to Kubisty — reportedly spent about $700 million on a switch to Epic Systems’ electronic health record software.

VUMC starts 'gigantic' switch to Epic records system

That’s a journey that Vanderbilt University Medical Center started this fall.

VUMC’s chief informatics officer Dr. Kevin Johnson said the “coolest thing we’re going to do with" Epic "is we’re going to have our patients experience one bill.”

Easy-to-read billing and better financial counseling before a procedure will go a long way in bringing in more money, experts said.

It’s a long-held perception in health care that a person with insurance had the income to pay the bills, said Kubisty. Insured patients are often not considered for charity care or the hospital’s payment plans.

But one surgery or unexpected serious injury could destabilize a family’s finances, even one that has insurance.

“You have to be a good citizen. You can’t beat up someone who can’t participate,” Kubisty said.

Reach Holly Fletcher at 615-259-8287 or on Twitter @hollyfletcher.