How 3 hospitals developed patient loan programs

Hospitals and healthcare systems are looking for creative ways to tackle a thorny and growing problem: how to collect self-paying accounts associated with a growing number of high-deductible health plans.

Today, patients with high deductible policies struggle with significantly higher out-of-pocket expenses. The Kaiser Family Foundation reports that the average annual reimbursable costs per patient increased by almost 230% between 2006 and 2015. As consumers assume greater financial responsibility for their care, hospitals and health systems are more than ever before. in contact with patients to collect many accounts. individuals simply cannot afford. For insured patients, management consulting firm McKinsey & Company has estimated that the bad debt rate is increasing by more than 30% each year at some hospitals.

As providers revise their collection methods, some healthcare facilities are using patient loan programs to ease the financial burden on patients and reduce bad debts.

The Orlando-based Florida Hospital has been providing medical loans to cash-strapped patients for more than a decade. During this period, the program has evolved considerably to accommodate the increasing financial obligations of patients.

Prior to contracting with a third-party financing provider, the hospital administered its own loan program itself and charged patients interest rates of up to 18%. However, low patient acceptance levels indicated the need for more flexible and less punitive reimbursement terms.

The Florida Hospital partnered with patient finance company ClearBalance in 2007 in a concerted effort to transform its patient payment strategy from a collection strategy to a resolution and reimbursement strategy. For the Florida hospital, that meant high interest rates on its loans. Since implementing a zero percent loan option, more patients have participated in the CB program than ever before, says Jeff Hurst, senior vice president of finance and hospital in Florida. In fact, Hurst says the program has outperformed all other repayment tactics, including staff tracking, early collection and bad debt collection, over the past three years.

The program is successful, in part, because it cares for patients financially in a non-threatening way, adds Hurst. Few patients are in control of their medical care needs, and interest-free, non-qualifying loans relieve much of the financial anxiety that plagues patients’ psyches during a stressful time. Zero interest loans show that a hospital does not aim to profit from the bad luck of the sick or injured. This good faith allows hospitals to better engage patients in financial conversations at all times during the episode of care and to provide a friendly way to meet their obligations, said Bruce Haupt, president and CEO of ClearBalance.

Patient loan programs make repayment less confusing for patients, but they can add strain on a hospital with limited resources. That’s why many hospitals have turned to a new wave of funding providers for help. Dedicated finance companies offer a level of expertise that is imperative to navigate a highly regulated and complex industry like credit. Providers like ClearBalance are actually providing their clients with a return on their investment because they can manage and collect more accounts at a lower cost of ownership.

But sales companies aren’t the only option available to hospitals considering alternative funding programs. Some banks tailor programs to meet the unique needs of hospitals.

SSM Healthcare, based in St. Louis, implemented an interest-free patient funding program in partnership with Commerce Bank in 2014. The bank is advancing funding with terms of three and five years to eligible SSM patients in all four states. health system – Missouri, Illinois, Oklahoma and Wisconsin.

Paul Sahney, vice president of revenue management for SSM Healthcare, says partnering with a financial institution made sense for SSM as hospitals in the system lack the resources or capacity to effectively manage monthly payment plans .

The program has been very successful since its launch two years ago. SSM and Commerce Bank have provided funding of approximately $ 24 million to 14,000 patients. “We see so many patients who feel worthy of meeting their financial obligations, but who don’t have the cash on hand,” says Sahney. “We are helping to meet a very clear need in our community. “

As a faith-based, not-for-profit healthcare system, SSM Healthcare is not necessarily interested in generating a return on investment on its funding program. Accounts in default are transferred back to SSM after a holding period, at which point SSM reimburses Commerce the remaining balance. SSM does not pay Commerce Bank administration fees at all for defaulted accounts. From there, the account is written off as bad debt and outsourced to a third-party collection agency.

But the risk of sending accounts to collections is far outweighed by what the program does to SSM’s reputation in the community, says Sahney. “As a faith-based organization, we have a vested interest in supporting our patients as much as possible. By helping them meet their financial obligations, they see us as a true partner in care, ”he says.

Third-party financial institutions offer an undeniable value proposition to nonprofit and for-profit hospitals hoping to expand their financial offering. Many systems simply do not have the resources available to develop loan programs in-house. But there are exceptions: some healthcare systems have the scale and desire to invest more fully in the financial experience of patients.

Like Florida Hospital and SSM, the nonprofit healthcare system in Boise, Idaho implemented a loan program after recognizing the need for creative funding options in its community. St. Luke’s is one of the largest health care systems in Idaho, a state that chose not to expand its Medicaid program under the Affordable Care Act. Idaho consistently ranks among the lowest states in the country in terms of education and income level. Taken together, these factors impact the financial backdrop of the St. Luke patient population.

“From a cost of service point of view, the average [patient] the income is relatively low, but the financial obligations of patients in terms of the cost of care are not much different from other places in the United States, ”says Michael Rawdan, PhD, MBA, Director of the Revenue Cycle System and patient experience at St. Luke’s Health System in Boise, Idaho.

The healthcare system has significantly evolved its loan program since it was first implemented in October 2014. St. Luke’s initially offered patients 18-month payment terms at zero interest, but soon realized. that most patients were still not meeting their financial obligations. “We needed to become more flexible without dramatically increasing our accounts receivable days,” Mr. Rawdan said.

The health system has developed a financing strategy that uses both interest-free and interest-bearing conditions, divided into three payment periods. A participating patient has up to 12 months to repay their loan with additional zero percent interest. After the account ages 12 to 24 months, payment interest climbs to 5%. Accounts 36 months and older earn 8% interest.

After capping its 12-month interest-free payment period, St. Luke’s has seen its patients change their financial behaviors. As part of its initial loan program, some patients with the ability to repay the account in one year simply opted to take advantage of the full 18-month term. The imposition of a slight 12-month rate hike prompted these accounts to close earlier, with a positive impact on health system cash flow.

Self-administration of its loan program has some advantages, says Rawdan. A hospital’s billing process has a direct effect on patient satisfaction, in large part because billing is the first and last interaction a patient has with the provider, from registration to collection. By selling and managing the system’s own financial products, “we can ultimately control the experience to make it more flexible, transparent and personal,” he adds.

Developing effective and efficient ways to improve the financial patient experience is a key strategic priority for all hospitals as they move towards consumer-centric models of care. Fortunately, many healthcare organizations have found that a little flexibility, patience, and compassion go a long way in improving both the patient experience and a hospital’s bottom line.

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Elizabeth J. Harris