Reduce Bad Debt: Four Tactics to Limit Exposure During COVID-19

Reduce Bad Debt:
Four Tactics to Limit Exposure
During COVID-19

© 2020 Health Catalyst
Proprietary. Feel free to share but we would appreciate a Health Catalyst citation.
Reducing Bad Debt Driven by COVID-19
As health systems continue navigating the challenges
of COVID-19, leaders feel pressure to increase
revenue on thin margins with limited resources.
While organizations weren’t prepared for the novel
coronavirus, many have done their best to respond
and find ways to optimize performance.
One way health systems can survive financially amid
the pandemic pressures and reduce economic
vulnerabilities is to manage bad debt.

COVID-19 Increases Likelihood for Health
Systems to Incur Bad Debt
Bad debt write-offs represent the amount
a patient or other payer cannot (or will
not) pay of its portion of the bill.
The hospital considers bad debt
unrecoverable and, therefore, it directly
decreases revenue.
Simply put, the more bad debt a health
system has, the less revenue it generates.

Health systems incur bad debt (aka write-
offs) they perform a service or procedure
for a self-pay patient (without insurance)
or underinsured patient who cannot pay
for the service.
Write-offs are also incurred due to
registration and coding or billing errors,
such as not verifying a patient’s insurance
coverage for a procedure.

Currently, the number of uninsured
patients is increasing due to recent
job losses and a rise in high-
deductible health plans.
These factors have increased the
cost burden on patients, making it
difficult for hospitals to collect full
payment from patients.
And, as a result, the hospital
identifies these balances as bad
debt and writes them off.

Health systems are primarily responsible for
providing care to the communities they serve.
There are ways they can decrease bad debt
and maximize their ability to collect revenue
for every procedure without compromising
care quality and accessibility.

Decreasing Bad Debt Can Save Millions
Since the onset of COVID-19, many people
have lost health insurance coverage due to
unemployment, leaving patients with little
means to pay for healthcare.
Despite funding resources, such as
Medicaid or government stimulus money,
health systems still fail to collect money
from procedures as a result of patients’ job
circumstances or even high-deductible
plans that employed persons cannot pay.

While financial leaders might focus on other
cost-saving strategies (such as layoffs, service
reductions, or reducing overhead expenses)
that will also yield margin improvement, they
should not overlook the financial return of
minimizing bad debt exposure.

Minimizing or eliminating bad debt can result in
a direct increase in revenue for health systems,
and even small reductions in bad debt can
drastically move the revenue needle.
For example, if a health system with an annual
revenue of $2 billion reduced bad debt by 10
percent, it would save $3 million.
Or, put another way, it would generate $3 million
more in revenue.

Four Tactics to Reduce Bad Debt Exposure
Bad debt is inevitable, and hospitals will never eliminate it, but leaders
can implement four tactics to recognize bad debt exposure and minimize
it as much as possible.
Reducing bad debt exposure also offers more financial support to patients
as they travel through the complex patient payment roadmap (Figure 1).
Identify Bad Debt
Exposure Early
Educate Patients
About Alternative
Payment Options
Leverage Technology
Within the Workflow
Understand the True
Cost of Care

A health system should prioritize identifying
bad debt exposure and consider how it
currently identifies that exposure.
If the system does not have the right steps
in place, it can alter existing workflows to
improve early identification.
Ideally, a health system has the right
workflows in place to identify bad debt
exposure as early as possible in the patient
encounter.
Tactic #1: Identify Bad Debt Exposure Early

For example, a health system could
implement a pre-registration program to
register and financially clear or flag a
patient prior to the day of a procedure.
If it flags a patient as a financial risk, the
health system can create a payment
plan or require a deposit for non-
emergent procedures to avoid
incurring bad debt.

Early bad debt identification allows
health systems to adjust workflows and
implement new mechanisms to work
with and identify possible payment
sources, patients on high deductible
plans, and patients without insurance.

Technology, like a propensity to pay (P2P)
machine learning model, can also enable
effective bad debt identification processes
and workflows.
For example, Allina Health implemented a
P2P machine learning model to predict if
patients will pay their healthcare bill within
the month of their procedure and, in doing
so, increased overall collections by $2
million in one year.

Once health systems understand the
technology chasms, they can implement
appropriate technology that will flag early
signs of bad debt possibilities.
Health systems can then collect
revenue by arranging alternative
payment methods to meet the
patient’s needs while still
providing care.

The principle of providing care specific to
each patient’s unique needs doesn’t only
apply to the clinical side of healthcare.
On the administrative side (including
finances), registration and patient
accounting department team members
can offer financial payment alternatives
that meet the specific needs of patients.
Tactic #2: Educate Patients About Alternative Payment Options

For example, if a self-pay patient can’t
pay for a procedure in full, the hospital
can offer alternatives, such as seeing
if the patient qualifies for Medicaid or
offering an interest-free loan program.
Often, patients don’t pay for services
because they don’t understand their
bill and aren’t aware of different
payment options.

Price transparency can help health
systems communicate these costs and
therefore identify the best payment
options for patients.
Tools that offer price transparency, like the
Vitalware Hospital Price Index, allow
health systems to understand the nuanced
costs of any procedure, such as the gross
charges and the minimum and maximum
procedure charges for individual services.

With transparency into a procedure’s total
cost, revenue cycle team members can
work with patients to find the best solution
for everyone.

The next way to minimize bad debt is
to leverage an analytics platform that
maximizes data—such as the Health
Catalyst Data Operating System
(DOS™)—within existing workflows:
1. Real-time eligibility technology
2. P2P
3. Patient Cost Estimator
Tactic #3: Leverage Technology Within the Workflow

Real-time eligibility technology
One of the primary reasons for bad debt is the
delay in insurance verification. Typically, when
a health system registers a patient before a
procedure, the billing department copies a
patient’s insurance card, then sends the claim
to the patient’s insurance company, and waits
to see if they accept or reject it.
If the insurance company denies the claim
because the patient is not on file or the
procedure is not covered, it’s too late for the
hospital to find an alternative payment method
because the procedure or service is already
performed, and the patient has left.

Real-time eligibility technology
Real-time eligibility technology allows a billing
department to verify a patient’s insurance
instantly instead of waiting 35 to 60 days to
confirm coverage. If the procedure is not
covered by the insurance plan, health
systems can offer alternative payment
methods for the patient instead of incurring
the cost (or bad debt) altogether.

P2P
P2P uses predictive analytics and machine
learning to predict a patient’s likelihood to
pay, based on the patient’s historical data.
P2P helps health systems flag potential bad
debt exposure and respond by delivering
appropriate care while matching a suitable
payment plan with the patient.
For example, if a health system schedules a
knee replacement in advance, and they have
verified that the insurance won’t pay for the
procedure, the billing department can run the
P2P workflow.

P2P
If the patient has paid in the past, the health
system is likely to perform the knee
replacement because it’s a low risk that the
patient won’t pay.
If the opposite is true, and the patient hasn’t
paid in the past, he might qualify for Medicaid
or agree to an interest-free loan program.
With historical information to inform decisions
with far-reaching financial ramifications,
health systems can ensure payment and still
deliver care while easing the financial burden
on the patient.

Patient Cost Estimator
Often patients don’t know how much a
procedure will cost or what they will have to
pay after their insurance pays (if the patient
has insurance).
A patient cost estimator allows health
systems to estimate procedure costs with
accuracy, so patients know the anticipated
out-of-pocket costs upfront, allowing them to
better financially plan and prepare.

Although health systems have come a
long way in understanding cost, some
financial leaders still fail to understand
the true cost of delivering care.
Leaders don’t always know the true cost
of care; they usually know the general
cost of care and cost for a particular
unit, but access to the granular, service-
line-level and procedural-level data
will reveal specific opportunities to
decrease bad debt.
Tactic #4: Understand the True Cost of Care

Leaders must understand the true cost of
care for every type of patient—from fully
insured to self-pay patients—because the
true cost will drive decisions around
decreasing bad debt.
Without understanding the true cost of a
procedure, a health system could be
writing off revenue and still expending
resources to perform the procedure.

It is critical that financial leaders have data-informed
activity-based costing infrastructure in place.
For example, the Health Catalyst CORUS™ Suite,
the Vitalware CDM and Hospital Price Index create
a defensible pricing strategy—a strategy using cost,
reimbursement, and market information to defend
the price a health system places on any given
procedure.

Because many organizations don’t know
what procedures cost (only what they
charge patients), it’s difficult to justify the
cost of a procedure.
A defensible pricing strategy is key to
defending prices when patients, payers
(used as leverage to negotiate), or
community members ask.
The health system can use accurate cost
information to communicate that they
may not be the highest price provider and
why a procedure has a certain price tag.

In understanding what it costs to deliver care,
organizations create tighter policies or employ
mechanisms to help patients make more
informed decisions.
For example, if a total knee replacement costs
the hospital $15,000, the hospital understands
that if they do not collect any revenue, they will
incur $15,000.
Understanding the costs means having more
controlled mechanisms in place to prevent
losing revenue, especially for high-dollar
procedures like knee replacements.

Financial Responsibility Means
Higher Quality Care for Patients
Bad debt is a growing concern for health
systems because it increasingly reduces
topline revenue.
With better controls and processes in place,
health systems can identify bad debt and
create strategies to mitigate it or, in some
cases, eliminate it.
And, with new regulations requiring public
availability and higher levels of transparency
of a health system’s chargemaster, shoppable
services, and all services, effectively
managing bad debt is even more critical
for financial success.

Financial Responsibility Means
Higher Quality Care for Patients
As well as delivering the right care, a health
system is also responsible for giving each
patient every financial resource possible so
that the cost of care doesn’t stand in the way
of receiving care and achieving optimal health.
Better bad debt management allows health
systems to enjoy the long-term benefits of
fiscal responsibility, such as growing services,
hiring more providers, building better facilities,
and, most importantly, focusing on providing
the highest quality of care.

For more information:
“This book is a fantastic piece of work”
– Robert Lindeman MD, FAAP, Chief Physician Quality Officer

More about this topic
Link to original article for a more in-depth discussion.
Six Ways Health Systems Use Analytics to Improve Patient Safety
An Effective Financial Response to COVID-19: Three Ways to Leverage Data
Steve Vance, MBA, FHFMA, MBA, FHFMA, Senior VP, Professional Service
Activity-Based Costing in Healthcare During COVID-19: Meeting Four Critical Needs
Bob Alexander, Implementation Services, Sr. Director
A Sustainable Healthcare Emergency Management Framework: COVID-19 and Beyond
Holly Rimmasch, Chief Clinical Officer; Ed Corbett, MD, Medical Officer;
Anne Marie Bickmore, Senior VP, Company Operations
Healthcare Trends During COVID-19: Top Five Areas to Watch
Holly Rimmasch, Chief Clinical Officer; Ed Corbett, MD, Medical Officer
Hospital Capacity Management: How to Prepare for COVID-19 Patient Surges
Jason Jones, PhD, Chief Data Scientist; John Hansmann, MSIE, LFHIMSS, DSHS, Professional Services, VP
Monica Horvath, Strategic Consultant, Health Intelligence & Product Adoption

Marlowe Dazley is Senior Vice President and Managing Director at Health Catalyst,
responsible for financial advisory services providing strategic financial management
expertise and consulting for healthcare payers and providers. Prior to joining Health
Catalyst, Marlowe lead PNC Bank’s healthcare consulting division. Mr. Dazley has 30
years of healthcare experience in various organizations, including the office of the U.S.
Surgeon General, managed care operations, finance, administration, and consulting.
He has worked as a healthcare consultant since 1996, for Ernst & Young in the Los Angeles healthcare
consulting practice, Phase 2 Consulting and Premier. Marlowe has participated in numerous strategic
planning engagements, mergers and acquisitions and performance improvement initiatives and has led
numerous financial turnarounds for clients across the country specializing in healthcare strategy,
revenue cycle improvement and financial operations initiatives. Mr. Dazley received a dual Master of
Business Administration and Master of Health Services Administration from the University of Utah. He is
a member of the Healthcare Financial Management Association and has performed numerous speaking
engagements at local regional, and national levels for HFMA including HFMA’s Annual National
Institute. In addition, he delivers numerous addresses to the University Health System Consortium,
State Hospital Associations, hospital boards and medical staff and various other industry leaders.
Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Marlowe Dazley

Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Health Catalyst is a mission-driven data warehousing, analytics and outcomes-improvement
company that helps healthcare organizations of all sizes improve clinical, financial, and operational
outcomes needed to improve population health and accountable care. Our proven enterprise data
warehouse (EDW) and analytics platform helps improve quality, add efficiency and lower costs in
support of more than 65 million patients for organizations ranging from the largest US health system
to forward-thinking physician practices.
Health Catalyst was recently named as the leader in the enterprise healthcare BI market in
improvement by KLAS, and has received numerous best-place-to work awards including Modern
Healthcare in 2013, 2014, and 2015, as well as other recognitions such as “Best Place to work for
Millenials, and a “Best Perks for Women.”

Reduce Bad Debt: Four Tactics to Limit Exposure During COVID-19

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Reduce Bad Debt: Four Tactics to Limit Exposure During COVID-19

Similar to Reduce Bad Debt: Four Tactics to Limit Exposure During COVID-19 (20)

More from Health Catalyst

More from Health Catalyst (20)

Recently uploaded

Recently uploaded (20)

Reduce Bad Debt: Four Tactics to Limit Exposure During COVID-19