Hospitals face likely cash flow crisis as patient self-pay increases

With rising healthcare costs and higher health insurance deductibles, hospitals could find themselves in trouble with patient bad debt if they don’t make improvements in collecting out-of-pocket payments.

That’s the finding of new research from Boston-based Aite Group on medical out-of-pocket payments, or patient self-pay, made by consumers to hospitals.

According to the report, patient payments to hospitals will increase at a compound annual growth rate of 10 percent from 2015 to 2019, growing much faster than the 6 percent self-pay rate of the healthcare industry as a whole during the same period.

“Patient self-pay growth is a call to arms for an industry fighting with its third-party payers to recoup payment,” the report states. “Hospitals must combat patient-collection challenges looming on the horizon or grapple with the reality that another third party [in the form of consumers] will adversely impact their business in the form of increasing bad debt write-offs.”

Mike Trilli, senior health insurance analyst at Aite Group, believes that hospital self-pay payment increasing at a CAGR of 10 percent by 2019 is a “red flag,” as insurers have put more of the burden on patients who now carry higher deductibles, and thus are bearing more responsibility for out-of-pocket expenses.

However, Trilli warns that the looming cash flow problem cannot be solved by hospitals’ electronic health record vendors. Instead, he argues that hospitals need to look to bill payment vendors whose core competencies and capabilities are better suited for dealing with rising patient self-pay collections.

“It’s about more than just creating an online bill payment channel,” contends Trilli, who recommends changing workflows to improve the patient collection process to limit the financial risks for hospitals. “It’s about changing the workflow at the beginning of the process to enroll patients in a payment platform that increases the likelihood of future collections, which isn’t the purview of EHR vendors.”

It’s critical for hospitals to devise ways to outsource those collections that enable them to get paid and effectively allows these third-parties to manage the collection relationship, Trilli says. The good news, he adds, is that hospitals can avert a cash flow crisis if they ramp up initial point-of-service and bill pay investments to create an experience that promotes patient use of digital self-servicing channels.

Toward that end, the report projects that mailed payments will decrease from 68 percent of all hospital bill payments in 2015 to 40 percent in 2019; web-enabled bill payments will increase from 18 percent to 40 percent; phone-based payments will increase from 8 percent to 14 percent; while in-person payments will remain steady at 6 percent.

Online bill payment is the “new norm” in the hospital industry, according to the report. Currently, hospitals offer online bill payments capabilities through a variety of bill payment vendors, revenue cycle outsourcing companies and claims clearinghouses.

Nonetheless, the report is quick to point out that online bill payment does not solve the patient bad debt issue on its own. “Providing this convenience to patients translates to increased bill payments volume, however.”

The report’s table of contents and list of charts can be downloaded here. However, the entire report is only available to clients of Aite Group.