Managing Increased Patient Financial Responsibilities With Head And Heart

Talk with any physician that is actively practicing and he (or she) will tell you that their greatest professional satisfaction is from the patient-physician relationship, the opportunity that they have to use their skills and knowledge to help restore a person to good health, or help people maintain their health. That patient-physician relationship is unique, giving physicians’ deep insights into a person, and some of their most private experiences, fears and concerns. A valuable, candid relationship.

Talk with any actively practicing physician and she (or he) will tell you that their greatest professional frustration is when economics interferes with that relationship. 

When money is not an issue, when the patient has good insurance coverage, low, affordable copayments and deductibles, and is able to readily make payment, the relationship is without conflict for the physician.  The patient-physician relationship is not stressed by economics.

Unfortunately, economics has increasingly stressed that relationship.  As the cost of medical services increased, both the physician and patient came to rely on health insurance to allow their relationship to be one about the patients’ health, and not their wealth. After a generation of generous health benefits, including the replacement of indemnity insurance with managed care that made routine and preventive medical care “covered” by health benefit plans, the patient is being dragged kicking and screaming into “consumerism”- which translated means the patient pays for an increasing portion of the care they receive.  Consumer-directed health plans, consumer engagement, and patient responsibility are all terms that simply mean the patient is paying more.  Health insurance, in particular managed care, which sought to promote ready access to routine care to address health needs early and prevent higher costs later, is being returned to the now forgotten “good old days” when the patient was financially responsible for nearly all care outside of services that required hospitalization.

In the 50+ years that have passed, the cost of that routine care and ready access has become greatly increased. In 1967, for example, the 75th percentile of fees for a follow-up office visit and a routine hospital visit corresponded to between $7 and $8 for a new office visit and between $9 and $10 for a hospital visit. Fees at the 95th percentile were between $14 and $15, according to a study about physician fee inflation in the 1960’s. And while the average incomes of households in 1967 was lower, these costs were “affordable”.

Over the intervening years inflation worked its way through the economy, with healthcare’s inflation rate consistently double or more than that of the general economy.  Yet patients have been largely protected by generous health benefits, with insurance paying the difference between their copays (even as these continued to increase) and the actual cost of medical services.  Experts believe that with insurance protecting the patient from the actual cost of medical care, and employers accepting the cost of higher insurance premiums, the healthcare industry became irresponsible in its costs and pricing of services.  For the patient and the physician, when it came to the necessity of being more efficient in delivering care, why bother? The insurance is there to pick up the tab.

Now the patient is being forced out of the protective cocoon of generous health benefits and coverage.  The reality of the cost of health care is hitting home, and that reality is not pleasant.  With employers no longer willing to accept double digit increases in the cost of health benefits, they have shifted to restraining premiums by implementing higher copayments and deductibles. Patients are now experiencing what inflation has done to the actual cost of a physician visit.  According to Fair Health, in 2017 the cost of a new patient visit to a physician in Manhattan had risen to $570, and $250 for an established patient visit.

Impacting the Provider and Patient

Increasing patient financial responsibility for the cost of their care is dramatically changing the patient-physician relationship.  For patients with continued generous health benefits coverage or having the economic means to assume the costs, the nature of the office visit experience has taken on a more mercantile approach.  However, for an increasing number of patients, this cost-shifting of increased patient financial responsibility is creating a significant conflict for the physician when the economics of receiving medical care becomes an economic hardship for the patient.

It is a conflict between head and heart. The physician, using their head, knows that to stay in practice and to support a family, he or she must collect payment for the services provided. Yet at the same time, the patient-physician relationship has created an intimate knowledge of the patient and their circumstances, and their heart does not want to add financial injury to the patient, in addition to the health injury of their illness.  As a result, physicians are faced with the unhappy prospect of increased bad debts and write-offs.  Making matters worse for physicians, the cost of medical care has necessitated that they participate with insurances, which like Medicare and Medicaid, regulate their incomes, precluding the ability to increase charges to patients that can afford to pay more, to cover the losses from patient that can’t pay their full costs. This problem is expected to continue to grow, putting pressure on the physician’s ability to remain in practice, particularly in independent practice.

Since 2010 the number of Americans with high deductible health plans has grown by 75%, and that number is expected to explode by 2018 as employers who have continued to offer generous health benefits face the reality of a “Cadillac tax”, part of the Affordable Care Act (ACA), of 40% of the cost of the insurance premiums they pay.  Some 40 million Americans are expected to be living with the consequences of high deductibles, as will be their physicians.

For 37% of American households with deductibles of between $1,200 and $2,400, those deductibles exceed their families’ liquid assets. And as deductibles increase, it worsens: 49% of households have deductibles greater than their liquid assets when those deductibles are between $2,500 and $5,000. According to a Kaiser Family Foundation/New York Times survey, 45% of insured said medical bills had a major impact on their families, and the US Federal Reserve reported that 46% of Americans do not have the money to cover a $400 emergency expense.

The patient is not the only one who will bear the cost of these deductibles, the consequences extend to the physician: 40% of physicians fail to collect over $31,000 a year from patient financial responsibilities, while another 20% fail to collect over $66,000, according to Athena Insight.

While a portion of the dollars lost to failure of the collection of patient responsibilities resides in the inefficiencies of physician practices, there remains the reality of the necessary write-off when patients are unable to make payment on that debt, even after significant efforts on the part of the office.  The head says to collect, the heart says no, not wishing to add a financial burden to patients already burdened by illness and poorer economic status.

It is hard to find reliable information on the level of medical debt that physicians experience, since medical practices generally operate on cash based accounting principles (recognizing income only when cash is received, and expenses only when paid; with no recognition of bad debt as an expense). There are no central reporting requirements, as there are with hospitals, and some studies indicate that bad debt can run between 5.9% and 14% of a physician’s billings. 

A report in 2010 from the Medical Group Management Association indicated that on a per physician basis, bad debts averaged $12,480 for an individual primary care physician, rising to $27,077 for an individual surgical specialist. The publication Health Affairs estimated that in 2013, uncompensated care to office-based physicians totaled $10.5 billion.  And in a 2012 survey, the Physicians Foundation found that 62 percent of physicians stated they provided $25,000 or more every year in uncompensated care.

Compensating for the Loss

Clearly the consequence of the cost-shift to the patient through deductibles has implications for the financial stability of a physicians practice, as well as for the patient. With more patients expected to be beset by material deductibles, physicians need to consider how they operate the business of their practice.

First, while much is said about deductibles, patients worry about their cost of medical care to the extent that many have become confused about what coverage they still have that are deductible-free.  Preventative services, often including an annual examination, are usually provided as covered benefits without application of the deductible under most health plans, and are expected to remain so.  Therefore, physicians should become educators and promoters of their ability to provide that care to their patients and of how to understand a patient’s health benefit coverage.  Reminders, calls, letters, and newsletters are all tools that a practice can use to educate their patients to check what services they should obtain for themselves and their families, reassured that they will not be on the receiving end of a bill. Immunizations, mammograms and other screenings are required to be covered under health plans that qualify under the ACA without being subject to the deductibles.

Second, increased patient financial responsibilities require a total review and re-training of your office staff, especially your front desk.  Their role is now far more important than greeting patients, answering the phone and scheduling appointments.  They must be trained how to ask for payment, and how to address the patient that is unable to make payment. Will your office institute contingent credit cards to be charged for deductibles and non-covered services not paid for at the time of the visit?  Will your office look to enhance your billings and statements, and add the ease of online payment?  Perhaps a discount on payments made by receipt of the first statement? The practice can also set up payment plans, allowing patients to pay over time and ensuring payment is received.  Preparation is needed to increase your collections from those patients that can pay for their care in full.

Third, recognize that a portion of your patients will not be able to make payment on all or a portion of their financial responsibility.  For these patients, you need a policy and a plan.  You need to separate those that could pay, but choose or seek not to, from those that would pay if they could.  A written financial policy is appropriate, and make sure it is known to your patients.  If a patient has financial concerns, they should be able to speak with the office manager about creating a payment plan. The practice might also identify patients that are so economically stressed, often because of illness, that payment is not possible.  For these patients, what is your criteria for pressing for payment, or writing-off that balance?  Many practices extend a balance write-off to patients in the 200% or less of the Federal Poverty Guidelines, however studies have shown that when medical bills exceed 5% of income they become nearly uncollectable, so be sure to adjust for patient’s broader medical situations.

At some point, the practice may have reached the point of diminishing returns. Yes, any balances can be turned over to a collection company, or you can even sue in small claims court to seek every dollar billed, but the reality is that the physician should be using their heart and their head in decision-making. Even collection companies can’t collect when the patient has no resources, and your costs to collect often make the returns trifling.

While many practices do ‘write-off’ balances eventually, how about taking one more step and making arrangements to legally abolish that debt for good.  For most practices, a write-off is to remove a balance from the practice books, and not consider it again, taking no further action.  However, there are other considerations to arranging for that write-off to be abolished for good; legally, and pragmatically.

Technically, under IRS Tax Code if a debt is forgiven (written-off), the economic benefit of eliminating that person’s debt is taxable to that person. The IRS rules call for sending a 1099-C for cancellation of debt. Additionally, if a practice has used a collection agency, that debt may have been reported to a credit reporting agency, which has negative implications that could impact not only your patient’s credit score, but also their job prospects, as many employers check credit ratings as part of the hiring process.

To help practices do this, R.I.P. Medical Debt, a 501C-3 charity, can legally abolish this debt against your patient, without consequences to the patient, and with removal of any report on the patient’s credit report. At no cost to you, R.I.P Medical Debt will advise the patient that the debt has been abolished, and remove this economic burden from them.  It is uncommon for practice to notify a patient when a balance has been written off, leaving the patient hesitant to obtain necessary medical care, thinking that they will be denied care, or embarrassed in the office for that past due balance. R.I.P. Medical Debt can be reached at www.ripmedicaldebt.org.

The cost shift to patient financial responsibility for care has implications for patients, pressuring them to avoid care when necessary at the early onset of an illness, and for preventive care and screenings.  For the physician, it’s a significant change in the business of medical practice, and the relationship with patients.  Those practices prepared for this change will be best positioned to adapt for continued success.

Robert E Goff is an independent consultant who formerly served as Executive Director of the University Physicians Network, NYC, for over 18 years. He is co-author of the book The Patient, The Doctor and The Bill Collector: A Medical Debt Collection Survival Guide. He also serves on the board of RIP Medical Debt, a non-profit that acquires unpaid medical debt and then abolishes it.  www.RIPMedicalDebt.org