Executive Summary
Healthcare facilities are revamping cost estimate processes due to patients’ growing demand for cost transparency.
- Collections increased 19% with price estimate letters at Novant Health.
- Bad debt is expected to decrease by 25% with price estimator software at Mary Rutan Hospital.
(In this first part of a two-part series, we discuss the growing need to provide cost estimates and how these estimates can impact collections. Next month, we’ll discuss factors that can lead to incorrect estimates.)
Collections increased 19% and were up an additional $3.6 million in 2014 compared to the previous year, and payment plans increased by 27% and were up an additional $2.8 million, after leaders at Novant Health in Winston-Salem, NC, began giving price estimate letters to surgical patients prior to service. Novant saw a decrease in bad debt of 8.8% in 2014 and attributes a large part of that decrease to the new processes.
“With estimates, we are often able to set up the self-pay patient on a payment plan prior to service, as well as set up the plan to kick off after insurance pays for our insured patients,” reports Craig Pergrem, MBA, senior director of revenue cycle, pre-service, financial counseling, and onsite access.
Mary Rutan Hospital in Bellefontaine, OH, expects to move up to 25% of current bad debt to charity after implementing price estimator software. “There may be additional reduction, not just movement, of bad debt, as well,” says David Kelly, director of revenue cycle.
Healthcare facilities that provide patients with good estimates give the facility a distinct competitive advantage in the marketplace, according to Steve Schaefer, vice president of finance at Seattle-based Virginia Mason Health System. “The hospital that can deliver around accuracy in out-of-pocket costs is going to have a leg up,” he says. “The patient is quickly becoming a consumer. As we all know, whenever we go shopping, we always look at our costs.”
Informed decisions
Increasing the accuracy of estimates for out-of-pocket costs is a top priority for Virginia Mason’s leaders.
“In the past, it wasn’t a big deal because you just paid a copay. There was really no reason to be transparent,” says Schaefer. “We are in a very tumultuous time, going from minimal patient costs to very transparent.”
Hospital leaders nationwide are responding to a growing demand to inform patients of costs on the front end. “We in healthcare need to educate and set expectations, so that patients can make healthcare decisions with their eyes wide open,” says Schaefer.
The trend is largely driven by patients’ higher out-of-pocket costs. “We are moving into consumerism,” says Schaefer. “Patients are looking at cost, quality, and service as the three pillars that guide their purchasing decisions.”
Schaefer points to recent legislative debates surrounding price transparency in healthcare. “Invariably, somebody pounds the table and says, ‘I can go to Starbucks and find out what a cup of coffee costs. How come healthcare can’t do the same thing?’” he says. There is no mystery about what goods or services cost in other industries. “When we purchase something in our free enterprise system, we have a one-to-one relationship between price and cost. If it’s $1.50 for a soda at a vending machine, we know as a consumer the cost will be $1.50,” says Schaefer.
Patients are unprepared when healthcare costs turn out to be far more complex than those in the retail world. “In the old days, every once in a while you got a patient with 80/20 coinsurance who unknowingly went out of network and got shocked by a big out-of-pocket expense,” says Schaefer. This expense typically was discovered only after the patient received a bill. Today, such unexpected high out-of-pocket costs are commonplace.
“Where else, other than healthcare, would that occur?” asks Schaefer. “It just doesn’t happen.”
Consistency lacking
At Mary Rutan Hospital, cost estimates are given only when patients call and request them.
“The calls are usually routed to the operational departments themselves. This yields only partial estimates and a lack of consistent methodology,” says Kelly. Some departments estimate the patient’s total out-of-pocket costs, for example, whereas others quote gross charges. “That yields wildly varying estimates,” says Kelly.
Surgery estimates often are given by one team, while other procedures are given by a different team. “Currently, our organization has a very disparate, inconsistent process for giving estimates,” says Kelly. “We’re consolidating the process to one team, so all estimates come from the same source.” The department is changing its process so that outbound calls will be made to scheduled patients.
Only an estimate
Novant Health’s price estimate letter states, “This is an estimate for services that we have at this time,” and staff let patients know that the estimate is not an exact science.
“We also record all our calls with our patients and can use that to let them know how often we have told them it is an estimate,” says Pergrem. The recordings are used if a patient claims the hospital employee never told them it was an estimate or was unsympathetic to the patient’s financial needs.
“It keeps the representatives on their toes and also protects them from anyone accusing them of something that didn’t happen,” says Pergrem. “It eliminates the ‘he said/she said’ process completely.”
Novant Health’s pricing system has all of its contracts loaded into it, so if the staff members have the correct code at time of scheduling the procedure, they are “very close to the total due,” he says. “We have it scripted to tell our patients that this is an ‘estimate’ and is based on what their physician has scheduled and what their benefits showed on the day we provided the estimate,” Pergrem says. (For more information, see the June 2015 SDS: “Price transparency is growing, but hear lessons from frontrunners first,” p. 61, and “Guide offers information about outpatient providers and charges,” p. 64.)
