Uncompensated Healthcare in the Form of Charity Care and Bad Debt are Painful for Providers
Uncompensated care is a widespread pain point for healthcare organizations, rising by just over a billion dollars in 2020 to $42.7 billion. And while it may not be thinkable to get rid of it, there are tactics you can introduce today to reduce its effect.
Okay, before beginning, let’s make sure we have a shared definition for uncompensated services: Uncompensated services are healthcare or services provided by hospitals or healthcare providers that don’t get reimbursed. Often uncompensated care arises when people don’t have insurance and cannot afford to pay the cost of care.
Uncompensated care falls under two types – charity care and bad debt.
Charity Care
Charity care is healthcare services delivered understanding the patient cannot pay and with no anticipation of payment.
Fact is, regardless of a tentative drop after the passing of the Affordable Care Act, the amount of uninsured Americans appears to be edging upward. Whereas the rate of growth seems to be slowing down, the boost in uncompensated care persists as a concern for many hospital CFOs along with smaller healthcare organizations. What’s more, patients without insurance may postpone their search of care for fear of exorbitant bills, increasing the probability that they will need more serious (and costly) treatment down the road.
So, what is taking place in the healthcare industry? Emerging revenue management are examining additional opportunities to tweak end-to-end process analytics, implement advanced automation and, in due course, unearth and patch up revenue leaks.
Bad Debt
Bad debt is the unpaid balance owed for services for which hospitals and other healthcare providers did envisage getting compensated. Medicare is the only payer that offers a bit of relief for bad debt sustained by patient non-payment. All other bad debt is unrecoverable and turns out to be a write-off for tax purposes. Since the best way to cut bad debt is to avoid it in the first place, revenue cycle leaders are continuously looking at ways to be more proactive when it comes to collecting payments and trimming accounts receivable days. By abiding by a few fundamental tactics, health systems can make strides with regard to reducing bad debt.
- Be candid with pricing and payment options.
Your patients want to be aware of how much their healthcare is going to cost beforehand. Be sure clear-cut pricing is readily available, in a format patients will be familiar with. An online tool that offers a precise estimate before the service facilitates transparent, engaged financial dialog among all stakeholders. These are clarifications presented to help streamline this process – and it’s worth the investment, bearing in mind that 65% of all patients are more disposed to make at least a partial payment when presented with an estimate before the service. - Recover what you are able.
Medicare pays back 65% of bad debt for the patient balance due on billed services. However, Medicare does have certain conditions to meet the requirements for bad debt reimbursement, including detailed documentation of the patient’s lack of ability to pay.
Since the amount can be substantial, increasingly more hospitals are utilizing software and third-party services such as Medwave to take full advantage of Medicare bad debt reimbursement. New financial programs produced by the Affordable Care Act may also offer hospitals that tend to have a disproportionate share of indigent patients’ additional uncompensated care funding. While uncompensated care that strictly adheres to governmental criteria and is accurately documented may generate additional reimbursement to these facilities, the program is very complicated, and it takes substantial resources to optimize payment. - Establish eligibility and capacity to pay upfront
Junk health insurance, once excluded by the Affordable Care Act, and particularly high deductible health plans can frequently be signs of inability to pay. “When you see a patient’s insurance has a $120,000 deductible, that’s a red flag because few people have that kind of money in healthcare savings,” says one vice president of Medicare Bad Debt Collection. Patients who may be at a bad debt level of risk may have alternate payment options, including Medicaid and hospital charity care. - Make payment stress-free for patients
Healthcare bills can be perplexing – often appearing separately from the physician and facility. When costs are ambiguous, patients are less likely to make timely payments. Mitigate this by providing patients a payment platform that makes it easy to:- Grasp when and to whom bills have been sent
- Ask for itemized statements
- Make payments from a variety of payment sources
- Converse digitally with provider billing staff
- Leverage technology to enhance efficiency
Before debt goes bad, it normally spends substantial time in accounts receivable and collections. Data-driven diagnostic and automation technologies can help healthcare systems detect bad debt risks early-on and streamline AR and collection processes to shrink bad debt in general.
With growing patient self-pay obligations and declining hospital and other healthcare organizations’ operational margins, the pressure for provider groups to cut their uncompensated care levels is mounting. While these tactics described herein are a helpful start, health systems must employ a precise strategic plan for detecting and easing bad debt risk and think seriously about partnering with an expert third-party to realize their bad debt reduction objectives.
Contact the professionals at Medwave to discuss your bad debt strategy and how we can help.