By Judy I. Veazie, CRME, CCT, from the February 2016 issue of Health Care Collector
Headlines regarding the Affordable Care Act (ACA) primarily draw attention to the insurance coverage aspects of the regulation, but other aspects are equally important to hospitals. As of January 1, 2016, the IRS will enforce the Internal Revenue Code Section 501(r) provision that targets hospitals whose financial assistance shortfalls could jeopardize their nonprofit status. Among the other provisions, Section 501(r) requires hospitals to revisit their financial assistance process. For many this will involve examining their own thinking about the role of financial counseling.
Section 501(r) requires hospitals to reach out to patients and provide early intervention related to their financial obligations. For most business managers this is not a new concept. Providing services and arranging for payment in advance (including providing information on out-of-pocket expenses) is a standard in other industries.
Concerned care providers think they can protect the patients by delaying financial discussions. They believe this will allow the patients to concentrate on their health concerns rather than having the business aspects of their care distracting them. Many care providers view the discussion of "money" as uncaring and even inappropriate.
Section 501(r) recognizes one concept many providers overlook: the patients will continue to have concerns about the impact of health care financial obligations on their budget. Business managers in other industries recognize the benefit of helping their customers gain control of their own "worry" about their financial obligations.
Freedom from Worry
In a Section 501(r)-compliant world, to qualify as a nonprofit, hospitals must assure that patients are given information about the provider's financial policy and their projected out-of-pocket expenses at the earliest possible point. Failure to meet this standard (outreach to patients) and the perception that the patient has to "pull" the information from the provider put the provider's nonprofit status at risk. Indeed some of the implications of the requirements would assure that provider staffs are educated on the patients’ needs for information about their financial obligations. The hospital financial policies and procedures must assure that the staff provides a system of "outreach" to the patients to alleviate their financial concerns.
From verifying a patient's insurance benefits to the calculation of the patient's out-of-pocket expenses, providers have an obligation to keep patients informed and take an active role in helping them get the most out of their medical benefits. The supporters of Section 501(r) want this process as a requirement so that patients can make informed decisions about their care choices before they incur additional debts. Providers must be prepared to answer patient questions, such as the following:
- Will planning my care (including the authorization process) reduce the amount I owe out of pocket?
- Will I qualify for a reduced or complete charity allowance?
- Would a rush into non-emergent care jeopardize my access to financial assistance or benefits for wraparound services (home care, durable medical equipment, medical transportation, or prescriptions)?
- How much out-of-pocket expense would there be with one provider versus another?
Learning from Other Industries
Business managers from other industries who deal with customer financial obligations use financial tools that provide predictability, enabling them to communicate accurately and timely to their customers about the financial aspects of their experience. I actually began my career working in the credit industry. I worked at Equifax in the early 1970s at the advent of credit card companies purchasing lists of potential "good credit" customers to whom they could offer credit cards. This was my first experience with "pushing" financial options to the customer rather than forcing them to "pull" the information from the credit grantor.
To gain the foresight of predictability you need knowledge of the patient's financial situation and ability to pay. For health care providers, this may open the door to providing the patients with financial assistance that will reduce their contribution to a small amount of their total bill or even to write off their out-of-pocket expense toward their care. The most common tool for this process is predictive modeling.
Credit modeling was built on an established process used to determine the risk of granting credit to customers. In the early days of the credit industry (and my young career) I worked at the local credit bureau as my "day job" (working weekends and evenings at the hospital). My experience with the credit industry and the world of credit scoring is established on a solid foundation of being in operations at the time of the evolution from the local "mom and pop" operations to the huge technology giant the credit reporting industry has become.
Predictive analytics focused on predicting the patient's ability to pay have been a tool used by health care providers for more than 20 years. Equifax led with a tool for analyzing patient spending and other data to determine the patients’ ability to pay for their medical expenses.
Tools that analyze the patient payment patterns—otherwise known as "credit scoring"—will give providers the information to customize their approach for meeting the needs of the patient. The objective of credit scoring models is to assign a credit risk score to determine whether a customer is likely to default on the financial obligation. Construction of credit-scoring models requires data-mining techniques. Using historical data on payments, demographic characteristics, and statistical techniques, credit-scoring models can help identify the important demographic characteristics related to credit risk and provide a score for each customer.
Prior to Equifax automating credit reporting, when a business called in to get a credit report, staff pulled the file on the credit seeker and reported the analysis to the caller. Often the query from the business required our reporting staff to call the other member businesses to update the latest payment history on file. The credit bureau was only open during regular business hours (and not on the weekend). But, what happened when the credit bureau office was closed?
The process for making an after-hours credit decision created the very foundation for the credit-scoring products we have today. At one point I worked as a credit manager for a jewelry store. When the credit bureau was closed, we had to "score" our own credit applications using the information on the credit application. The scoring process was built around a plus or minus system of points that determined the level of "creditworthiness," as well as the predictability of the customers paying their credit debt faithfully. This is now called "predictive modeling" with highly sophisticated electronic tools to predict your creditworthiness.
"After hours" credit or payment decisions based on credit projections required manual calculations and considered some factors as "good" (1 to 10+) or "bad" (–1 to –10) based on the customer. Let's look at employment as an example:
- The longer you work in the same job for the same employer; your score would be higher. But also the factor of your job description was considered. Some job titles get a higher score than others. All this was based on the history that some similar payment histories would come from people attracted to the same type of job.
- There are more points and better scores for someone who was in a "stable" job and lives a very structured lifestyle. As an example, an engineer who worked in a factory for 15 years would be given a higher score than a musician, working with a traveling band.
- Oddly some professions score higher than others. You might be surprised to learn that a factory worker got a higher score than a self-employed attorney. Self-employed individuals got lower scores, even sometimes a minus due to the history of slow, inconsistent, payments and the history of disputing debts. Unlike a factory worker in a stable business where you can garnish to collect back debts, there is a limit on the ability to "collect" a debt from a self-employed individual. Overall the statistics even today bring down the scores for the self-employed due to these factors and history.
When a self-pay account was analyzed with the tool, it was easier to customize the collections approach to various patient populations. It is built on a simple triage strategy that flags the patients based on their payment history. On the most basic level, patients’ payment histories can classify them into three groups:
- The good budgeters that have a history of paying timely. They maintain their payment obligations and respond to timely statements and communication about their patient portion.
- Those patients that have not responded to statements or other collection methods or are unable (or unwilling) to pay regardless of the collections message. These patients may be good candidates for a charity review, while the suggestion of a "financial assistance" program may just offend the first group of good payers.
- The third group are customers that need assistance in meeting their payment requirements. They can be good payers, but they need a payment plan, several statements, and consistent communication. This is where a provider will get the most benefit and good customer service by working with the patient using consistent follow-up and multiple payment options.
The first two groups we identify with credit analysis are not the largest groups. After the "excellent payer" and the "at-risk payers" have been identified there remains the group with the "middle score"—that is, persons who will pay but need your help in resolving their obligation. This is the group you want to reserve your resources and staff time to target to get their payment resolved because it will result in success!!! This group is made up of many of us who are busy or inconsistent in our organization of our personal business. Missed payments, statements overlooked, or even failure to buy stamps can delay a timely payment.
How to Use the Tools
Transunion brought out a tool for use in the emergency room to estimate the patients’ match for charity or their potential match for a payment plan or point-of-service payment. Since the Transunion and Equifax tools were introduced 15 years ago, many other companies have jumped on the band wagon with tools of their own that provide a key strategic tool in the planning to comply with Section 501(r). Although the tools for health care point-of service and charity modeling provide a score-based decision, there is a lot to learn from the credit report.
This early education in the fine art of credit scoring has served me well in the many years of evaluating our patients’ ability to pay for their out-of-pocket health care expenses. I began using the concepts from predictive modeling many years before the credit-reporting companies came out with their health care products. I analyzed the patient's payment history in paying our bills as well as their other payment history. (I prefer to review the detailed credit bureau report rather than simply pulling their "credit score.")
For example, when patients have numerous liens (state and federal) and have multiple accounts in collections, particularly medical debts, you know they are unlikely to pay this debt. I notice that there is also a group of people who do not pay their tickets and those end up in collections. These are the big ticket debts they are worried about, not their medical debts.
I strongly recommend that medical providers use one of the predictive modeling tools developed for health care. This can relieve the patient from having to fill out a daunting application. The data from a credit tool (or a credit report) will have more accurate and timely information than the patient can provide. This helps avoid any potential inconsistency in the patient's application for financial assistance.
When patients request financial assistance or credit, you would not expect them to have multiple high-end credit cards and higher credit limits than you have. When you get the true picture from their public record (credit report) you can avoid spending countless hours reviewing tax forms, bank statements, and so on.
You can also assure that you are not judging the person, but making a decision based on the facts. If patients claim they cannot afford to pay their medical debt, and the credit report shows they actively apply for credit to purchase items, they are still credit worthy, but not necessarily "budget" worthy for unwanted or unexpected debt (such as medical debt).
Many health care providers incorrectly believe they cannot inquire about the patient without an advance signed release. Although this is helpful in maintaining transparency, remember that non-emergent care for a patient establishes a legal transaction for services and in turn for payment. A common provision in hospital and physician consents is the statement: "Payment for services is due at the time of service." This establishes the principle that the request for extending the time needed to pay for medical services is an extension of credit.
Understanding Credit Scoring
To expand your knowledge of the way credit scoring works, credit unions offer some training tools. The scoring outline that follows can be used to calculate a score. (Provided courtesy of Unitus Credit Union.)
- 35 percent of your score is payment history. Your score is negatively impacted by late payments (anything more than 30 days late), collection accounts, bankruptcies, liens, and judgments.
- 30 percent of your score is the amount of revolving debt you owe in relation to your total credit limits. This includes credit cards and lines of credit, divided by the combined total of your credit limits. The ideal is maintaining at least 70 percent in available credit at all times.
- 15 percent is length of credit history. Scores consider the oldest account on your credit file as well as the average age of all your accounts.
- 10 percent is new credit and inquiries. Credit inquiries are created when you request credit. This will stay on your credit report for two years. Promotional credit-card offers sent to consumers via the mail are considered soft inquiries and do not affect the credit score, but do show up on a credit history report. It is possible to opt out of these credit offers by calling 888-567-8688 or going to www.optoutprescreen.com. Note: When health care providers query patients’ credit reports (either directly or through a predictive modeling product) it is a "soft query," and thus does not affect their score.
- 10 percent is mix of credit. The best scores have a mix of both revolving credit (credit cards), and installment credit, such as mortgage and car loans. This demonstrates your ability to handle an assortment of payment obligations.
Other good information: A negative item (e.g., a late payment) will generally stay on your credit report about seven years from the date of the negative activity. Late payments are reported to the credit bureaus in 30-day increments.
Individuals used to have to pay to see their credit score (FICO score), but that's no longer the case. Some credit-card companies such as Capital One and Discover offer access to the credit score as a perk to their customers. The scores are updated monthly, and the customer is able to look at it any time. It is worth the effort to check it from time to time to see where you are. The best Web site for credit score information is www.myfico.com. Credit scores range from 300 to 850. To get tier 1 interest rates (the best rates) you need to be at 740 or above.
About the Author: Judy I. Veazie, CRCE, CCT, has more than 30 years’ of experience in the health care industry. She has consulted extensively on revenue cycle management; she is an instructor in HIM and medical practice management, and is a frequent speaker to professional organizations, as well as former editor of the Health Care Biller newsletter (Aspen Publishers). Contact her at firstname.lastname@example.org.
This article was originally published in the February 2016 issue of Health Care Collector, a monthly newsletter from Wolters Kluwer Legal and Regulatory, U.S. For more information on Health Care Collector, call 1-800-638-8437 or visit www.wklawbusiness.com/store.
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