The following is an interview I conducted with Lloyd Ledet, Chief Operating Officer of Credit Bureau Systems, regarding patient finance, especially as it relates to the issue of self-pay accounts. I'd like to thank Lloyd for being generous with his time and insight. If you have expertise in this topic and would like to have a conversation, please contact me.
BB - What’s driving innovations in self-pay patient financing?
LL - Desperation, for the most part. More than ¾ of Americans can’t afford an unexpected medical bill over $2,000. Hospital CFOs and other healthcare providers are at a loss to cope with the scope of this problem: Patients need more options for dealing with mounting medical debts that are the result of high deductible health plans. The old ways of billing and collecting don’t work and aren’t flexible enough. It’s too short a line between the point of service, and the hard side of the traditional medical collections process. So the field is ripe for innovation. I expect to see players approach this space with new solutions from every direction. It’s an exciting time.
BB - Does a less punishing service model seem to make a difference?
LL - It does, without a doubt. When you treat people right and enact patient-friendly policies, you can have a great, sustainable business in patient finance--- one that provides a valuable service in a very under-served space. If you come from a billing background, as I do, you take an approach that is very much an extension of the medical practice you represent. You want to do everything possible in your procedures and workflows to make sure patients are treated with respect and offered different ways to neutralize what, for them, can be crippling medical debt. It does make a difference to take a patient-friendly approach.
BB - What is your organization doing about the patient self-pay crisis?
LL - Our Accounts Billing Services operating division (ABS) was approached by a hospital system client that wanted to solve the self-pay problem. They clearly had a revenue cycle issue more broadly, but where we felt we could help was in designing a structured payment program with some flexibility that could work for more of the patient population. So we designed Healthcare Affordable Repayment Plans (HARP), which is a 12-month, interest-free program for patients who have uncovered balances they cannot pay outright. Our patient financial counselors explain the HARP program and encourage patients to use a 12-month, 0% interest option if possible---and obviously many choose this option to avoid interest. For those who need a longer payment period, we extend to 24-48 months on larger outstanding balances and charge simple interest, capping at 8% or the patient’s home state cap on medical debt interest, whichever is less. We act as loan officer, and take on all the onboarding and administration of these payment arrangements at no cost to providers. The end result is that HARP preserves cash flow and improves patient satisfaction, decreases debt write-offs and the need for extra servicing staff.
BB - What are the implications for hospitals?
LL - HARP is seeing the vast majority of enrolled patients pay through 100% of their debt. Hospitals generally have abysmal recovery on delinquent accounts, and that’s on top of what they pay to service and outsource the collection account. It’s untenable. On their books, from a valuation perspective, it has the potential to be catastrophic. What HARP offers is a turnkey program that’s achieving full repayment on 89% of all patients with outstanding hospital self-pay balances. This isn’t a revolver, which has its own implications for hospitals. At a recent industry conference I attended, I had a mob of hospital CFOs from across the country at the HARP booth. They know the volume of uncollected self-pay accounts is growing exponentially, so they’re looking for innovation. They can’t afford not to consider innovation at this point.
BB - What’s your take on the fat margins some patient financial services vendors are preserving?
LL - We’re a billing company. We have scale and efficiencies in place that benefit our profit model, and we also know we’re dealing with a captive audience of people with few choices at the present moment. We make modest margins, in the single digits---nothing like the 30% margins this space is seeing. That’s very much by design. We don’t think it’s patient friendly OR provider friendly to take outsized margins.
BB - What’s special about what you’re bringing to the patient finance table?
LL - HARP offers providers free servicing and an income source. We’re a billing company acting as a loan officer, basically, on a closed-end repayment contract. We control costs because we’ve been in the billing business a long time and we know how to scale and streamline processes. Significantly, HARP doesn’t offer an underwritten line of revolving debt--the simple interest we charge on the 12+ month installment plans really goes to mitigating duration risk, and helping offset the costs of protracted account administration. The fact that the vast majority of patients pay as agreed means that a portion of any charged interest goes back to providers. It’s a nice little income stream on debt that has been collected at par. It means I have some clients making 102% on what could have become delinquencies settled well below par.
BB - What recourse do providers retain on uncollected debts in HARP?
LL - We’re just administering what amounts to a structured repayment program. If we don’t collect--rare as that is, it does happen 11% of the time--then we don’t have anything to return to providers. At some point, we return the uncollected accounts to our provider clients. They retain the option to send the debt to traditional 3rd party collections, bundle and sell it, or write it off. Even while we’re servicing the debt and the patient is paying as agreed, that outstanding debt is still on a provider’s books. How they characterize it, for accounting and valuation purposes, stays in their control.
BB - How is the compliance landscape weighing on patient finance pioneers?
LL - There are so many places to trip up if you’re not mindful of the compliance issues, and set up to stay in front of them. For our part, we have internal auditors dedicated to staying ahead of the curve by constantly reviewing and scoring our processes and communications. There are important preventive measures to take and maintain. It does require resources and more than anything, awareness and a commitment to supporting our clients and their patients in every possible way.