Money matters: Billing and payment for a New Health Economy
The nation’s healthcare payment system is an artifact of an earlier age, focusing for decades on perfecting business-to-business functions. American consumers were patients, not purchasers.
This is changing rapidly as individuals shoulder more of the cost of their own care. The healthcare billing and payment model must change as consumers demand systems that reflect the mobile, one-click reality of their lives.
Businesses that make this shift – offering convenient, seamless, affordable, quality, reliable and transparent billing and payment – may expect to be rewarded in the New Health Economy. They will retain more customers and attract new ones.
Hospitals, physician practices and other healthcare providers who successfully transition may collect more of their patients’ bills and they may collect them more quickly. They may be able to better manage cash flow, reduce reserves for bad debt and minimize administrative costs. This shift is attracting attention from new entrants and traditional healthcare organizations, which are finding opportunity in expediting the change.
The financial services industry has led the transformation of payment systems and technology, enabling the rise of new Internet-based business models. These advances have not made it into the health business, much of which still relies on telephones and paper. The health system is fragmented, with an array of patch-like solutions and a lack of universal standards.
The industry is burdened with systems that do not work together and bills that are difficult for the average consumer to decipher. The relationship between customer, healthcare provider and insurer is complex. New billing codes, known as ICD-10, will only add to the complexity. Healthcare payment marries two of the most regulated industries in the country, compounding complexity and risk.
It is hardly surprising many consumers are unhappy. In its 2015 consumer survey, PwC’s Health Research Institute (HRI) found dissatisfaction with healthcare billing and payment (see Figure 1). The one bright spot was retail pharmacies.
“People have been frustrated for many years,” said Jamie Kresberg, director, product management at Citi Retail Services. Citi launched its Money2 for Health online medical bill management tool last year. “They want to view their bills, make a few clicks, pay their bills and be done.”
Despite the challenges, green shoots are emerging from the system’s long-dormant soil. Wal-Mart shoppers are paying $40 cash for visits to its clinics. The next generation of healthcare consumers in Atlanta are approving $100 charges for Alii Healthcare smartphone visits with emergency room doctors.
Savvy insured hospital patients are asking for self-pay and prompt pay discounts. And thanks to a partnership with healthcare payments network InstaMed, Apple Pay customers will be able to pay some medical bills with the swipe of their phones or watches.
Aetna members are managing and paying their medical bills online with Citi’s Money2 for Health. Banner Health patients are receiving one bill for all of the care they receive. Innovators are contemplating and, in some cases, offering, layaway for care, loyalty programs, healthcare subscriptions and more. As Wal-Mart’s Marcus Osborne told HRI, “If you build for today, you will miss tomorrow.”
To create a roadmap for a new consumer healthcare payments system, HRI interviewed executives from new entrants and traditional healthcare organizations and commissioned a survey of 1,000 US adults. HRI also analyzed commercial claims from 34 million Americans in the Truven Health MarketScan® 2012 commercial claims database. Key findings include:
- Patients and affluent consumers are most dissatisfied with the healthcare billing and payment system. For example, one in two consumers in poor or fair health – the greatest utilizers of the system – rated hospitals poorly on price transparency and affordability.
- Cost-conscious millennials are more likely than the general population to judge healthcare organizations based on their billing practices. They also are more likely to challenge medical bills, search for better deals and make value-based decisions.
- Consumers and new entrants are beginning to circumvent the claims-based healthcare payment system, especially in primary care services and chronic disease management.
- Four in five adults with commercial insurance paid less than $1,000 in out-of-pocket expenses in a year, according to an HRI analysis. And yet as deductibles rise, more patients will find paying their share of their medical bills difficult. As many as two out of three bankruptcies involve illness, injury, significant uncovered medical bills or a combination of these factors and the fallout from them.
What this means for your business
In the short term, healthcare organizations should begin building more convenience, transparency, affordability, reliability and seamlessness into their revenue cycle and payment systems. In the longer term, healthcare payment must fall in step with other industries. The system needs more than patches, bolt-ons and retrofits: It needs structural change.
- Accelerate the move to digital. Commercial health insurers conducted just 15% of payments and 27% of payment remittance advice electronically in 2013. The rest of US business averages 43% for payment. This remains one of the system’s most critical bottlenecks.
- Embrace simplicity. Many consumers do not understand their insurance benefits and are confused by their medical bills. Online payment sites, mobile apps and aggregated billing are all steps toward a simplified consumer experience.
- Sidestep claims. The growth of high-deductible plans means more consumers will pay for care out-of-pocket. New entrants are reconsidering whether these cash payments require claims, and consumers are interested, but credit towards deductibles is more important than ever.
- Multiply payment options. The system’s complexity and opacity lead to consumer delays in paying medical bills, or even abandonment of them. Offering choices for payment, making payment easy and helping consumers plan for costs can reduce bad debt and days in accounts receivable.