Readers Write: Should Health Systems Become Banks?

Should Health Systems Become Banks?
By David Stievater

David Stievater, MBA is a partner with CWH Advisors of Boston, MA.

Are healthcare organizations expected to now run banks in addition to delivering patient care services? To help patients pay for their care, providers have become lenders, offering patients the equivalent of unsecured, zero-interest loans backed by hospital balance sheets. It should come as no surprise that with additional financial stress lingering from the COVID pandemic, providers are looking for additional funding sources and financing alternatives for their patients.

Overall US healthcare spending hit 18% of GDP in 2021, up from 5% in 1960. Total patient out-of-pocket spending, not including insurance premiums, totaled $433 billion, according to the latest numbers from CMS. The out-of-pocket dollars owed by patients has risen at twice the rate of US GDP growth since 1960. More and more, patients find they do not have the cash on hand to cover medical expenses.

The financial challenges facing patients are well documented. In 2021, the Federal Reserve Board reported that 17% of adults had major, unexpected medical expenses in the prior 12 months, with the median amount between $1,000 and $1,999. The same research also said that 23% of adults went without medical care due to an inability to pay. These types of findings are corroborated by other reports, including Synchrony Financial’s Lifetime of Healthcare Costs study in 2022 in which one in four individuals said they delayed a recommended procedure due to cost. The Synchrony study also indicated that when care was delayed due to cost, respondents ended up with additional medical issues 50% of the time.

Patients will benefit from more funding sources and options to reduce and eventually pay off balances owed to healthcare organizations.

Unlike other industries, providers generally bill patients after care is delivered. They carry the patient balance owed to them as a receivable, to be collected once insurance has calculated its portion. By billing after the fact, providers essentially make unsecured loans to patients.

Many decades ago, when the patient portion of provider revenues was relatively small, it was common for unpaid patient balances to simply be written off. It wasn’t worth the effort to pursue them. Providers did not tend to accumulate large unpaid patient balances on their books for long.

Over time, as the size and frequency of uncollected patient fees grew, provider organizations looked to new propensity-to-pay algorithms, early pay discounts, early out vendors, recourse financing, pre-service collection of co-pays, in-house payment plans, and other tactics to increase the yield on the amount owed by patients. Debt collectors were asked to pursue patients deemed able to pay. In some unfortunate cases, the most aggressive health systems have sued patients (including their own employees) to recover unpaid balances.

Provider executives say they work hard to balance compassion for patient circumstances with a desire to collect from patients who they believe can afford to pay at least some of what they owe. Additionally, they would prefer not to be in the lending game and tie up so much of their balance sheet with unpaid patient balances.

We estimate that 45-55% of a typical health system’s patient balance, after insurance (including full self-pay), is never collected and is converted to charity care, some other form of financial assistance, or written off as bad debt. Providers too will benefit from offering patients more options to fund their care and reduce and eventually pay off balances.

Our 2022 PatientPay study — which included 38 in-depth interviews with executives at health systems, hospitals, and large single/multi-specialty medical groups — indicated that providers will increasingly look outside their organization for solutions. One hospital CFO said that “a lot more people are going to finance their portion of what they owe,” Another revenue cycle executive said, “We are definitely going to provide more third-party financing options and less in-house over the next two years.” Overall, 61% of the executives said they expect to make greater use of third-party patient financing over the next 24 months.

Part of the impetus to look externally for payments solutions is that the COVID pandemic has made it harder for healthcare organizations to staff their revenue cycle operations. Still, much of the motivation to seek third-party assistance is simply the need to find more flexible payment and financing options for patients that free up the health system’s balance sheet.

The study noted that the biggest investments by large provider organizations are centered on creating a more retail-like payment experience for patients. COVID pushed more dollars here immediately in the form of contactless terminals and accelerated efforts around card-on-file and other portal-based technologies. Patients can expect improved communication via portal-driven emails, text to pay, and mobile applications.

Entrepreneurs are also putting their creative minds to work and generating new solutions to help providers match their patients with available financial assistance and philanthropic programs. Companies such as TailorMed/Vivor, Annexus Health (AssitPoint), RIP Medical Debt, and Atlas Health claim their approaches are generating meaningful ROI for providers.

Longer term, providers must focus on providing patients with an accurate estimate of their costs. This will enable them to collect the patient responsibility before care is delivered, without waiting for insurance adjudication and without turning their healthcare organization into a lender.