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Debt Collections and Patient Payments: The Search for a Win-Win Collections Strategy

In 2018, hospitals incurred US$42 billion in uncollected debt from patients, an estimated 6% of their revenue. This not only threatens their financial solvency but also signals a dire need for solutions that alleviate the scourge of revenue cycle management and collections. Help is on the way if revenue cycle executives look hard enough, as Aite Group estimates that US$14 billion of these uncollected receivables can be collected. Hospitals just need to be open to consumer-friendly payment products and financing options that create a pathway to collect. However, early attempts to bridge that gap have fallen short of the mark due to inertia as well as healthcare providers’ and hospital revenue cycle managers’ unease of engaging with external partners.

Aite Group data indicates that patient payments made up over 20% of healthcare provider receivables in the U.S. in 2017. More importantly, they are on track to surpass 30% by 2021. There are no more warning bells, as the alarm bells going off now signal an imminent need to sync a collection system with customer preferences. I’ve explored this in a report I published in 2018 titled Patient Finance: The Silver Bullet to U.S. Healthcare’s Bad Debt Problem?

While hospitals struggle with bad debt from patient receivables, patients feel the pain with paying those medical bills, partly because of a clunky payment process, and this, in turn, negatively affects the patient experience. And how have hospitals responded? With a mixed response regarding their patient collections strategy. Some are content to handle receivables internally and are on track to continue doing so, and others have adopted some form of white-labeled payment solution embedded in the provider’s portal. But both are leaving money on the table. The former group may not be considering the cost of tying up their billing or accounts receivable office as they use their time chasing down unpaid bills—most of them small in dollar value. That method has already proven unproductive, with uncollected bills eventually being transferred to collection agencies. The latter are a step ahead, as they’ve made some progress with providing a patient-friendly payment portal, but they may or may not yet have the recurring monthly payment options that would suit families with various budgets. Hospital rollouts of proper patient-friendly collections or payments strategies lag for three reasons: inertia, a not-invented-here mindset, and an unwillingness to pay a part of their receivables to a third-party partner that can facilitate such collections.

And there’s a large gap between what customers expect and how hospitals tend to respond—or not respond—to those expectations. Customers expect an easy-breezy, Venmo-style one-click payment or an Uber-ride experience that concludes with an effortless, touchless payment that takes effect in near real time, if not in real time. Hospitals, on the other hand, use a mix of paper bills and online statements that appear weeks after the date of service (a whole other story) with no straightforward means of making a payment. Guess which one is more likely to result in successful payments and collections? Hint: Uber does not have a problem with customer receivables, and Venmo is delightfully simple to use. Simply put, customers are often up for paying their healthcare bills but don’t want to do it any differently than they pay other bills.

This large gap signals opportunities for financial lenders, private equity-funded startups in patient finance, and payment providers that can help hospitals provide user-friendly patient payment options to improve patient receivables.

  • Financial lenders: Banks seeking opportunities to deploy capital beyond traditional consumer lending channels have been hesitant to enter this market for many reasons even though they recognize aging hospital receivables as an obvious pain point. Institutions contemplating a way into this space must think outside their traditional lending mindset, adopting innovative and cost-efficient ways to offer small loans to patients. One such way is through bundling small patient loans and reselling them at a size that is appealing enough for financial lenders to purchase. There is an obvious vacuum in that space just waiting to be filled.
  • Private equity-funded patient finance startups: Many tech-native payment-plan-provider companies are bringing new life to hospital receivables, offering a plethora of innovative point solutions and integrated infrastructure services to facilitate retail-like experiences for patients willing to pay but lacking consumer-friendly options. Patient finance companies are dotting the patient payments landscape with a host of customer-friendly financing and payment avenues to alleviate the pain associated with medical debt/bills for patients as well as the bad debt burden for hospitals.
  • Payments providers: While the healthcare payments providers ride on a well-established technology infrastructure, their model has traditionally been geared more toward insurance payments than customer or patient payments. There are signs that the industry is now engaging in customer payments, and these companies are expanding their offerings to encompass a greater share of healthcare payments.

Healthcare providers can no longer delay revamping their patient collections strategies in an era when high out-of-pocket payments are the new normal. The actors and solutions to make that happen are ready or near ready for the taking. Now it’s up to the hospitals to reclaim their financial solvency and bring uncollected debt levels down.