High Out-of-Pocket Costs Led to Low Patient Collection Rates

Patient collection rates at hospitals declined and bad debt increased when out-of-pocket bills reached $7,500, according to a report from Crowe Revenue Cycle Analytics (Crowe RCA).

The report reflects data from more than 1,400 hospitals across 47 states through 2021.

The firm found that self-pay after insurance accounts were responsible for nearly 60 percent of patient bad debt in 2021, compared to 11 percent in 2018.

The increasing number of high deductible health plans (HDHPs) has led to lower premiums but higher out-of-pocket costs when care is needed.

“In the past, insured patients may have had a $75 to $200 copay and many were able to pay the total amount at the point of service,” Brian Sanderson, a principal in the Crowe healthcare consulting group, said in a press release. “These days medical bills could be thousands of dollars, even after the insurance balance has been resolved, which is more than a lot of patients can afford, and hospitals are struggling to collect this revenue.”

The share of patient statements with balances of more than $7,500 grew from 5.2 percent in 2018 to 17.7 percent in 2021. The percentage of balances higher than $14,000 increased from 4.4 percent in 2018 to 16.8 percent in 2021.

As these high balances are more difficult for patients to pay, hospitals and providers face challenges when collecting payments before services or during the 120-day collection window after the insurance balance is resolved.

Self-pay after insurance collection rates dropped over 20 percentage points between 2020 and 2021, going from 76 percent to 55 percent.

The report found that patients with insurance were less likely to pay their out-of-pocket bills when the balance surpassed $7,500. The collection rate in 2021 for claims between $5,000 and $7,500 was 32 percent, while the collection rate for claims between $7,501 and $10,000 was 17 percent.

According to Sanderson, ongoing labor shortages and rising patient out-of-pocket costs have led hospitals to struggle to collect these high balances from patients.

Some hospitals and health systems have combined analytics and resource segmentation to preserve high collection rates, the report noted. For example, some facilities have divided their revenue cycle teams into three groups: one for accounts less than $1,000, one for accounts between $1,000 and $5,000, and one for accounts more than $5,000.

The trend of decreasing self-pay patient collection rates suggests that there will be an increase in direct patient-to-hospital negotiations for complex medical care, the report indicated.

In addition, the industry will likely see more consumer financial companies offering payment plans on behalf of patients and more advanced models for hospitals to align their workforce to patients who can pay their out-of-pocket costs.

The COVID-19 pandemic pushed providers to modify their patient collections strategies. For example, providers increased patient payment options, adjusted bad debt placement timing, delayed credit reporting, and allowed patients to extend payment terms.

However, relaxed payment schedules may not be enough to ensure high collection rates as out-of-pocket expenses continue to rise.

Data from the Employee Benefit Researcher Institute (EBRI) found that out-of-pocket healthcare spending for patients with employer-sponsored health coverage increased by nearly 2 percent between 2013 and 2019 before declining due to the COVID-19 pandemic.

Past studies have shown that patients with HDHPs may see lower out-of-pocket costs if they pay a hospital’s discounted cash price instead of going through their insurance.