Giving credit to get what's due: How doctors can help patients pay the bill

Your waiting-room sign says, "Patient portion must be paid at the time of service." But what if your patient can't pay? Setting up a payment plan could be the answer.

By Dave Hansen — Posted Jan. 21, 2008

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With more Americans uninsured or in high-deductible plans, experts say collecting the payment portion of bills is getting more important -- and challenging -- for physicians' practices. One solution many recommend to avoid the high cost and hassle of collection is setting up payment plans for patients.

"Doing retail business with patients is now part of the permanent financial profile of being a doctor," said Brandywine Healthcare Services President Robert Burleigh, a past president of the Healthcare Billing and Management Assn. "They have to be prepared. So they should have prepayment plans. This is just the part of the business of medicine."

If a practice wants to set up payment plans, the best thing, experts say, is to determine how such plans would work before sitting down with a patient who needs or requests such a plan. How much is paid up front? How much is the monthly payment? What happens if a patient misses a payment? And should you manage the plan yourself, or bring in an outside firm or credit card company to handle it?

The overall goal, experts say, is to increase your collections while making care more financially feasible for patients. Susan Miller, RN, of Lexington, Ky.'s Family Practice Associates, a 10-physician practice, said that in her experience, letting patients pay over time produces better collection rates. "When you turn a bill over to a collections company, they will charge 30% or 40%," Miller said.

But experts say the success of payment plans relies in part on making sure they are not overused.

"Payment plans should be the exception, not the rule, to payment because they are costly to monitor, said Jeffrey Peters, CEO of Chicago medical consulting firm Health Dimensions. "The overriding theme is payment is expected at time of service. You really want to limit it and only do it with patients who just can't afford it."

Putting together a plan

Experts recommend that the first thing physicians do before setting up payment plans is check to see what federal and state laws might affect their structure and use.

For example, the federal government requires any transaction whose payment is accepted in four or more installments to comply with truth-in-lending law, generally referred to as Regulation Z, Burleigh said. It means that physicians must submit a written statement showing how much is owed, how much will be accepted to satisfy the debt, when it will be paid and what interest rate is charged, if any.

Physicians also should check applicable state laws to see if there are additional regulations that govern financial transactions, he said.

Physicians also should be aware of their state's collection laws. "There are stringent rules on when you can bug people and call them," said Sue Risner, a management consultant at Health Dimensions. In physicians' research, they might find that their state is among those that provide financial assistance to patients who are unable to pay medical bills, Risner said. "There may be a state resource to help them, and you don't have to shoulder the burden of a self-pay patient."

Once physicians determine what laws apply to their payment plans, setting one up can follow a few basic steps, according to several medical management experts.

The first is determining the minimum charge to finance, Risner said. It depends on what is economically feasible and varies by practice, she said. While there is no rule of thumb, specialties performing expensive medical procedures such as plastic surgery will set higher thresholds for financing than a primary care practice. For a charge of $50, she said, it sometimes isn't worth spending the resources to track partial payments.

Also, determine who has the authority to set up plans, Risner said. In a large practice, the billing office manager often is responsible, while physicians will do it for solo or small practices, she said.

Compare the cost of outsourcing the bill versus administering it yourself, said Nicole Lucas, business office manager for Neurosurgical Associates Ltd., a Minneapolis practice with nine physicians.

Costs can include supplies, such as envelopes and stamps, and the time office staff diverts to make phone calls and send out monthly statements. A smaller medical practice probably could handle a payment plan in-house, said Lucas, who administers 113 payment plans.

Lucas recommends retaining an attorney for reviewing all aspects of a payment plan, including collection letters, budget plan agreements with an outsourcing company, and the practice's billing policy.

Physicians also should determine how often payments will be accepted. While most practices bill once a month, some patients might prefer paying more frequently, Risner said.

Another consideration is how long to stretch payments, Lucas said. "Some bills can get into several thousand dollars," she said. "If a patient can only pay $50 or $100 a month, their accounts receivable will be stretched out that much further. It can add up if a payment plan goes on awhile." Neurological Associates outsources bills that take more than six months to pay, she said.

Practices should determine if they will apply a cash discount policy, Risner said. Many practices give out-of-pocket patients the same discount given to insurance companies or Medicaid/Medicare, she explained.

Physicians should decide what and how much to discount for bills paid at the time of service, Miller said. Family Practice gives a 30% discount on ancillary tests such as electrocardiograms. They tend to be high-dollar services, she said, and easier to calculate than evaluation and management services, which are not discounted because they're so complex to calculate. "We basically give our private-pay patients the benefit of those who have insurance," she explained.

Family Practice also encourages payment at the time of service by adding a surcharge of $15 or $25 on co-pays that are outstanding after seven days. The practice also discounts medical bills 20% to patients who pay within 14 days after receiving medical services. It is worth the savings on phone calls and billings, Miller said.

Charging interest

Finally, practices should decide whether to charge interest, said Health Dimensions' Risner. Many don't, but it is prevalent for expensive medical procedures, she said.

The American Medical Association's Code of Medical Ethics discourages harsh or commercial collection practices. Physicians may add interest or other reasonable charges to delinquent accounts but should use compassion and discretion in hardship cases.

Physicians who charge interest must notify patients in advance of treatment. The AMA suggests posting a notice in the waiting room, distributing pamphlets on office billing practices, and making appropriate notations on a billing statement. The Association encourages physicians to review their accounting and collection policies so that no account is sent to collections without a physician's knowledge.

It's common for physicians to collect bills without charging interest, said Cindy Dunn, RN, a consultant with the Medical Group Management Assn. Interest is difficult to track on accounting books and hard to compute. "Most patients resent paying interest to physicians," she added. "It's just another battle you have to fight if you're a practice."

Neurosurgical Associates does not charge interest when a bill is repaid in six months, Lucas said. Otherwise, the office charges 6% a year.

There's a personal advantage to maintaining your own payment plan, Lucas said. Patients appreciate it because they dislike paying 18% interest to credit card companies.

Once a payment policy is enacted, it's important to train staff, Risner stressed. She suggests preparing scripts for front office staff and schedulers so they know what to say when a new patient calls and says they don't have insurance. Once staff is trained and the system is in place, monitor it, she added. For example, some computer systems include an automatic billing payment module that flags accounts on a payment plan, she said.

Medical credit companies

Rather than setting up payment plans or having someone administer one for you, some practices ally with a credit card company specializing in financing patient debt.

Neurological Associates started accepting MedCredit, a Minneapolis-based financial services company that extends credit for medical procedures, in October 2007 after patients requested it, Lucas said. It extends credit instantly without credit checks for medical procedures. The company pays the practice up front for procedures and charges interest to patients that pay for longer than 90 days. MedCredit will waive interest on bills paid in full within 90 days, she added.

Medical credit is a fast-growing field, with major players such as GE Capital and Citigroup contracting with hospitals and large clinics -- though not so much with smaller, primary care practices -- with the promise of giving them all their cash up front while alleviating their need to chase patients for collections.

But medical credit is not without controversy. A November 2007 Business Week article detailed numerous cases of patients spiraling into more debt on the high-interest cards (up to 24%), with those patients saying they were not informed they were dealing with an outside company when they signed up for credit.

Practices using a medical credit company should consider how they will educate their patients about it, Dunn suggested. Will it be over the telephone? Will your practice mail a written policy to patients?

"The more you can tell a patient before they arrive at the practice, the better off you will be," she said. A Web site is a great way to get this information out, she added.

Neurological Associates provides a brochure on the company it uses and reviews it with patients, making sure to discuss the interest rate that MedCredit charges and what patients can expect to pay on a bill.

What if a patient falls behind on payments but still needs treatment? It's a difficult situation, but one practices must face, Dunn said. Consider if you can let a late payment slide by, then decide whether you will continue with health care if the patient fails to meet his or her obligations, she said. "It's best for staff and patients not to get any mixed messages. You need to be very clear."

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Now: Credit scoring for patients

Patients are familiar with their credit scores being checked when they apply for a mortgage, a business loan or a credit card. Soon, their score could be checked when they receive health care.

Fair Isaac, the firm that created the commonly used FICO credit-scoring system, is among the groups backing Waltham, Mass.-based Healthcare Analytics in creating a medical credit-scoring system called medFICO. Like Fair Isaac, the Tenet Healthcare for-profit hospital chain and a Waltham venture capital company, North Bridge Venture Partners, are each kicking in $10 million for medFICO's development.

The idea is not to deny care to patients with low medFICO scores, according to Healthcare Analytics. The thought behind medFICO is giving hospitals and physicians a means to classify their patient debt so they don't waste time and money chasing after uncollectable payments, the company said.

Practices and hospitals can already access FICO scores. But FICO does not include medical debt. Also, Tenet reported that 40% of its self-pay patients have no credit history, making a FICO search fruitless.

Consumer advocacy and privacy groups already are speaking out against medFICO. They fear it could be used to deny care or give substandard care to low-scoring patients. They also worry it exposes patients even further to privacy risks, such as identity theft, by putting out more data about them. They wonder how accurate medFICO will be, given studies that have shown that information used for FICO scores is often inaccurate.

Healthcare Analytics spokesman Tim Hurley said the system should be available by mid-year. He said he could not comment on details because it is still in development.

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