Navigating the rocky financial road ahead

The first few months of the year often are a trying time for physicians financially. Insurance deductibles reset, meaning practices have to collect from patients instead of insurance companies. And with the increase in high-deductible plans, the early-year cash crunch is becoming a bigger problem as more healthcare costs are pushed onto consumers.

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“No one has met their deductible on January 1,” says Mat Kremke, vice president of the American Osteopathic Information Association, an affiliate organization of the American Osteopathic Association. “Smaller practices especially feel the pinch as more people have high-deductible plans. It’s not that they aren’t going to get paid, but it’s a longer process than just collecting a copay.”

Patients are becoming the new payer, now representing 30% of a bill, up from 10% in 2008, says Jonathan Wiik, MSHA, MBA, principal for healthcare revenue cycle management at TransUnion, a consumer credit reporting agency. He says this shift has two effects: Patients are more likely to delay needed care because of higher out-of-pocket expenses and those who do seek care are frequently unprepared to pay their bills. 

A recent TransUnion study found that 68% of patients who had a bill for less than $500 did not pay it in full in 2016. This is up from 53% in 2015 and 49% in 2014. “The end result being that physician practices will experience continued revenue leakage from bad debt and financially disengaged patients,” says Wiik, who is also the author of “Healthcare Revolution: The Patient is the New Payer.”

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With patients shouldering more of the financial burden, experts say physicians need to change how they approach money issues. To succeed, physicians not only need to continue looking for ways to reduce overhead expense, but also look at how they approach patient collections and to educate everyone in the practice regarding the financial challenges that loom ahead.

Traditional strategies

Tim Beechnau, DO, and Nick Beechnau, DO, a father-son team of primary care physicians in Ravenna, Michigan, have used a strategy of keeping their salaries low to allow the practice to weather the lean months at the beginning of the year.

“The first of the year is always tough, and we don’t look forward to it,” says Tim Beechnau. “We try to keep a nest egg to get us through it.”

By watching how much they spend in the early months each year, they know how much they need to save, and any leftover funds become a bonus. The Beechnaus’ practice also tries to get any bills paid at the end of the prior year, before the inevitable early-year lull when cash is tight. 

Next: Collecting money owed

Physicians not drawing a check or adjusting their pay need to carefully consider any changes because of tax implications, says Kremke. Practices structured as S-corps have greater limitations on physician pay changes than sole proprietorships or partnerships, but even the latter can face higher tax bills with the wrong strategy. “You need to plan and budget and involve your accountant and tax adviser,” he says. 

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In addition to lowering early-year expenses or reducing physician salaries, practices can look to increase revenue at the end of the year to help build a reserve fund. “Look at November and December and see what invoices you have outstanding and try to bring that money in,” says Kremke. 

Another way to bridge the cash flow gap is through a line of credit, says Kremke. A line of credit usually carries a flat percentage fee based on the amount of the withdrawal, and there might be an additional yearly fee of $500, for example, for a line worth $100,000. “It’s a way to help themselves through lean times, but it does cost money. If you go this route, make sure the bank you are working with understands medical practices.”

Collecting money owed

Physicians need to be proactive in collecting what patients owe to ensure they are getting the funds needed to operate their practice in those early months. “The practices that are successful at bringing money in and managing their revenue stream are those that are working in advance, ensuring patients are covered prior to a service rather than post-service, and they are gathering information on copays, deductibles and coinsurance prior to a visit,” says Ken Hertz, FACMPE, principal of the Medical Group Management Association. “They are also making payment arrangements prior to a service being provided.”

By discussing costs beforehand, practices can identify which patients can pay and which ones cannot, says Wiik. “Those patients who are unable to pay should be financially screened early in the process to establish candidacy for public or internal financial assistance,”  he says. “Patients who are able to pay should have flexible and easily accessible payment options.” 

Accepting credit and debit card payments is a must, and having the technology to convert checks to cash with minimal delay-known as remote deposit capture-helps avoid many issues related to insufficient funds, says Hertz. 

Kremke adds that offering the option of online payments is effective in improving collections. “It’s a lot easier for patients to go to a portal and submit a payment than it is to put a stamp on an envelope,” he says.

Physicians can also offer payment plans for those who may not have the ability to cover the bill in full, but experts say guidelines need to be established to avoid getting entangled in state lending laws.

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“If they are setting up payment plans, the state may view physicians as a lender,” says Kremke. If that’s the case, the practice might have to comply with banking rules and regulations.

Richard Gundling, FHFMA, CMA, senior vice president with the Healthcare Financial Management Association, says that practices also need to balance the needs of the patient with those of the practice. “You probably don’t want to go over a year for any payment plan you set up, but you want to make sure the monthly payment is something the patient can actually handle,” he says.

Next: Changing financial attitudes

For example, a patient with a $2,500 deductible might not be able to pay the full amount over three months, but stretching it over a year makes for a payment the patient can more likely afford. 

“There is no magic number of what every payment should be, it’s just a matter of what is a reasonable amount for the patient that doesn’t drag out the payments over five years,” says Gundling.

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Keeping a patient’s credit card on file can also help physicians to collect unpaid bills, but Gundling says a practice needs strong security measures in place to protect the data and that the risks may be too high for a smaller practice. Keeping credit cards on file for payment generally requires a signed agreement from the patient, and it also subjects the practice to specific security rules from credit card issuers as well as HIPAA.

 “A lot of physician practices shy away from doing that because of the legal issues. If a security breach happens, people are very sensitive to having their credit card data stolen,” says Gundling. 

If, despite the practice’s best efforts, a patient still hasn’t paid, it’s acceptable to take the next step: collections.

“Physicians don’t feel like it’s good bedside manner to take someone to court and collections does require a soft touch, but it’s a good way to clean up some of the overdue receivables,” says Kremke.

To avoid any misunderstandings regarding collections and payment plans, Hertz says, it’s important for a practice to post its financial policies in the office, on its website and in patient communications.

“Don’t beat them up, but try to work with them when possible,” he says. “Everyone has experienced difficult financial times and I think patients appreciate when you try to work with them rather than threaten them.”

Changing financial attitudes

Beyond controlling expenses and improving collections, physicians need to shift their attitude about finances if they are going to survive in a world of more high-deductible health plans and slowing cash flows, experts say.

“Just saying you only practice medicine and are not involved in the patient’s finances-that has to change,” says Gundling. “You have to be part of the financial communication and have everyone in your practice prepared to do that. Practices have to think about how they are going to talk to patients about money.”

Next: Embracing a creative approach

Patients with high-deductible insurance plans may be shocked when they receive a large bill from the practice, because often they don’t understand their plans, says Hertz. This leaves physicians in the position of arguing with patients who have just been handed a bill for $750, and they just keep saying, “but I have insurance, they’ll pay it.”

Gundling says establishing solid financial processes and training staff on them is key to getting paid, and it starts with the registration process. Before a patient comes in, the staff should know their coverage and where they are with their deductible and that should be shared with the patient prior to treatment. They should also be able to explain insurance terminology and plan details. “You are more likely to get paid if the patient knows you’ve checked the insurance and you have their best financial interest at heart as well as their best clinical interest.”

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Nick Beechnau agrees that patient education plays a big role in getting paid. “They think the bill is only for a few dollars, so what’s the big deal? But when they understand the hours it takes to put the letter together and the money spent to collect [the bill], they are more likely to pay.”

By having conversations while also offering financing options, patients see that the practice is trying to help them, says Gundling. This empathy from practice employees also can affect patient satisfaction scores, which are becoming increasingly important for reimbursement under value-based care.

 “A patient that needs financial guidance sees [financial help] as part of the total quality they are getting from the practice,” Gundling says. “Patients may not always understand all the medical terminology, insurance terms or financial terms, but how the practice handles it is all part of quality.”

The early months of the year will continue to be a financial struggle as high-deductible plans proliferate and slow the cash coming into practices, but it doesn’t have to be an issue if the practice is prepared.

“If you embrace a creative approach and work with the people who have to pay you, I think they benefit and you benefit,” Hertz says. “If you take a hard line, you will get people who are unhappy and stressed and end up with balances that are not collected. If you work together, it’s a win for everyone.”