What to Consider When Evaluating Healthcare Payment Systems

First Republic Bank
March 27, 2020

Healthcare providers face no shortage of challenges — and managing payments is one they can’t ignore. Thankfully, advances in healthcare payment systems offer the potential to solve a number of the unique — and often expensive — issues that are currently plaguing medical practices.

Increasing financial pressures

Patients, subject to rising medical costs, are leaving bills unpaid as they struggle with a changing coverage environment and high deductibles. For individual practices or provider groups, that’s sending the already-high costs of back-office administration even higher. Experts say providers collect as little as 18 to 34 cents for every dollar billed to those with high-deductible health plans, with practices sending 3.3 statements (on average) before receiving payment for an outstanding expense.

These financial pressures have many providers looking to improve payment management and revenue cycle performance. Faced with rising hospital expenses, reimbursement reductions and uninsured rates, reducing payment errors and increasing collections are key ways provider groups can gain more stability in their financial operations, even as they adapt for a more value-based care environment.

Understanding core challenges in payments administration

At large, healthcare administration is inefficient from a financial perspective. Of the $250 billion that consumers pay doctors and hospitals — and the $1.3 trillion that insurers send to those same providers — 15% or more of each dollar is consumed by payment and transaction costs and other administrative expenditures (in retailing, payment systems consume just 2%).

Streamlining and modernizing the systems providers use for front- and back-office payment and receivables concerns can help reduce these high costs. That said, changing healthcare payment systems is a significant decision that organizations tend not to take lightly (45% of hospital purchases have sales cycles ranging between seven and 18 months).

To make the right choice in new solutions, however, organizations have to know which tools and capabilities will be most valuable for resolving their payment challenges. Hospitals and other provider groups should start any evaluation process with a clear understanding of where their key issues lie and what the sources of those issues are.

Some of the most common payment issues include:

1. Bad debt

If organizations are struggling with non-payment for services, they may want to look into solutions that empower more collections at the point of sale — an area in which hospitals tend to collect extremely low percentages of net patient revenue. They may also be interested in adopting analytics tools for assessing their patients’ fiscal health and propensity to pay, using data on their financial capacity, income and/or payment history.

Certain payment solutions include tools for estimating costs upfront during the eligibility-checking process. That can help providers better serve the 92% of patients who want to know their financial responsibility in advance of service.

2. Claim denials

With payers making abrupt changes to their provider networks, eligibility checks are growing ever-more important to reimbursements and cash flow. Network coverage gaps, among other issues, often lead to costly denials (and “surprise bills” for patients).

A full 9% of claims are initially denied by payers. And while it’s estimated that roughly 63% of denials can be recovered, costs run around $118 per denied claim to capture monies owed. If more than 5% of an organization’s claims are not paid on first submission, it may want to pursue solutions that automate more areas of the revenue cycle workflow. They can help the organization collect more data on where claims are being denied, and why, which can inform better predictions and strategies for improvement.

3. Delayed payments

Healthcare organizations of all sizes want to be paid right away, but the impact of delays can be especially high on small provider groups: 83% of physician practices with fewer than five practitioners report that their top collection challenge is slow payment among high-deductible plan patients.

Pursuing solutions that offer more diverse, accessible payment options to patients can speed up cash flow. Patients are eager to pay online, for example: 68% of patients want to pay their clinician offices using electronic tools, but 86% receive paper medical bills. Tools that facilitate mobile payment acceptance, text/SMS bill reminders or customizable payment plans may also help speed up payments.

Pursuing integrated solutions

Once providers know which tools will resolve their payment challenges, they can ask the right questions to understand how a new solution will support (or transform) their existing ways of working.

These questions include:

How will this integrate with my electronic health record (EHR) and other operating systems?

Payment tools that integrate with providers’ EHR or patient management systems allow for easier reconciliation of payments against services rendered — helping organizations automate posting to speed up receivables and streamline reporting.

Many EHRs and practice management systems offer elective payment tools (such as online payment portals and e-statements) that providers can bundle into their service offerings or layer in over time. Taking advantage of more integrated and robust RCM features in EHRs can generate a 2.5% to 5% increase in revenues for providers.

Third-party software vendors may be able to make similar outcomes possible as well. In any sales process, they should be able to provide clear information on the EHR and the administrative systems it works with (and what kind of results such integrations help achieve).

How established is the payment solution, in terms of reliability and future support?

If providers choose to work with third-party vendors, they’ll want to do so with confidence that the payment software will be accessible and functional for the entire length of any contract they enter.

To gain that confidence, decision-makers should ask about vendors’ history and approaches to development and resourcing. Consider asking:

  • How long have the vendors been around, and how is their client satisfaction?
  • What’s their approach to product development? How often are upgrades and new features released, and how are they implemented?
  • How responsive is their customer service? What are their workflows for resolving issues?

Any reputable software or services provider should be able to not only answer these questions but also (ideally) provide case studies that prove out the ROI of its offering over whatever timeline it suggests for a contractual period.

How well will this adapt for our future needs?

Healthcare reimbursements are subject to broader changes related to the overall transition from the fee-for-service model to one designed for more quality-driven, value-based care., 43% of providers receive most of their revenue via alternative payment models (like accountable care organizations or patient-centered medical homes). Given high levels of participation in Medicare programs like the Merit-Based Incentive Payment System, another 43% receive fee-for-service payments linked to quality.

Ensuring that any payment-related solution is designed to support current government incentive programs, and is adaptable for future ones, is essential for any provider organization participating in these broader change initiatives.

In addition, providers should consider how their investments align with the concurrent shift for greater healthcare consumerism and patient empowerment. Solutions that support improved price transparency and records accessibility, for example, can help patients gain greater control of their care by creating more choice in how they coordinate care or respond to potential costs.

Making the right decision

Every healthcare organization has unique needs and problems when it comes to payments, and these can rarely be resolved by a single solution. It’s only with a deep understanding of their challenges that providers can take the right steps toward a successful buying decision.

Even then, providers’ level of investment in their existing tech stack — spanning aforementioned EHR and practice management capabilities as well as IT concerns — will influence what works inside their financial-operational ecosystem. Ultimately, by pursuing integrated solutions that make it easier for patients to pay, healthcare organizations can lower costs by achieving better performance across the front and back office.

This information is governed by our Terms and Conditions of Use.