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How to manage bad debt

February 14, 2017
by Brian Albright
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As health insurance premiums, deductibles and copays have risen, so has the possibility of incurring bad debt for behavioral health providers. With more patients covered under high-deductible plans or Medicaid managed care plans, the new payer mix has shifted more of the burden for payment onto the patient and collection onto the provider.

“High deductible plans have been a game changer,” says Teresa Gerard, CEO of the Guardian Group. “As those deductibles have risen, we’ve seen a lot of debt increase. People are stretching payments, if they are paying at all. In some cases, patients have to decide if they are going to keep paying their premiums or their medical bills.”

For behavioral healthcare and substance use treatment providers, this shift has presented some unique challenges. For a variety of reasons, many patients in these settings face significant financial obstacles. That can make it difficult to obtain initial payments and to collect later.

Behavioral healthcare providers have always had some level of bad debt or write offs.

“What has been significant over the last several years is as states have moved to managed care, that uninsured funds or other grant-based funds have been decreased or removed from the payer mix,” says Michael Flora, senior operations and management consultant for MTM Services. “Many consumers who had been eligible for grant aid or other funding have moved to managed care coverage or other plans through the Affordable Care Act. That has shifted the burden to the consumer and to the provider.”

Good faith efforts

Providing hardship exceptions or writing off debt is also more complex in the changing healthcare landscape.

“The federal government has been aggressively enforcing waste, fraud, and abuse statutes, such as the False Claims Act and the Criminal Health Care Fraud statute,” says Michael Barnes, managing partner at DCBA Law & Policy and former director of the Center for Lawful Access and Abuse Deterrence (CLAAD). “Providers who accept public or private insurance should recognize they could face scrutiny if they are writing off services for some patients but not others. Unless a patient is part of a provider’s need-based assistance policy, providers typically should make good faith efforts to collect.”

These trends have had a big impact on revenues in the healthcare space overall. McKinsey and Company estimates that providers collected just 50% to 70% of an insured patient’s balance after treatment in a 2009 report. In fact, patients are only 40% likely to pay after the leave the treatment facility. A 2012 Greenway Health study of 500 private practices found as much as $100 million in uncollected patient-owed balances.

While providers can pursue these payments using aggressive collections practices, or outsource to collections agencies, many avoid doing so because they don’t want to damage their patient relationships—especially when those patients are part of a particularly vulnerable population. In some cases, these patients may be struggling with severe mental illness, homelessness or addiction, and aggressive collection practices could jeopardize their recovery. They also might not fully understand complex insurance coverage terms or self-pay commitments.

And now, with Congress retooling health policy, it’s unclear exactly what type of coverage may be available for many patients. In states where patients with severe mental health issues or substance use issues were included in Medicaid expansion, those benefits remain up in the air.

Challenges of bad debt

What can behavioral health providers do to better manage the possibility of bad debut resulting from patents not handing over their deductibles or co-pays? One of the industry’s biggest challenges is managing against the level of write-off or potential write-off for these underinsured patients.

“Many of these providers are safety net providers, so they can’t turn anyone away,” Flora says. “They need to manage clinical risk and financial risk at the same time, and it’s a real balancing act. They may have to assist consumers with making a payment plan, and that may or may not be written off down the road. They have to manage that on a monthly and aggregate basis.”

In some states, treatment centers can forgive copays or deductible charges in cases of hardship. According to Gerard, there are even practices that have gone as far as paying their patients’ premiums to ensure they don’t lose coverage during treatment. However, insurers are increasingly insisting on proof of out-of-pocket collections, and penalizing providers that don’t follow a consistent needs-based assistance program.

Avoiding bad debt

According to the experts interviewed for this story, the best strategy for managing bad patient debt is to avoid accruing it in the first place. Develop clear policies regarding deductibles, co-pays, and self-pay procedures. Communicate policies to patients, and make collecting those payments part of the day-to day operations of the practice.

“Pre-service, you have to look at admission eligibility and verify the payer prior to service being delivered,” Flora says. “Make sure they are working with an appropriately credentialed provider, and that they have behavioral healthcare benefits that will reimburse the provider. Look at the services on their treatment plan and their benefits.”