The Weakening Economy and Health Care Collections

One of the overlooked consequences of the current economic uncertainty is the effect on health care collections, but as imaging centers struggle to adapt to the triple witching hour—declining reimbursement, the sour economy, and the increase in consumer-driven health care—effective, efficient collections have become crucial to survival.

"I think we're going to see providers with weak balance sheets, more and more, in search of partners who can bring capital (and even operations expertise) to their facilities. This eventually will turn around, but I think the net–net is that there will be a lot of hospitals in search of operating and capital partners." — Joe Murgo, former CFO, Hospital Partners of America

On February 4, Kaulkin Ginsberg Co and insideARM.com hosted a webinar to provide insights and guidance into the new and evolving health care landscape. Kaulkin Ginsberg is the leading boardroom-level advisor to the accounts-receivable management industry. Its media division publishes insideARM.com, which provides timely news and perspective on the recovery of debt in all industries. Led by Michael Klozotsky, a Kaulkin Ginsberg Co executive specializing in health care receivables, the webinar’s topics range from recent economic data about consumer spending and the US personal savings rate to panelist predictions of the future of the US health care system. Panelists include Richard Clarke, president and CEO of the Healthcare Financial Management Association; Stephen Mooney, president of Conifer Revenue Cycle Solutions; Joe Murgo, former CFO at Hospital Partners of America; and David Nosacka, COO of Creighton University Medical Center. The discussion of economic data reveals clear evidence of the significant role that health care plays in the US economy. "Health care spending in the United States now accounts for roughly 17% of the gross domestic product; about one in six dollars spent in the United States is spent on health care," Klozotsky says. "What does that mean? The key driver of the US economy, health care spending, is affected by overall contractions in household expenditures, but the economy needs growth, and growth in health care, in part, as evidenced by the $100 billion that is set aside in the Obama stimulus package for health care. Reductions in spending could spell bad news for hospitals and health care collectors as patients delay care and struggle to pay their bills." Moving on to the new strategies for debt resolution, Murgo offers that the CFO (or equivalent) should spend about 80% of his or her time managing expenses, the value of which could be enormous. He says, "I would posit that if anybody were to sit down and pencil out the cost to collect a patient account receivable over the course of a year; include all the costs, from patient access to billing and collections; and then put in the costs of having to outsource to contingency groups because the internal group is underperforming, and so on and so forth, the cost to collect a receivable today is very, very significant and highly, highly variable." In shifting management of the revenue cycle to the front end to capture dollars, Mooney refers to bad debt rising at Tenet in 2006 and early 2007. "There's a major education process that had to take place to talk about it and, first of all, show where the bad debt is coming from, what is driving it, and what are the actual contributors to bad debt,” he says. "A lot of it occurs before the patient even shows up: bad data we're getting from the patient, bad demographic information we're getting from the patients, that preregistration process wasn't happening—literally—probably over 50% of the time at our hospitals," Mooney continues. "It's all about that shift of helping everybody understand, and having the business intelligence to understand, what the driver of bad debt is, where it is coming from, and what you can then do about it. It doesn't start after the fact; it starts way up front, and that is part of the revenue cycle." For the panelists, the subject of the Obama administration's efforts to reform health care brings several direct comments. "The shifting from private to public is troubling, especially given the track record that we've seen on the public payors," Clarke says. "Broader-based efforts to increase coverage for the uninsured, especially for those organizations that are in places where there's a lot of uninsured, are positive types of things, and probably are within a 1 to 1.5-year timeframe." Mooney adds, "They're going to try to do something for the uninsured, but as a provider, [the question] is always how you get access. Even if it's a government program that they're now putting out there, you have to have a way of getting that business captured. Are you capturing those patients going through the door? Are you screening them appropriately? Are you getting them into the right programs? That's going to be incredibly critical. Are you able to segment your business, to understand who is qualified for these programs and who isn't? Where do I spend my energy? Where don't I spend my energy?" Returning to the subject of collections, Mooney offers hospital-based observations that have clear implications for outpatient imaging centers and others. "Point-of-service cash can be critical," he says. "Whether it's preregistration, you're setting up expectations, or you're putting point-of-service programs in place, they've got to be there. They've got to do appropriate training, appropriate staffing, and the right systems. You can actually [understand] what the patient's responsibility is.” He continues, "Those things have to be in play, going forward. It's going to be really critical that all the hospitals out there start doing what they need to do upfront and not wait until the back end. If they are waiting until after it goes through, everybody's clearly not going to pay on the front end. Then, you need to be able to segment your business and understand who has the ability to pay and who doesn't have the ability to pay, and then appropriately tackle those based on different strategies, based on the population portion." The panelists offer several predictions. Clarke says, "I think we're going to see physician groups pulling into hospitals and hospital groups merging among themselves, simply because it's very difficult to be a small operator in a very tumultuous and dangerous environment." Nosacka adds, "I think mostly about innovation, in the sense that we've got to figure out how to continue to do things better and cheaper at the same time. If there's pressure on everything, then if you're not innovating—or you don't have a partner who can help you steer through that—you're going to continue to just fall behind further." Mooney continues, "I just would try to talk about bad debt and cash flow, as it's going to get worse before it gets better. I just don't think people need to be sitting around and waiting for the government to solve their problems. That's not going to happen." Murgo concludes, "I think we're going to see providers with weak balance sheets, more and more, in search of partners who can bring capital (and even operations expertise) to their facilities. I think that there's a consolidation opportunity or an acquisition opportunity for those hospital operators and/or private equity groups that can have the stomach to buy in the face of a headwind, recognizing that there are a lot of value buys out there. This eventually will turn around, but I think the net–net is that there will be a lot of hospitals in search of operating and capital partners." Time will tell, to be sure. In the meantime, however, it appears that innovation and diligence are important components of profitability in 2009.