Card Industry Looks to Seal A Health Care Payments Gap

  Over the past several years, administrators at the St. Charles Medical Center in Bend, Ore., have seen a growing number of patients struggle to pay their bills. More patients are showing up who do not qualify for Medicaid or other government assistance and who also do not have private health insurance.
  The hospital has experimented with arranging low monthly payments for uninsured patients who owe large sums, but historically it has collected only 13 cents on every dollar, a near total loss, says Diana Mahnke, the hospital's director of revenue cycle operations. St. Charles is a 216-bed rural facility that did not have the expertise or wherewithal to run a collection department, Mahnke says. "It was very hard for us to monitor," she says.
  Since uninsured patients account for about 7% of the total amount the hospital bills, the financial burden was significant. Moreover, even patients with employer-based insurance are struggling, since those plans "pay a smaller portion of their bill than in the past," Mahnke says.
  Fewer companies are providing their employees with comprehensive coverage. So more consumers are using a variety of sources, such as government insurance, high-deductible health plans and their own money, to pay for health care. The resulting increased complexity of accepting payments is leading more health providers to turn to health care cards to facilitate payments and eliminate burdensome paperwork.
  St. Charles in December began distributing CarePayment credit cards to patients who need to pay out-of-pocket medical expenses. The card allows patients to pay off bills, interest free, spread out over as many as 25 monthly payments.
  Aequitas Capital Management Inc., a Portland-based investment firm, issues the CarePayment card, which carries the logos of its partner institutions. Aequitas keeps a small percentage of the money owed. Also, if a CarePayment patient has a credit score over 600, Aequitas automatically reimburses the provider for the full amount owed and assumes the debt.
  Lake Mary, Fla.-based Fiserv Credit Processing Services processes the card transactions.
  "It really has been helpful," Mahnke says, adding that the hospital can put more resources into providing care because it has boosted payment receipts and no longer has to spend as much money chasing down unpaid bills. Also, "it's been good PR for us," Mahnke adds, since the residents of eastern Oregon, especially the uninsured, now know they can get treatment at St. Charles and spread their payments out over 25 months.
  Large hospitals also have benefited from the CarePayment card service. Last October, Palomar Pomerado Health, a San Diego-based public-health district that covers 850 square miles and features two main hospital campuses that see 85,000 patients per year in their emergency departments alone, began distributing Aequitas' CarePayment cards. More than 1,000 patients had established accounts as of early July, a Palomar spokesperson says.
  "We're trying to take away the financial worries of our patients so they can focus on their health," the spokesperson says.
  Rising health care costs have opened up other niches for payment cards. Increasingly, companies are pushing employees to participate in consumer-directed health care strategies, such as health savings accounts, or HSAs, that they can access with debit cards.
  Federal lawmakers created HSAs in 2003 to allow employers and consumers to deposit funds, tax-free, into accounts that consumers could then use to pay the co-pay and deductible portions of their medical expenses. Employers hope that if employees have to assume more responsibility for health care costs, they will spend less. HSAs are tied to relatively low-cost, high-deductible health plans.
  However, unlike traditional health insurance, which typically covers all medical bills except small copayments, experts say consumer-directed strategies can make life complicated for medical providers.
  For years, knowing that major carriers such as Blue Cross and Blue Shield covered most of their patients' bills, providers were comfortable just submitting their claims and "waiting for the check," says Bill Marvin, CEO of InstaMed, a Philadelphia-based processor of health care transactions. Increasingly, however, payments can come from either an insurance company or a consumer-directed account, so providers also "need to be focused on getting money from patients," he says.
  FASTER PAYMENTS
  Accepting credit and debit cards may assure doctors that they get the patient's portion of the bill immediately, Marvin adds. But health care still has a long way to go before electronic payments become the norm. In 2005, American consumers spent $260 billion on health care, and 63% of those bills were paid either with cash or a check, according to a Visa USA study (see chart page 16).
  Some 4.5 million Americans have signed up for HSAs as of January 2007, up from 3.2 million at the beginning of 2006, reports America's Health Insurance Plans, a Washington, D.C.-based trade association for health insurers.
  Before helping found InstaMed in 2004, Marvin processed health-insurance claims and noticed that processing payment transactions could be far more lucrative. Since clearinghouses that handle health claims typically get less than 20 cents for each claim, instead of the 2% or so of the bill garnered from handling a payment transaction, "we saw a huge opportunity for revenue" when HSAs were established, says Marvin.
  InstaMed is expanding rapidly, Marvin adds. It signed up its first hospital on Feb. 1 and now provides a payment platform to 175 hospitals and clinics, he says. In May, InstaMed announced a partnership with U.S. Bancorp that brought in additional funding and the processing capability of one of the nation's largest banks.
  Marvin and other experts say card use could expand if insurers, financial institutions and processors succeed in building a system with immediate adjudication, which would encode all the provisions of a holder's plan on a card and put all health providers on a single platform that instantly could settle payments for any treatment.
  But creating such a system will not be easy. Although payment cards linked to health accounts already can be used to instantly settle transactions at pharmacies, those transactions usually are simple. And pharmacies long have had a standard network for transmitting information, says Curtis Palmer, senior vice president for DST Health Solutions, a Birmingham, Alabama-based processor for health insurers.
  However, "each health plan has very complicated adjudication rules," and there are hundreds of different health plans. Insurers need to streamline all the different variables and "allow doctors to use one application that works across the market."
  Furthermore, many health procedures never will get processed quickly, Marvin says. For example, a prenatal surgery could generate a $25,000 claim accompanied by pages of diagnoses, and an insurance company could take a week to examine them. Many experts making claims that immediate adjudication is right around the corner "don't really know the business process," Marvin believes.
  COMPLEX MARKET
  Other observers agree. "I don't think most card providers understand the [health market's] complexity," says Nancy Atkinson, a senior analyst with the Boston-based Aite Group, which has studied the HSA market.
  In the future, more consumers will get coverage from a patchwork consisting of government insurance, such as Medicaid, private insurance and their own HSAs, Atkinson says. But even something as simple as an annual physical could require dozens of subsequent procedures, and insurers and providers will have to agree on who pays for what.
  American Express Co. recently found out just how difficult it is to design a payment system for health care. In 2005 and 2006, the card organization launched efforts with insurers Wellpoint Inc. and Cigna HealthCare to design a payment process for their policyholders.
  AmEx had hoped its "hold-and-settle" process would reserve the patient's payment from a funding source, such as an HSA or line of credit, and release the payment at the same time the insurance claim was settled.
  SECOND THOUGHTS
  But in June, Amex announced the efforts were over. "We've decided to exit the health care business," says an Amex spokesperson. "The level of investment needed to take health care to the next level was significant," and Amex has decided to invest its money in areas with greater returns.
  Atkinson says other card companies may be having second thoughts because the HSA market has not met growth expectations.
  However, Atkinson expects that consumers and employers will grow increasingly comfortable with HSAs and other consumer-driven health care tools, but exponential growth might not happen until 2010. "It will continue to creep along," she adds. "It's just very early."
  A Visa spokesperson says the card association will continue to stand by its health care efforts, which includes a debit card for Blue Cross and Blue Shield. Since late 2005, Blue policyholders have been able to purchase health care services with a Blue-branded Visa card tied to an HSA or other account.
  Other entrepreneurs also have begun to jump into the health care market. Broomfield, Colo.-based LifeNexus Inc., for example, has designed a health care card with a computer chip that contains all of a patient's medical information and a magnetic stripe for payments.
  But Robert Flury, LifeNexus president and chief operating officer, says the company, founded in 2005, has a careful strategy. The health care payment card first will be rolled out early next year only in Spokane, Wash., a city of about 200,000 citizens. The company already has a small pilot under way in Spokane, in which senior citizens in nursing homes use the cards to carry their medical information.
  "It's a perfect-sized community for us," says Flury.
  Unlike big insurance companies, which simply can issue cards to their policyholders, LifeNexus will appeal directly to consumers, so it needs a community small enough to blanket with advertising. LifeNexus also hopes area hospitals will sign up their patients.
  What will set LifeNexus apart, Flury says, is its combination of a person's medical history and insurance information with the ability to make a payment with an HSA or other account. Users will be able to take the cards with them even if they change jobs or switch insurers. "People change insurance companies a lot these days," Flury adds.
  LifeNexus is still negotiating with Visa and MasterCard Worldwide over the use of their platforms. LifeNexus will work with an as-yet-unannounced financial institution for a payment application.
  Flury recognizes that the vast majority of Americans do not use HSAs. But, he says, "it will be different in a few years."
  However, AmEx's aborted attempt shows that while there may be great opportunities in designing electronic payments for the health care industry, interested companies should proceed with caution.
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