Editor's Note: The following exclusive report is part of our ongoing coverage of niche markets. To contribute to our health care stories, or to comment, write to: darren.waggoner@sourcemedia.com
Health care debt is on the rise as more companies raise deductibles for employee insurance plans. For collection agencies, counting on better scoring models – and sometimes a mix of models - is critical.
In the recession, salaries are stagnant and dual income families often are now one-income households, or worse. Co-payments are soaring and deductibles in some cases are reaching five figures, says Chad Mulvaney, technical manager at the Healthcare Financial Management Association, Westchester, Ill.
A reasonable goal for collection agencies is to collect approximately 5% of health care receivables from consumers who fully self-pay, industry insiders say. By comparison, the recovery rate for the self-pay portion of health care bills for consumers with insurance, i.e. deductibles and co-pay, averages 60%,
For agencies and health care providers, the good news is that better information – such as unemployment rates by Zip code and average income levels for a geographic area – is available and has led to better scoring models.
Collectors, meanwhile, need to identify charity care cases early and accounts must be scrubbed to pinpoint bankruptcies and deceased individuals.
“The depth of data used to build scoring models is helping to create more accurate risk scores,” says Shell Sharma, chief operating officer at collection agency NRA Group LLC in Harrisburg, Pa. “Since we have been scoring health care debt pre-collections, recoveries on that debt have increased 15%.”
Relying on a single model to score health care debt can pose problems. NRA scores health care debt using an in-house model and then sends the accounts out to be scored again by third parties. NRA began the practice to verify the results of its scoring model and has continued it because they like having a broader perspective when evaluating the risk characteristics of the portfolios they work.
Collection managers and health care providers also use scoring models pre-collections to identify patient receivables as charity care that might otherwise be classified as bad debt downstream.
Non-profit hospitals and health care providers provide charity care as part of requirements to keep a tax-exempt status. Charity care patients are those who lack the financial means to cover all or a portion of treatment.
“About 30% of health care debt can be qualified for charity care but is not, and that figure has not changed much in the past year,” says David Franklin, chief development officer at Connance Inc., a Waltham, Mass. provider of analytics and self-pay software to the health care industry. “Scoring models and gathering better patient data upfront can help identify charity care cases.”
One reason why a third of patient receivables that wind up in collections are not classified as charity care is that providers neglect to gather patient information to qualify them for charity care because of the cost of processing a charity care application. It can cost as much as $200 to do so. As a result, many health care providers only pursue the most obvious cases.
“We end up with a lot of paper on potential charity care prospects,” says Rod Goodall, president at Creditors Collections Bureau Inc., Kankakee, Ill.
Although collection agencies can qualify charity care cases on the back-end, the health care provider still has to gather the necessary data from the consumer, which can be tough if the patient is reluctant to fill out the forms. Reasons consumers who may qualify for charity care, but do not, are privacy related and simple pride.
“Once a potential charity case is identified, getting a completed application is tough because some people just don’t want to share that information or accept charity care,” says Thomas Gavinsky, vice president at collection agency IC System, St. Paul, Minn. “Unless the debtor provides the necessary personal information to verify they are a charity care case, they can’t qualify.”
Despite the improvement in scoring models, health care providers and collection agencies doubt the technology can have much of an impact on boosting recoveries from employed consumers without health care insurance. More often, this demographic consists of single consumers in their 20s and early 30s who are self-employed, but have foregone health care insurance because of the cost.
The trend slowed the growth of health care spending in 2008 to 4.4% in 2008, down from 6% in 2007 because uninsured consumers are reluctant to seek treatment, according to the Centers for Medicare and Medicaid Services. Health care collection experts are concerned that this pool of consumers represents a potential ticking bomb when it comes to delinquent medical debt.
“These are healthy people who are rolling the dice, because if they contract a major illness or are in a serious accident, the cost of the treatment quite possibly will be beyond their financial means to pay off,” says Goodall. In these cases, the best option may be to reach a settlement to recover a portion of the debt, he adds.
While scoring models are not a panacea for improving recovery rates of health care debt, they do provide an edge when it comes to improving recoveries. Even with slower growth in health spending in 2008, the mountain of bad health care debt is expected to continue rising.
With health care reform still an unknown, health care providers and collection agencies that want to keep recovery rates up will have to adopt more aggressive use of scoring models.
“Boosting recoveries of health care debt is a challenge and it is likely to get tougher,” predicts Sharma. “Broader use of scoring models can help meet that challenge.”
