A Complex Operation

By Lauri Giesen

Acquirers and payment specialists are coming out with new services for small and mid-size health-care providers to convert paper-based payments into electronics. But it’s a delicate, time-consuming undertaking.

In some ways, moving cash and paper-based payments to electronics is not much different for health-care providers than it is for other industries. The large ones will find a way to make it happen, but the small-to-mid-size providers often are left behind.

The big hospital chains and practices with dozens of physicians have the financial and technical resources to get the links to insurance companies in place so that they know at the point of treatment how much the patient will owe and can then facilitate an electronic payment. But it is not so easy for the small providers to be able to justify the investment or take the time to figure out how to use such systems.

That’s why much of the focus in the health-care payments industry is now on these smaller providers. Individually, they may not have the payment volume of the big hospital chains and clinics, but collectively they account for a significant portion of medical payments.

“Large hospitals have had solutions in place to deal with electronic payments to reduce their bad debt for years. But until recently, the mid-size and small providers could not afford the systems that were in the market. In the past couple of years, however, we’re starting to see third-party providers come up with Web-based systems that are priced at a level that is affordable to the smaller companies,” says Kunai Pandya, senior analyst with Aite Group LLC, Boston.

 

And while much of the attention in the past has been on getting insurance payments moved to an electronic form, making the patient portion of the payment paperless is now a high priority. While patient co-pays are relatively small—only about 11% of the $2.2 trillion paid annually for medical care in the U.S., according to Aite—the amount is growing as consumers get stuck with larger deductibles and co-pays and find more treatments exempted from insurance coverage.

Plus, the patient-paid portion typically gives health-care providers the greatest headaches. Because the provider may not get the insurance payment for weeks, patients often wait many weeks or months until they get the final bill to pay it, if they pay at all. As a result, cash flow and bad debt are big concerns to providers.

A study by the Englewood, Colo.-based Medical Group Management Association (MGMA), a trade group of group-practice administrators, found that 30% of patients leave the doctor’s office without paying anything and providers send an average of 3.3 bills before they are paid in full.

While that is a big problem for health providers, it also represents huge potential new business for merchant acquirers and payments companies.

“As consumers owe more and more and have a higher out-of-pocket expense, there is additional pressure put on provider groups to come up with payments programs. This creates a great opportunity for banks, independent sales organizations and technology vendors to provide solutions to the industry,” says Stacy Pourfallah, Visa Inc.’s senior business leader for health-care prepaid products.

Interchange? No Problem

A big part of the issue then is data management. If medical providers can get information at the point of treatment to confirm that the procedure will be covered by insurance and approximately how much, the patient can immediately pay or authorize payment on the remainder by using a credit or debit card or electronic check.

A number of vendor solutions have sprung up in the past two years to allow patients either to pay an estimated amount or authorize a payment up to a specific amount with the actual payment being finalized later when the exact amount is known (“A Difficult Delivery in Health-Care Payments,” November, 2009).

Now, some new systems are being proposed to automate back-end payments so that when patients do receive their bills, they can easily make an electronic payment that will be faster than mailing a check. And many of these new systems—both the upfront and the post-process solutions—are being directed at small-to-mid-size medical providers.

Still, while the attention may be on the patient-payments side, acquirers should not ignore the efforts to get providers online with insurance companies to receive electronic remittances. Progress on the insurance-payment side is critical to the progress on the patient side because the information from the insurer is needed to quickly figure out what patients owe.

There has been significant progress on this front. Recent studies show that 77% of health-care providers now receive electronic remittances from insurance companies, according to consultant Mark Brousseau, president of York, Pa.-based Brousseau & Associates. But Brousseau notes that large providers are making the most progress.

“Many of the small providers—those with 10 doctors or less—may have signed up for electronic remittances, but they don’t always know how to use the service or don’t use the service properly. And there are a lot of these practices in the country and they make up a significant volume of health-care payments,” he says.

Similarly, there has been some, although slow, progress in moving providers to the point where they can find out from insurance companies how much of a claim they will pay so that the patient can pay the remainder on the spot. Most of these programs involve using a credit or debit card.

Such systems have become more affordable to the smaller companies, Aite’s Pandya says. “There are Web-based programs in the market now that cost only $20 to $50 per month to get licensing rights plus a per-transaction fee that can be justified by the cost savings in handling the payment,” he says.

Brousseau believes there is much potential in using cards to automate the patient-paid portion of medical payments. “There is a tremendous play for card providers in health care today. [Health-care] providers are struggling with a large amount of bad debt and cash-flow problems,” he says. “For health-care providers, the ability to accept immediate payment with a credit card helps solve a lot of their problems.”

The MGMA says that 41.2% of patient payments made at the time of treatment were made on cards, compared to 35.5% on checks .

And while retailers are complaining about the high cost of credit card acceptance, that is not a big issue with doctors and hospitals. “Most health-care providers would happily pay the interchange costs in exchange for greater float and less bad debt,” Brousseau says.

Front-End Solutions

The payment networks are trying to turn this opportunity into charge volume. “We’re seeing a greater shift in cash and checks toward card payments,” says Visa’s Pourfallah. “Additionally, health-care expenditures are rising at a faster rate than other industries. Last year health-care expenditures grew 4%, more than the economy overall.”

Still, Brousseau adds that payment solutions offered to medical providers should not focus entirely on cards. “More than half of patient payments today are made with checks [including the amounts paid after treatment] and we need to keep in mind that a lot of patients want to pay by check,” he says.

One approach to dealing with check volume is remote deposit capture (RDC), which banks are trying to sell to small businesses. Brousseau notes that health-care providers’ adoption of RDC has been particularly slow because the systems proposed often do not specifically address their needs.

A study by payments groups IAPP-TAWPI of health-care providers found that only 22% said they use RDC. Banks will find greater success once they address those concerns and target medical firms with systems designed for their industry, he notes.

In addition to the in-office payment programs, solutions also need to include ways to improve the payment of bills sent to patients. Indeed, Brousseau believes there is a greater need for integrated payments solutions that address the in-office payment by cards and checks as well as the subsequent billing needs. And he believes banks are in the best position to offer these solutions because they deal in all areas necessary for an integrated solution—RDC, card payment, check authorization, bill payment, and cash-flow systems for small businesses.

Aite’s Pandya says such services also should include collections—especially if a bank offers the service. “Consumers are more likely to pay a bank first over a health-care provider,” Pandya says. “Studies show that the first bills most consumers pay are those owed to a bank. Similarly, a consumer is more likely to pay bills first that are being collected by a bank over a third-party collection company.”

One of the solutions on the front end of the transaction is offered by Carrollton, Texas-based Preferred Health Technology Inc. PHT has a partnership with Visa to promote its A-Claim plan. With this service, PHT uses links it has with the top U.S. medical insurers to verify if a patient is eligible for coverage, what co-pay will be required, if and how much of a deductible is involved, and how much of that deductible has been used. Then, using the provider’s estimate of the cost of service, PHT can estimate the patient’s final cost.

Once the provider has this estimate, it can communicate to the patient a maximum amount that it believes he or she will owe. The patient can then use a credit or debit card or authorize an automated clearing house payment. Later, when the final amount is known, a card or ACH transaction can be made up to the amount of the estimate. If the final amount is more than the estimate, the provider will bill the patient for the remainder.

Although PHT executives decline to reveal specific numbers, Michael Rothstein, chief financial officer, says the firm saw 40% growth during the past year in the number of health-care providers using the system. The product has been in the market for about three years. In addition to Visa, PHT is working with a number of ISOs, banks, and technology companies to promote the service.

A similar service is offered by TSYS Merchant Solutions, the acquiring unit of Columbus, Ga.-based payment processor Total System Services Inc. Through a partnership with TransEngen Inc., TSYS offers health-care providers the opportunity to store credit or debit card information from patients. Then, when a patient visits the center, a payment calculator determines the approximate amount the patient will owe and the patient can then preauthorize payment. The transaction is completed when the final amount is known.

The service has a patient portal that allows consumers to view their medical bills online and then authorize a payment using the card on file. TSYS expects ACH check payments to become an option on the Web site at an unspecified time.

TSYS launched the program last year. Although Jim Morin, vice president of business innovation for TSYS Merchant Solutions, declines to reveal specific numbers, he says “there has been very good adoption so far.” TSYS aims the program mainly at small physicians’ offices and mid-sized and large clinics, but some large hospitals also are using it, Morin says.

TSYS has been promoting the system through its internal channels and just signed Paytech Corp. as its first reseller. “We are now exploring the option of working through agent banks and ISOs to have them sell this service and expect additional channels yet this year,” Morin says.

Also on the horizon for TSYS Merchant Solutions is integration into the merchant-services product of medical savings account and health savings account card programs offered by other TSYS units. Then, payments from these cards can be made to pay for all or a portion of a medical treatment while any remaining amounts can be charged to a personal credit card.

Looking To Streamline

And while many of the solutions offered to health-care providers are targeted to the front end to allow providers to collect payment while the patient is still in the office, some health-care experts believe there will always be a portion of medical costs that will need to be collected after the fact. Thus, they want to move bill collection online.

One such company is Brookfield, Wis.-based Fiserv Inc., operator of the nation’s largest electronic bill-payment and presentment (EBPP) operation. EBPP has been around for more than a decade, but health-care firms have been among the slowest to adopt it.

While consumers can use EBPP to pay doctors or hospitals, typically a check has to be cut and mailed to the providers—especially the smaller ones. The process typically is much less automated than with utilities and financial-service companies, which were among the first to put in the links for EBPP.

But Fiserv has begun targeting the medical industry for EBPP. “We are trying to enable the industry to move forward. We see a lot of potential in health care,” says Steve Shaw, director of strategic marketing for Fiserv’s electronic banking services unit.

 

Fiserv is expected to roll out a new program this year where Fiserv’s ZashPay, a person-to-person payment service, will be offered to small businesses. Consumers will be able to enroll funds held in a deposit account at a Fiserv client financial institution. Then funds from that account could be sent via the ACH to any small business that has a bank account.

“We found that a lot of the P2P applications were actually people sending money to small businesses, so we decided to expand this program,” Shaw says.

Fiserv will promote ZashPay to many small-business sectors, but Shaw especially believes health care has a lot of potential. Fiserv’s client banks and credit unions will actually sell the service.

“We’ve had initial conversations with the health-care industry to see how they would like this to work and what details would need to be included to fit their needs,” Shaw says. “Health care is a paper-heavy industry and is looking for ways to streamline its business, and we hope we can help them out with this service.”

‘Astronomical’ Debt

One company that is working with both front-end and after-the-fact medical-claims collection is Elavon, the Atlanta-based acquiring subsidiary of U.S. Bancorp.

On the front end, Elavon has partnered with New York-based Phreesia Payment Services, a specialty ISO that provides laptops that patients use in doctors’ offices to check in and electronically file information about their symptoms and health history—information typically written on paper attached to a clipboard.

The Phreesia screen includes payment pages at the end so that customers can enter their insurance information and then be told what their co-pay is and any additional charges that they know they will have to pay. A patient then swipes her card in the device for payment.

Also on the front end, Elavon has a remote deposit capture product that it is promoting to the medical industry, explains Michelle Wagner, senior vice president of global marketing. With this service, consumers who prefer to pay by check can give a check to the receptionist once the Phreesia terminal tells them the amount owed. Integrated into the RDC service is Elavon’s check authorization and guarantee service.

Additional charges such as the deductible typically are billed later. That’s where Elavon’s back-end services come in. Elavon is working with health-care clients on EBPP. “The amount of funds owed to health-care providers is astronomical, and we want to make it easier for them to collect,” Wagner says.

Indeed, while there is some debate about whether moving payments toward an electronic form should be concentrated on the front end or in aiding collection, many payment executives believe a mixture of both is needed.

“The needs will vary from provider to provider and most providers will need both front-end and after-the fact solutions. Still, most want to collect as much up front as they can,” says TSYS’s Morin.