Preventative Care for Hospitals Mitigating Risk of Revenue Loss from ACA

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1 Preventative Care for Hospitals Mitigating Risk of Revenue Loss from ACA By Susan McBride and Randy Notes, KPMG LLP (U.S.) The Affordable Care Act (ACA) presents significant revenue risks to providers that require immediate attention. Several provisions of the ACA that become effective January 1, 2014 will induce changes to the patient population that could reduce revenue if hospitals are not well prepared. With the onset of the individual mandate and the online state health insurance exchanges (which became effective October 1, 2013), it is critical that hospitals prepare for a new, larger population of patients with high-deductible plans and self-pay liabilities. Possibly adding to this population, many individuals with employer-sponsored insurance may forego their current insurance and select insurance plans on the exchanges in order to take advantage of premium subsidies. In light of these provisions, hospitals must prepare for a significant increase in self-pay liabilities from this new high-deductible patient population, or risk a reduced level of reimbursement. To do this, they should reconsider their charity polices, understand the different levels of patient liability, and reevaluate their revenue cycle. Increases in health exchange enrollees and impact on self-pay after insurance SPAI Balance High As the growth in health exchange enrollees increases, it is projected there will be an increase in the SPAI balance, potentially resulting in an increase in overall patient accounts receivable. Low # of Exchange Enrollees Over Time

2 Reconsider hospital charity policies The online healthcare exchanges are positioned to replace the Disproportionate Share Hospital (DSH) charity system with a system of increased patient liability through high-deductible plans. Under the DSH system, a hospital s charity policy is applied to patients without insurance and those not eligible for state and local healthcare programs. The DSH programs were set as a percentage of the federal poverty line, and hospitals received reimbursement for their proportionate share of the DSH funds. This reimbursement partially compensated hospitals for uninsured patients. The individual mandate changes the rules of the game by gradually eliminating DSH. This is forcing hospitals to reconsider their charity policy in response to these changes. There are several ways in which the new exchange program influences a hospital s charity program. Specifically, hospitals must ensure that their existing charity policy does not provide an incentive for patients to forego the government-subsidized health insurance (state or federal) available through the exchanges. Not only would this be counterproductive to the goals of the exchanges, but it would also make the charity program unsustainable. Developing new strategies to align with the state s exchange model is a way to offset this possible unintended consequence. The bottom line is that it is important for a hospital s charity program to complement the exchanges rather than compete with them. Understand the different levels of patient liability Closely related, hospitals must understand the issues around the different levels of patient liability related to the level of a patient s healthcare plan. The assumption that all individuals will take advantage of the options available in the marketplace may not be realistic. In light of this, hospitals must develop and augment patient payment collection strategies for those who do not purchase health insurance and decide to pay the penalty instead. The influx of patients who don t qualify for charity care and who have high-deductible insurance plans could expose ineffective processes in a hospital s revenue cycle. In addition, failure to monitor the population of patients with a self-pay component in their health insurance or failure to develop a collection strategy for this new pool of patients can lead to an increased share of revenue at risk of being written off. Reevaluate the revenue cycle Hospitals also need to reevaluate their revenue cycle and develop focused patient payment collection processes for patients with high-deductible insurance plans. A hospital s revenue cycle begins at the point of scheduling and extends until the healthcare provider is reimbursed for services rendered. Hospitals should reevaluate their revenue cycle from the four points of patient interactions prearrival, arrival, billing, and collections and pursue initiatives to improve the integration of processes, knowledge, and communication. They should also reevaluate their strategy around self-pay collections. Providers need to prepare for a new, larger population of patients with high-deductible plans self-pay liabilities. In an online poll conducted during a recent Webcast, only 10 percent of the organizations responding believe there is little to no impact on their self-pay population. Prearrival: Patient scheduling initiates the revenue cycle, which then triggers the financial counseling process. At this point, a hospital should first determine if a scheduled patient has health insurance and, if not, provide guidance to the patient and promote insurance options available on the exchange. Hospitals must ensure patient access representatives are educated and trained on the exchanges. These representatives must be able to provide assistance during the prearrival process as well as at arrival upon verification of insurance. Second, in an effort to increase collections

3 during the prearrival financial clearance phase, patients should be given an estimate of their liability. Now more than ever, it is critical for hospitals to estimate the total cost of services for self-pay patients, or estimate the patient liability for a patient with a high-deductible plan. Patients should be notified and requested to bring their copayment and deductible at the time of arrival. Arrival: The arrival stage, in the case of scheduled patients, presents another opportunity to collect copayments and deductibles. In order to collect at the time of service, hospitals must develop capabilities to understand and estimate the cost of services in order to maximize payment at the point of service. For nonscheduled patients, the point of arrival presents an opportunity to offer financial counseling and provide tools to assist a patient in signing up for insurance on the exchanges. Hospitals might consider investing in technology and staff training to facilitate the financial counseling process in this new environment. This may come in the form of installing private KIOSKS for patients to review their insurance options on the exchanges and to receive assistance navigating the process. Patients will also benefit from access to healthcare cost data and out-of-pocket expense. Billing and collection: A proactive financial counseling process and focused point-of-service collection efforts produce more timely and accurate billing as well as a reduction in follow-up activities and backlog. These benefits are underscored by strong front-end processes to prevent issues from feeding into the later stages of the revenue cycle. To take advantage of these benefits and manage this new high-deductible population, it becomes pivotal to administer payment plans, interact with self-pay vendors effectively, and generate patientfriendly statements. Focused self-pay collections process: Hospitals must also determine if they have a cohesive strategy around self-pay collections in general, and the self-pay after insurance (SPAI) population in particular. Without a collection strategy, the SPAI portion of the accounts receivable will likely increase, and hospitals will have to incur the costs of a third-party collection agency. Collecting on patients without insurance, or with high-deductible insurance, has traditionally been very different from insurance follow-up. Typically, SPAI patients are more compliant, but there may be reduced rates from the greater number of exchange enrollees who may not have had insurance before, or from patients with an employer-sponsored plan who do not realize their potentially significant self-pay liability. Hospitals must reevaluate their prearrival and arrival collection processes, and should consider establishing payment plans in anticipation of the services being provided to these patients. Providing access to online statements and ability to pay online could substantially reduce AR days. Transparency and ease of use can boost patient satisfaction and customer loyalty, while simultaneously increasing revenue. Increases in health exchange enrollees and impact on propensity to pay Propensity to Pay High Low With the projected increase in health insurance exchange enrollment over time, the propensity to pay the self-pay portion after insurance is expected to decrease over time, potentially resulting in increased collection activities at agencies due to the increase in SPAI balances. # of Exchange Enrollees Over Time

4 Conclusion With the coming changes from the ACA, healthcare providers could face increased difficulty in financial counseling, patient cost estimation, and self-pay collections. Healthcare providers who do not already have efficient processes around these areas will likely have additional issues and potential revenue leakage. Nonetheless, they can prepare for the impacts of the ACA by adopting some leading revenue cycle practices. This can help companies increase net revenue capture, enhance cash collections, and reduce costs. What should hospitals do now to prepare? 1. Ensure that their charity policy is aligned to their state s exchange model. 2. Reevaluate their entire self-pay life cycle and their management of the self-pay population. 3. Take a critical look at their financial counseling process to ensure that they are maximizing the options available to patients today, and can push them toward insurance on the exchange. 4. Understand the costs of their services to get an accurate cost estimate and be paid at the time of service. 5. Don t delay. Healthcare exchanges are open for selection between October 1, 2013 and March 31, 2014, with benefits effective on January 1, Deductibles reset for most of the existing insured population on January 1, 2014, and this will be compounded as a new high-deductible population emerges from the health insurance exchanges. These days, it seems everyone is talking about healthcare transformation. However, transformation really only focuses on a subset of what is currently happening in the U.S. healthcare ecosystem, and does not adequately address what is happening more broadly at a systemic level. At KPMG, we believe that healthcare payers, providers, and life sciences companies should be thinking beyond transformation and focus more on healthcare convergence and the broader implications of operating in a more collaborative and integrated U.S. healthcare delivery model. While transformation of current operations is likely going to be a business requirement, the real question for forward looking organizations is what role they plan to play in a new and more converged health system. KPMG LLP is a leader in convergence, assisting organizations across the Healthcare and Life Science ecosystem to work together in new ways to transform the business of healthcare. With more than 1,500 U.S. partners and professionals supported by a global network in 156 countries, we offer a market-leading portfolio of tools and services focused on helping our clients adapt to regulatory change; design and implement new business models; and leverage technology, data, and analytics to guide them on the paths to convergence. Susan McBride Principal, Advisory KPMG LLP [email protected] Randy Notes Principal, Advisory Services KPMG LLP [email protected]

5 Related Links For more perspective on the convergent marketplace in the United States and in other countries, please see: Convergence through Accountable Care Capabilities describes how healthcare systems should consider becoming accountable care capable versus solely an ACO, which is only one form of care delivery/business models. Convergence is Coming: A Brave New World for U.S. Healthcare provides perspective on the broader implications of operating in a more collaborative and coordinated U.S. healthcare delivery model. Something to Teach, Something to Learn provides a snapshot of the thinking and learning that emerged from KPMG s Global Healthcare Conference in October 2012 in Rome. From Volume to Value reports on a recent, unique, KPMG sponsored study that provides perspective on future business models spanning three major segments of healthcare: healthcare systems, health plans and pharmaceuticals/biotech companies. kpmg.com