The Self-Pay Cycle: Increasing Deductibles, Bad Debt and Revenue Decline

The Self-Pay CycleAs businesses of all sizes struggle with skyrocketing healthcare costs, employers are looking to employees to help shoulder the burden, often by shifting to Consumer-Directed Health Plans (CDHP), which include higher medical deductibles and a higher share of payment responsibility for the employee. There’s one big problem with this approach, however: A significant number of patients can’t (or won’t) pay for healthcare without employer subsidies. Research indicates that consumers at all income levels are more likely to pay for their mortgages, insurance, loans, utilities, cable TV, Internet, lawn care and newspapers before paying their healthcare bills. It’s a dangerous cycle for healthcare providers, health plan providers and consumers alike:

Add to this the increased costs and reduced margins that will come as healthcare reform extends coverage to millions more people, and two things are likely for hospitals: more bad debt and more difficulty getting payment for services.

What Can Be Done to Offset the Self-Pay Cycle? Plenty.

You can offset these challenging self-pay trends by improving collection and communication at all three stages of patient contact: pre-service, point-of-service and post-service.


This is the easiest time to collect and identify alternative sources of payment. As part of the pre-service process, you should:

1. Stratify payment potential
A recent study found as much as 31% of self-pay revenue written off to bad debt collection actually met provider charity-eligibility guidelines. The right technology can make it easy for front line agents to conduct charity screening interviews as part of the preregistration workflow. This enables quick determination of whether patients should be placed on a financial assistance pathway or patient payment pathway – which enhances your ability to collect payment for services rendered.

2. Verify eligibility
To ensure the most complete and accurate eligibility verification, providers need information from both EDI and web-based searches; real time queries ensure the latest information while scheduled batch queries ensure ongoing checks for changes or updates in patient eligibility and coverage. Together, they enable more accurate bill estimation, better management of patient expectations and the ability to catch errors and updates quickly. This reduces denials and rework and can improve your AR significantly.

3. Verify patient data and identity
Half of all required billing elements on a claim originate at the point of access, so correct information at registration is vital to an efficient revenue cycle.

4. Estimate patient responsibility
Systems that can help staff calculate a patient’s financial obligation for services and his/her ability to pay make it easier to communicate accurate expectations of financial responsibility, collect deposits and set up payment plans. Such clear, accurate communication has been shown to improve the likelihood of on-time bill payment – and increase patient satisfaction.

Collecting Patient Payments

Even if you’ve already verified eligibility, updated charity status and estimated patient bills, you should complete the following tasks at the point-of service:

5. Set up and confirm payment plans
Technology and propensity-to-pay scoring systems should be used to create appropriate deposit and payment schedules. You can also take advantage of retail consumer strategies to collect payment, including:

  • Collecting deposits
  • Providing contracts that clearly set out payment schedules and expectations
  • Securely storing credit card information to improve future point of service collections

6. Collect payment
E-cashiering systems can post patient payments directly to the patient accounting system. Organizations that employ these systems routinely report collection increases and AR reductions.

7. Advance your point-of-service policies beyond co-pay, fee schedule and flat-rate collections
More complete, credible and defensible estimates can help you expand collection activities while providing patients with a more precise understanding of their responsibilities. Again, this improves both collections and patient satisfaction.


With most collections work already complete, post-service becomes the time to ensure accuracy, consistency and efficiency, with activities that include:

8. Confirm changes before billing
Plan enrollment, data collection, coverage limits, and dependent coverage are all subject to change unexpectedly and constant enrollment changes in governmental plans like Medicare Advantage and Medicaid HMOs will only increase the likelihood of errors and rework. Double-check all of these things to keep your final billing from hitting any snags.

9. Make your billing information and process clear and simple for patients, including:  

  • Easy-to-read statements that improve patient satisfaction and increase willingness to pay earlier in the revenue cycle.
  • Consolidated family payment information to help the guarantor better manage his/ her accounts overall.
  • Consolidated bills from the lab, physician and hospital, which make the bill easier to understand, therefore more likely to be paid.
  • Offer online account management that reduces patient billing questions and phone calls, lowering costs, improving patient satisfaction and accelerating post-service payment collection.
  • Offer online payment plans, which lower self-pay AR and reduce processing costs by as much as $10 per transaction.
Improve collections efficiency

10. Improve collections efficiency
Obviously, it costs significantly less to collect from a large insurer with millions of patients than to collect from each individual patient. On average, consumers pay more than twice as slowly as all payers but Medicaid. This is why many providers find it more effective, efficient and profitable to outsource all self pay accounts for maximum collection potential.

The Improvement Bonus: Performance Analysis

Improving self-pay strategies through all points of service clearly will deliver benefits. But a thorough performance analysis can take results to a new level. Drilling down into self-pay data can help identify trends and better understand:

  • Which patients are most likely to pay (for example, OB/GYN patients are most likely to pay given the need for repeat services)
  • Which physicians bring the highest – and the lowest – yield patients
  • Which ZIP codes’ patients tend to pay bills by the second statement
  • Which referring doctors’ patients have the highest propensity to pay

Options and Opportunities

The rise in self-pay receivables is a significant issue for nationwide hospital financial performance. For many, receivables are growing faster than patient revenue. Estimating the cost of services before and at the point-of-service, as well as providing an efficient self-pay process can help make it significantly easier for patients to pay their outstanding balances.

At the same time, development and implementation of these essential functions and processes can be extremely time consuming, requiring more time than most hospital administration teams can afford to commit. The right outsource group should be able to support the process as an extension of your business office, with extensive knowledge of the keys to maximizing self-pay account resolution. With the right solution in place at every stage of patient contact, you will be able to achieve higher levels of patient satisfaction – and achieve faster recovery of payment. Add in the ability to identify and analyze important trends, and you should be able to significantly improve performance, both immediately.

web2pro Business Performance Services can help you address these challenges and improve profitability with revenue cycle management services designed to help hospitals maintain their focus on patient care. As an extension of your team, we have the resources and depth of experience you need to help strengthen the financial health and profitability of your whole organization.

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About the author

Ken Carr is Vice President, Revenue Cycle Management at web2pro Business Performance Services. He has more than 30 years of experience in practice operations, AR management, process improvement, advanced reporting and regional, national and international leadership. At web2pro Business Performance Services, he has national responsibility for revenue cycle consulting services, with primary focus on complex consulting engagements involving revenue cycle improvement, transition and related process within hospital and provider practice operations across all specialties.