CHICAGO (March 29, 2017) – In the past two years, more consumers have enrolled in high-deductible health plans (HDHPs), and now hospitals are struggling to collect those patients’ higher share of their bills. The percentage of collections on patients with account balances greater than $5,000 is four times lower than collections on low-deductible plan patients. This variance could change the way hospitals choose to recognize revenue on income statements as new accounting standards become effective.
The new revenue recognition guidance (Accounting Standards Update No. 2014-09, “Revenue From Contracts With Customers”) focuses on recording revenue at the amount the entity expects to be collected. Generally, the new standard is required to be applied at the contract level; however, in some cases it also allows entities to apply the standard to a portfolio of contracts.
Because of the mixture of self-pay, insurance, and government program payers, many healthcare entities may find it more practical to apply a portfolio approach to developing the key estimates for revenue recognition. Analysis supporting this can be found in the report, “Revenue Recognition and High-Deductible Health Plans: The Greater the Patient Portion, the Lower the Collections,” prepared by Crowe Horwath LLP, one of the largest public accounting, consulting and technology firms in the U.S. The firm has implemented the Crowe Revenue Cycle Analytics (Crowe RCA) solution, which captures every patient transaction for purposes of automating hindsight, accounts receivable (AR) valuation and net revenue analyses in more than 800 hospitals. Within its benchmarking database, Crowe analyzed a sample portfolio of 172 hospitals with more than 125 beds each, and shared its findings in the report.
In what appears to be an ongoing evolution of self-pay customers, the collections gap between uninsured accounts (“true self-pay”) and the patient responsibility portion on insured accounts (“self-pay after insurance” or SPAI) is widening. “Hospitals have traditionally separated insured patients and uninsured patients into different portfolios when conducting financial analysis. However, recent findings indicate that very high-deductible plan customers may pay at a rate more similar to that of uninsured patients,” said Brian Sanderson, managing principal of Crowe healthcare services group.
The Crowe RCA benchmarking data reveals that true self-pay patients generally pay 6.06 percent, while SPAI patients pay 15.51 percent overall. Additionally, Crowe analyzed SPAI account balances by type of service (inpatient or outpatient): The average payment is 10.9 percent across inpatient accounts, while outpatient accounts average 18.2 percent. For inpatient SPAI accounts, the most variability occurred by size of the account balance, as follows:
- Patient account balances below $1,200 have a payment rate of 40.1 percent.
- The payment rate drops significantly – down to 17.6 percent – near the inpatient Medicare deductible amount of $1,201 through $1,450, where Medicare bad debt may have implications on collections, according to Sanderson.
- The payment rate for higher-deductible health plans for balances of $1,451 through $5,000 is 25.5 percent.
- The payment rate drops to 10.2 percent for balances of $5,001 through $7,500, 4.1 percent for $7,501 through $10,000, and 0.9 percent for accounts with a self-pay balance at more than $10,000.
“Parsing accounts based on patient balance will prove a particularly insightful analysis for any finance team and likely will create a more reliable collectability factor based on historical experience,” Sanderson said.
The report also analyzed outpatient SPAI accounts segmented by outstanding balances. To download a copy of the report, please visit www.crowehorwath.com/benchmarking-release.
About the Crowe RCA Benchmarking Analysis
The Crowe RCA benchmarking analysis includes more than 800 distinct hospitals classified as acute, critical-access, rehabilitation, psychiatric or cardiovascular care facilities.
About Crowe Horwath
Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting, consulting, and technology firms in the United States. Crowe uses its deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services. Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world. The network consists of more than 200 independent accounting and advisory services firms in more than 130 countries around the world.
# # #