Economic Survival

Consumer-Directed Health Plans Pose Financial Challenges

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Medical Economics Feature - June 2007

ByKen Ortolon
Senior Editor  

Thanks to the proliferation of health savings accounts (HSAs) and other types of consumer-directed health plans, an increasing number of patients are now back in control of their own health care. They're also back in charge of paying for much of that care as well.

That presents both challenges and opportunities for physicians. Medical practices that plan properly may be able to reduce their administrative overhead costs, experts say. But physicians also will have to learn how to deal with multiple new payment schemes that could lead to confusion over whom to bill and for how much. And, physicians likely will have to compete on price to keep patients who increasingly will become cost-conscious consumers.

"As we move into consumer-directed care, everyone's behavior will change - the patient's behavior is going to change, the health plan's behavior is going to change, and the physician's behavior is going to change, too," said Donna Kinney, CPA, manager of regulatory analysis and advocacy for the Texas Medical Association. 

A Growing Market  

HSAs have seen explosive growth since Congress expanded their availability as part of the Medicare Modernization Act of 2003. America's Health Insurance Plans (AHIP) reported in April that 4.5 million Americans are now covered by high-deductible health plans offered in conjunction with HSAs. That was up from 3.2 million in January 2006.

Also in April, Forrester Research Inc., of Cambridge, Mass., projected that consumer-directed health plans (CDHPs), including HSAs, health reimbursement arrangements (HRAs), and other plans, would reach 28 percent of the health insurance market by 2010. And, financial consultants at Watson Wyatt Worldwide expect 33 percent of employers to offer their workers a consumer-directed plan in 2007, up from 29 percent in 2006.

Those increases are being noticed in Texas physician offices. Doctors participating in TMA's 2006 Physician Survey reported that 10 percent of their patients have high-deductible health plans with spending accounts. Another 29 percent have high-deductible plans without spending accounts.

Rick Weymier, practice administrator for Metrocrest Orthopaedics and Sports Medicine in Carrollton, says it's not yet a "tidal wave," but the practice is seeing more patients with high-deductible plans, with and without spending accounts.

"We see the patients having a higher level of responsibility for their balances than they have in the past," Mr. Weymier said. The percentage of the practice's revenue from patients is still small - only 10 percent to 20 percent - but is increasing.

But Sharon Robinson, practice administrator for her husband, Lubbock family physician Steve Robinson, MD, says the practice derives 67 percent of its income from payments from patients.

"We're seeing consumer-directed plans, yes," Ms. Robinson said. "We're also seeing employers, out of necessity, cost-shifting back to the insureds." That means higher deductible plans and coinsurance, she adds.

Ms. Kinney says the move toward patients paying for more of their own care - whether through HSAs, HRAs, or other mechanisms - will increase administrative costs and reduce collections unless physicians change their business practices. If they don't, physicians may find themselves following usual claim-filing protocols, but receiving benefits explanations instructing them to collect the allowable amount from their patients. That will add patient collection costs and hassles on top of the claim-filing costs and hassles. Careful changes should allow physicians to reduce their administrative costs, as they will need fewer staff to handle claims processing and other administrative duties.

"The administrative cost for physicians is high because of all the transaction handling - not just filing claims, but also referrals, claim appeals, preauthorizations, and precertification," Ms. Kinney said. Consumer-directed care, she adds, could cut some of that administrative cost for both physicians and insurers. But to do so, physicians need to take advantage of opportunities to increase their cash collections. 

Navigating the New Marketplace  

The bad news is physicians don't always know whether a patient has an HSA or some type of high-deductible plan when he or she walks through the office door. That means they may not know they need to bill the patient at the time of service or how much to bill.

Ms. Kinney says studies show it's much harder to collect the patient's share of the bill once he or she has left the office, which can create serious cash flow problems for the practice. So physicians have to become savvy about these payment arrangements and adapt to the new marketplace.

Mr. Weymier and Ms. Robinson say they verify coverage before every visit to determine the patient's responsibility upfront.

"It's important that the practices, from the business side, are verifying every piece of insurance, that they know exactly what their contracts are, and that they're collecting that money at point of service," Ms. Robinson said.

Ms. Kinney says that physicians should become much more selective about the health plans with which they contract and carefully analyze their payment schedules. Plans that facilitate cash collections from patients may continue to be good contracting partners. Those that don't may not be.

 In the past, physicians signed up with multiple plans to steer large numbers of patients to their practices. But with consumer-directed plans, patients have more freedom to go where they want for their care, and steerage becomes much less important.

Ms. Robinson says she carefully analyzes each plan and its fee schedule before deciding whether to sign a contract. That analysis also has prompted the practice to drop out of some plans whose fees were not covering their costs.

"You cannot over time continue to be upside down with a payer," she said.

Other steps to consider include offering prompt payment discounts, accepting credit cards for payment, and even encouraging patients to use a consumer medical lender to finance larger health care payments. That can help reduce administrative costs by reducing billing and collection efforts.

Dr. Robinson's practice accepts MasterCard, Visa, and Discover. Metrocrest Orthopaedics accepts those cards, plus American Express. Mr. Weymier says his practice also offers significant discounts for patients who pay in full at the time of service. Those discounts only apply to people who are out of network or don't have insurance, because health plan contracts normally prohibit waiving copays, coinsurance, or deductibles.

Metrocrest also will set up payment plans for patients, but usually refers them first to a lender called Care Credit, which specializes in lending for health care needs. If the patient qualifies, Care Credit issues a credit card with a fixed limit.

Ken Ortoloncan be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at  Ken Ortolon.  


Calculating Health Plan Profitability

Experts say consumer-directed health plans and other changes in the health insurance marketplace will make it increasingly important that physicians evaluate the financial impact health plans have on their practice.

Here's a simple method to help you evaluate health plan profitability.

First, calculate your total operating cost for last year, including reasonable physician compensation. This information is available in whole or in part from the practice's financial statements. Now divide that number by the total gross charges for last year. This will tell you your cost percentage.

For example:

Operating cost                      $400,000
Physician compensation          $200,000
Total cost                             $600,000

Gross charges                   $1,000,000
Cost/charge ratio (Cost/charges)    60%

Next, calculate the contract yield for each of your managed care contracts by dividing the total collections for covered patients (including collected patient share amounts) by the total charges attributable to those patients.

                                   Plan A              Plan B
Total collections           $50,000           $50,000
Total charges             $100,000           $75,000

Collection ratio               50%                67%

Because your cost is 60 percent of charges, you now know Plan A is paying you less than your cost to produce those services, and Plan B is paying more. 

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