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At the beginning of every new year, it’s common to see retailers of “big ticket” goods—automobiles, furniture, appliances and electronics—advertise “no money down, no interest, and no payments for 6, 9, or 12 months.” Although these offers are typically riddled with fine print and consumers in the long run pay more with financing versus just paying cash in a liquidation sale—“no-no-no” is still viewed as a “win-win-win.” That’s because the “no-no-no” enables retailers to clear out year-end inventory without discounting prices and it enables consumers (still cash-strapped from Christmas) to take home product immediately without maxing out their credit cards.
Due to their billing practices, many urgent care centers unintentionally offer a form of “no-no-no” financing. Unlike furniture and appliance retailers, such practices are not advertised, they do not draw new patients into the urgent care center, they do not increase utilization by existing patients, they lead to large write-offs to collections, and ultimately they contribute to dissatisfied patients who (knowing they owe money) won’t return to the practice.
The following case study illustrates exactly how “no-no-no” functions and why it’s such a bad deal for physicians.
In August, a patient presents at a specialist’s office for a minor outpatient procedure. Upon completion of the registration paperwork, the front office staff notices the patient’s insurance card does not require a co-pay but does require “20% co-insurance.” Rather than tally up the day’s charges and collect 20% from the patient at time of service, the staff tells the patient that “due to the co-insurance provision” they will “submit the claim through insurance and send a bill for any balance the patient owes.”
The patient received services for which he did not pay anything at time of service, resulting in a form of “no-no-no” financing with the following economics:
|Service Date||Services Performed||Physician Charges||Insurance Adjustment||Gross Charges||Applied to Deductible||Patient Responsibility|
|8/18||History, Physical, and Pre-Surgical Evaluation||$195.06||$71.76||$123.30||$123.30||$123.30|
|8/25||Office Procedure (including one follow-up visit
included during the “global” period.)
As the table illustrates, the specialist performed $817.92 worth of services, which were discounted 53% to $382.65 according to the terms of the insurance contract. What the staff failed to address at registration—whether or not they noticed—is that the high deductible making the patient responsible for 100% of the first $2,500 in gross charges means the co-insurance provision is irrelevant to this particular transaction. The patient is responsible for the entire $382.65.
Unlike “discretionary” goods such as appliances and electronics one could argue a consumer doesn’t really “need,” the patient in this case did have a sense of immediacy around his medical procedure—for both physical comfort and emotional “peace of mind.” So not only was the patient willing to pay something at time of service, understanding his employer’s health benefits, he was actually expecting to pay. That’s why he showed up for the procedure with his checkbook in hand.
There’s a saying that “cash is the lifeblood of any business,” referring to the importance of working capital or liquidity—the difference between cash on hand and operating expenses due. For example, when a physician sees a patient, overhead costs including staff salaries and benefits, rent, utilities, and supplies, are incurred immediately. But due to insurance billing, there’s a lag between when expenses are paid and when cash is received. Because the practice can’t pay its bills with “insurance IOUs,” someone must make up the cash shortfall—typically that’s done by borrowing money from a bank or foregoing the distributions normally entitled to business owners. The cost of working capital is interest paid or interest foregone. Thus, business owners are motivated to increase working capital by accelerating cash inflows and postponing cash outflows.
In the office surgery illustration, services were performed in mid-August but the practice did not submit claims to the insurance company until late September—meaning the single-physician practice effectively provided no-interest working capital to a multi-billion dollar insurance entity for 30 days. Moreover, once the insurance Explanation of Benefits revealed the patient was responsible for 100% of the balance—the practice did not bill the patient.
The patient didn’t receive a bill for his share until May of the following year, resulting in 9 months of “no money down, no interest, and no payment” financing for the office procedure. During this 9 month period, it’s the physician whose pockets were empty—his staff, landlord and suppliers have all been paid, the insurance company is whole, and the patient has extra cash in his checking account. And although this particular patient is diligent in paying all of his bills, many other patients are not due to the time that elapses since the immediacy of the medical problem, lack of understanding of what insurance has paid and how patient balances are derived, or simply because the patient (living paycheck-to-paycheck) no longer has the cash. Consumer health care receivables are notoriously difficult to collect and often liquidate for pennies on the dollars through medical collections agencies.
Urgent care operators can protect themselves from the negative consequences of unintentional “no-no-no” financing through the following activities:
When an urgent care center does not verify insurance, holds insurance claims prior to submission, overlooks patient responsibility at time of service, or otherwise fails to bill and collect in a timely manner—it‘s the functional equivalent of a retailer offering “no money down, no interest, no payment” financing. Not only must the urgent care operator still come up with working capital to run the business, but unlike a retailer, such billing practices result in high write-offs and negative patient perceptions. The solution lies with processes, systems, and training at the front office.