Memorial Health System has adopted a new, softer touch that makes it easier for patients to pay off unpaid medical bills.
The hospital used to give patients four months to pay off their debt — no matter how large their bill — and charged interest on outstanding balances. Now Memorial has:
stopped charging interest on patient debt;
is giving patients more time to pay;
helping patients set up payment plans before they leave the hospital;
when appropriate, enrolling patients in Medicaid and other government insurance plans that provide care to impoverished families and children.
“I believe people will make a good faith effort to pay if given a chance,” Memorial chief financial officer Mike Scialdone said. “And they normally do.”
Unpaid medical bills are one of the most common reasons for personal bankruptcy today. More than two in five American adults under 65 had trouble paying their medical bills even before the recession of 2008-09, according to a study by the Commonwealth Fund, a New York-based health policy research group.
Scialdone put Memorial’s program in place last year as part of a series of financial reforms aimed at bolstering the network’s bottom line. He said there was a humanitarian reason as well.
“It’s just not right to charge interest on medical debt,” he said. “And giving people a better chance to pay makes sense.”
But the shift isn’t strictly about showing greater compassion.
As a result of its new approach, Memorial has reduced its bad debt as a percentage of total expenses from 6.4 percent in 2008 to 5.1 percent in 2009.
In part, that’s because patients are now making payments on debts that they previously had failed to pay down.
Getting patients enrolled in government health care plans also reduces Memorial’s costs because it means patients can come in for regular care.
“If they don’t have to wait until they are very sick and then come to the emergency room, then everyone saves money,” Scialdone said.
Memorial’s strategy — replicated by a growing number of hospitals nationwide — put it ahead of the Obama health care reform bill that requires hospitals to do a better job of tracking bad debt and charity care.
Memorial and the nation’s other nonprofit hospitals can no longer charge a patient without insurance more than they charge a patient with insurance.
Under the old approach, hospitals would write off the difference as “bad debt,” which would lower their taxes by artificially inflating their charity care.
“If you have insurance, you have a negotiator,” said Kelly Shanahan of the Colorado Consumer Health Initiative, a nonprofit consumer lobbying group. “But hospitals were inflating the price for people without those negotiators — then writing off the difference.”
Bad debt in 2009 represented 5.8 percent of total hospital expenses, totaling $36.4 billion, according to the American Hospital Association.
Shanahan said that number will fall not only because of reform measures that give people more access to health insurance, but also because hospitals will no longer be able to charge certain patients more.
The National Consumer Credit Foundation, however, doesn’t expect much to change. It notes that 65 percent of people with medical debt have insurance.
The problem is that as health insurance premiums increase, people often buy lower-cost plans with higher deductibles. That, in turn, means they pay more out of their own pockets, which leads to unpaid bills and bankruptcies.
Scialdone said that has been Memorial’s experience as well.
“We have seen so many more people with high-deductible plans that just don’t have the $5,000 out-of-pocket to pay the deductible,” he said. “Or they don’t have the money for higher co-pays.”
Those points were not addressed under the recently passed reforms in Congress.
Colorado Springs bankruptcy attorney Vincent Rahaman said 90 percent of his business comes from families struggling to pay medical bills.
“I have one family that has a special-needs child, and their insurance just doesn’t cover everything that child needs,” he said. “So they ended up behind in their mortgage, in their credit cards. And they still can’t pay off their debts.”
A single catastrophic illness can just as easily land people in trouble.
While Memorial has taken a more patient approach with patients, many hospitals will turn to aggressive collection agencies that buy the debt for pennies on the dollar, he said. And then collecting the full amount becomes the business of the collection company.
“I don’t think they are any meaner or nastier now than they have been,” Rahaman said. “But they are pretty aggressive, and it can be scary.”
Memorial still turns over debt to collection companies, but it waits longer before it does so, Scialdone said.
Despite its reforms, the city-owned hospital still had $52 million in bad debt on its books in 2009.
“We always budget for it, and we’re happy if we can keep it below the number we budget it,” Scialdone said. “That makes a difference for our bottom line.”