Why Hospitals have to urgently redesign their revenue departments

Recent statistics from American Medical Association (AMA) reveal that patients are responsible for almost a quarter of all medical costs, be it through copays, deductibles or coinsurance. This is in addition to the trend that insurance companies are increasingly pushing only higher deductibles plans into the market.

Traditionally all hospitals and other provider settings have designed their revenue departments to deal primarily with reimbursements from small group of insurance companies. But the trend is increasingly clear that providers have to now design systems that will enable them to collect payments individually from a large number of patients during, after or before the care is provided.

This is easier said than done because calculating the amount that needs to be collected from a patient is currently way too complicated. Insurance companies have to provide tools to hospitals and physicians to quickly and accurately calculate patient’s responsibility of the payment for care provided.

American Medical Association has estimated that the average cost of unnecessary administrative processing of each claim is $2.36 (2013) for physicians and insurers. Up to $21 billion a year can be saved just by streamlining and eliminating unnecessary administrative tasks. Even with such high administrative costs the error rates of claims paid by insurers is about 7.1% (2013). All these make it extremely difficult, if not impossible, for the physicians to estimate accurately the patient’s responsibility of cost of care.

Historically hospitals have failed to collect more than 35% of what has been billed to individual patients. This means that they have lost 65 cents on every dollar billed. Now close to a quarter of US population has a deductible of $2000 on their medical insurance plan. Juxtapose that data point with the fact that nearly two thirds of Americans have less than $1000 in savings. The estimated uncompensated care, meaning the hospital did not receive any money either from the patient or from the insurer is $42.6 billion in 2014.

It has become imperative for hospitals and physicians to redesign their revenue departments in such a way that they can not only accurately estimate patient’s portion of the payment, before care is provided, but also efficiently collect a large number of small payments from patients.

They need to start working on this now, not later.