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The hidden costs of healthcare’s hidden costs

A lack of transparency in payments is detrimentally impacting the financial health of small and mid-size practices. This, in turn, is making it difficult to maintain an independent practice, which is forcing more doctors to join larger groups.

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Going to the doctor can be stressful. In addition to receiving a potentially negative diagnosis – or worse, inconclusive tests – there’s the fact that we often don’t know what we’ll be charged until after we’ve had a procedure done. In fact, one recent study found that 75 percent of Americans don’t know what they owe on healthcare procedures until they see a bill weeks or even months later.

This is so “normal” for Americans that most of us don’t stop to consider how bizarre it really is. Imagine if your local coffee shop worked like that: “Based on how tired you seem, we think you’ll need a venti caramel macchiato.” They hand it to you then send a bill 30 days later for eighteen bucks. No, thanks!

Unclear costs cause financial problems evidenced by the fact that more than one-third of Americans (36 percent) have forgotten to pay a medical bill. Even when patients remember that their bills are due, many are delaying payment, though not always because they can’t afford to pay. Although 42 percent of those who have put off payments did so because their deductible was higher than they expected, one quarter were just waiting to see the full amount. About 30 percent put off payment because they weren’t certain what they owed compared with what their insurer owed.

Clearly, these payment delays and oversights hurt the entities providing services and hurt the top line and bottom line of all healthcare providers.

A healthcare payments crisis

So how bad is it right now for independent physicians? Consider these figures:

  • In 2012, 48.5 percent of physicians identified as independent practice owners or partners; in 2016, only 33 percent did.
  • In 2012, just 12 percent of doctors worked in groups of 100 or more; by 2016, that number had jumped to 20 percent.
  • Although 73 percent of doctors in independent practices say they would stay independent if they could remain stable and profitable, 44 percent expect to sell their practice in the next decade.

In other words, small and mid-sized practices are feeling the pinch. This is concerning because research shows that such practices are better than large ones at certain types of preventive care, including avoiding hospital readmissions and admissions to ambulatory care. As small and mid-size practices close for financial reasons, patients will have less access to the kind of primary care that reduces these expensive outcomes. That could trigger a dangerous cycle of rising costs.

A lack of transparency in payments is detrimentally impacting the financial health of small and mid-size practices. This, in turn, is making it difficult to maintain an independent practice, which is forcing more doctors to join larger groups. This means less access to the very providers who have been shown to prevent certain kinds of high-cost healthcare services.

The good news is that this isn’t an irreversible trend. By tackling three key areas, small and mid-size practices can shore up their financial security.

Promoting price transparency

Price transparency in healthcare is facilitated by displaying co-pay/deductible/co-insurance amounts and offering cost of care estimates pre-arrival, at point-of-service, pre-surgery, and post insurance claim submission. Patients will know their insurance coverage and can review estimated costs up-front to eliminate any billing surprises later.

Supporting state legislative efforts that require healthcare entities to publicly post self-pay prices is another way to help push for more price transparency. States such as Colorado have already enacted such laws and many others are following suit.  

The study we cited earlier found that only a quarter of physicians currently talk with patients about costs before they deliver care. Making time for those conversations could clear up a lot of uncertainty and earn goodwill, given that 77 percent of healthcare consumers say it’s important to know costs before getting treatment.

Upgrading payment technology 

One in 5 doctors sends reminders to patients near a payment due date, even though simple reminders have been shown to be as effective as cash incentives in some payment scenarios. But even with the best reminder system in the world, healthcare practices are working from a deficit any time a patient leaves without paying.

That’s where technology can help. New systems like Healthi PASS, VisitPay, and other in-office check-in and payment platforms are making it easier for patients to pay digitally at check-in, meaning that practitioners get paid immediately for visits and have patient payment information on hand for any additional charges (a model favored by most hotels). Adopting new technologies is always challenging, but physicians seem ready: 49 percent surveyed believe they have to develop innovative operating strategies to stay independent.

Adopting best practices

Small and mid-size physician groups can improve their financial margins by adopting business-savvy practices such as working with professional consultants to negotiate prices on rent and equipment, joining an Independent Physicians Association (IPA) or similar group to enjoy some of the benefits of being part of a larger physician group (like bulk rates on malpractice insurance), and auditing the business for leaks and savings opportunities (e.g., most practices don’t bill for about 12 percent of the work they do).

Nearly everyone has experienced the frustration of “hidden costs” in healthcare, but few realize the big-picture impact they have on the nation’s long-term health. Improving price transparency can help sustain independent practices and improve health outcomes for all Americans.

Photo: adventtr, Getty Images


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Rajesh Voddiraju

Rajesh "Raj" Voddiraju serves as President, Patient Engagement Technologies division (Health iPASS, a Sphere company). In this role, he manages the Division's P&L, sets the strategic direction/vision, and oversees all business development, sales, operations, marketing, and technology. Mr. Voddiraju has over 25 years of experience in founding and leading fast-growth businesses in the B2B Software, Healthcare IT and Fintech industries.

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