An American healthcare system battered by the ongoing pandemic now faces the impacts of a new crisis: skyrocketing inflation rates. With the Consumer Price Index up by more than eight percent year-over-year in each of the past three months, Americans are battling the worst inflation hike in 40 years.
Although we haven’t yet seen a significant increase in out-of-pocket patient healthcare costs—which are typically pre-negotiated between providers and insurance companies years in advance—secondary effects pose critical threats to patients and hospitals alike. Consumers are being forced to choose between medical care and everyday needs. And providers, buffeted on one end by rising labor expenses and on the other by declining patient volume and collection rates, face a daunting financial road.
Inflation is Impacting Consumers’ Ability to Pay for Care
For more than a decade, rising deductible and coinsurance rates have shifted more financial responsibility onto patients. Between 2013 and 2020, the average family deductible jumped from less than $2,500 to more than $3,700.
The rising rate of inflation has exacerbated the crisis. As the rate increase of everyday costs rockets past that of salaries, fewer than four in 10 Americans can afford an unexpected medical expense of $1,000. Stuck between an out-of-pocket medical bill and the rising costs of food, gas and rent, many are forced to put the charge on high-interest credit cards. Half of all Americans now carry some form of medical debt.
In many cases, the rising rates of deductibles and inflation force people to postpone or forgo necessary treatment altogether. These decisions worsen the patient’s health condition and increase the long-term burden on the healthcare system.
Hospitals were Already Reeling from Rising Supply and Labor Costs
A recent study by Kaufman Hall found that total hospital expenses per patient increased by more than 20 percent from 2019 to 2020. Meanwhile, rising interest rates are increasing the burden of corporate debt.
But nowhere have providers been hit harder on the expense report than labor. The admirable and critical work of healthcare staff throughout the pandemic took its toll on the workforce, generating shortages across the country. The dwindling labor pool drove up costs as hospitals were forced to rely increasingly on contract staff.
In January of 2022, travel nurses accounted for a median of 39 percent of hospitals’ total nurse labor expenses, compared to a median of just 5.7 percent in 2019. In total, hospital labor costs jumped by 19 percent between 2019 and the end of last year.
Meanwhile, patient volume decreased amid climbing out-of-pocket costs, continued worries about COVID-19 and the rising popularity of virtual care. The total number of patient days in April 2022 dropped by nearly two percent from the previous year. That volume decrease was further compounded by a drop in collection rates as Americans struggled to pay off unexpected medical bills amid inflation.
In short, providers are spending more and earning less, particularly rural and critical access providers. One third of American hospitals entered this year operating at a negative margin.
A New Approach is Needed for Patients and Providers
The financial strain on both patients and providers isn’t sustainable. Here are three steps providers can take to improve their revenue streams and ensure the long-term affordability of care.
Invest in the Revenue Cycle to Accelerate Cash Flow
Amid this challenging financial environment, providers need to invest in optimizing every part of their revenue stream, particularly patient payments.
The traditional approach to collecting patient responsibility has relied on early out and debt collections call centers, but this cumbersome and slow-moving approach is a detriment to cash flow. Many providers carry significant patient receivables on their books and typically expend valuable resources trying to collect those receivables $50 at a time.
Integrated financing solutions can increase the efficiency and effectiveness of the billing process to free up cash trapped in balance sheets. Investing in these improved workflows provides significant ROI and is a critical step in improving patient and provider financial health.
Focus on Patient Affordability
Most patients who can pay will pay. But the traditional approach to billing, which hands patients a one-size-fits-all plan, isn’t working.
Providers should consider a patient’s unique financial situation and offer a payment plan that fits their financial profile. Someone who can only afford to pay $75-100 a month shouldn’t be asked to pay $300 a month.
For cash-strapped Americans struggling with rising costs, the ability to defer the acute impacts of an unexpected medical bill can make all the difference.
Leverage Data and Automation Throughout
Most patient revenue cycle workflows are backloaded and reactive. Patients have to call in and available options are limited and driven by static provider balance sheet rules.
New technology can automate these processes, removing strain on already shorthanded revenue cycle staff while increasing patient convenience. Proactively offering the right billing solution on the front end increases payment rates without driving patients to bad debt collections.
Technology can also be used to address patient affordability at scale. At PayZen, we’re using rich financial data and machine learning to predict a person’s ability to pay and deliver personalized payment options based on their unique circumstances.
Even as inflation shows signs of leveling off, the daunting challenges posed by the pandemic and related labor shortage aren’t going away anytime soon. Leveraging data and new technology is critical to ensuring Americans aren’t forced to choose between their health and other financial obligations.
The author, Tobias Mezger, is Co-Founder and COO at PayZen