Viewpoint July 30, 2021
The Increasing Role of Physician Practices as Bill Collectors: Destined for Failure
A. Jay Holmgren, David Cutler, Ateev Mehrotra
JAMA. Published online July 30, 2021. doi:10.1001/jama.2021.12191
Through increasing deductibles, coinsurance, and co-payments, the privately insured population in the US is responsible for a larger share of health care out-of-pocket costs. Although many studies have examined the effects on patients, the implications for physicians have received less attention. The increase in cost sharing is forcing many physicians and health systems to take on the role of bill collectors. It is a task for which physician practices are unsuited. The result is a system with substantial administrative burden, frustrated patients struggling with confusing bills, and physicians receiving less compensation. This Viewpoint describes the drivers of this trend, the consequences for physician practices (with a focus on physicians but discussing issues relevant to a range of clinicians), a wave of new companies looking to solve the problem, and what might be done to improve the situation.
Cost sharing has increased rapidly. As of 2019, 82% of people covered by employer-sponsored insurance had some sort of deductible, and the mean deductible was $1655.1 Approximately a third of employer-insured individuals had high-deductible health plans (HDHPs), in which the mean deductible for a family was $5335.2 Deductibles are only 1 form of out-of-pocket costs, with patients also responsible for costs of coinsurance and co-payments. The result is that physicians must collect sometimes hundreds of dollars directly from patients, often months after care has been delivered.
Not surprisingly, a large portion of this money goes uncollected, particularly when balances are higher. According to data from 2019, an estimated 31% of out-of-pocket costs were uncollected when the patient balance was more than $200, whereas the uncollected rate was only 9% when the balance was less than $35.3 These uncollected out-of-pocket costs are often sold to a collection agency or written off as uncollectible.3 The result is lost revenue for physicians and health systems, which leads them to advocate for higher reimbursement rates in their next negotiation with a health plan.
Why do physicians and health systems struggle to collect these out-of-pocket costs? One fundamental barrier is that frequently neither the physician’s office nor the patient knows the out-of-pocket amount when the care is delivered. A fixed co-payment is easy, but not so with deductibles and coinsurance. Only the health plan knows exactly how much remains in the patient’s annual deductible amount and whether a patient has reached his or her out-of-pocket maximum. Because of claims lags, that amount may not be clear at the visit. Therefore, clinicians are not able to collect payments until after the bill is reconciled with the payer, a process that often takes weeks. The process is delayed and creates administrative costs because physicians are forced to add staff to handle billing and collections. As health systems consolidate and acquire office-based physicians’ practices, patients also may receive multiple bills that include a facility fee in addition to the physician services. Although physicians in these larger health systems may have more resources to collect what they are owed, evidence suggests this consolidation has led to higher costs.4 This opaque system has resulted in a seemingly endless number of medical billing stories covered in the popular press whereby patients receive huge, unexpected bills from hospitals and physicians long after care was provided, with news reports of a $629 bill for a child’s adhesive bandage, with the bill received weeks after the service, to a $22 368 bill for a hospital stay for potential COVID-19 that was issued 6 months after hospital discharge.5
Adding to the complexity, the bill from the physician may not match the explanation of benefits (EOB) from the payer. Bills and EOBs are filled with medical jargon, making it difficult for patients to understand what each service corresponds to. What patients perceive to be a single “visit,” such as a trip to the emergency department, often results in multiple bills from several billing entities: the hospital, the treating physician, the consulting radiologist, and others. This confusion adds to the difficulty of collection.
Toward a Better System: Private Innovation and Policy Solutions
Physicians could turn to collection agencies, but this results in returns of pennies on the dollar and these agencies can be aggressive in their collection practices, which may damage the patient-clinician relationship and could harm patients financially.6 A number of new companies (such as OODAPay, InstaMed, Flywire, Zelis, and MedPilot) have developed innovative solutions to the problem. These companies contract with both physicians and health systems to streamline the billing process and outsource out-of-pocket payment collections. Services include digitizing bills, offering convenient payment options such as online credit card payment, and coordinating with the payer to ensure that patients receive a single comprehensive and consistent documentation of their bill. In some cases, these companies pay the physician up front a portion of the owed amount, taking on risk for collecting the debt and profiting from their ability to collect more than they paid the physician. These companies have also engaged payers, who recognize that the bill collection process is among the biggest drivers of poor satisfaction with insurance and adds to administrative burden.
Although these companies provide a valuable service, they do not address the root cause of the problem and may just increase total costs from a societal perspective. Several interventions could improve the situation. Small changes such as implementing easier-to-understand bills and EOBs incorporating guidelines from the Bill You Can Understand medical bill design competition, which produced suggestions and templates for simpler medical-billing communication to patients, could improve comprehension.7 Real-time reconciliation could allow clinicians to query the health plan at the visit and thereby avoid billing after the fact. Another solution could be to remove clinicians from the transaction entirely and have payers collect out-of-pocket costs instead.
More fundamentally, it may be time to move away from deductibles and coinsurance and focus on co-payments. In addition to the complexities deductibles introduce in the billing process, evidence suggests that they may also lead patients to forgo valuable care.8 Moving away from deductibles and toward fixed-dollar co-payments as a cost-sharing mechanism could simplify the billing experience for patients and the collection process for physicians while retaining the ability of payers to steer patients to lower-cost care with financial incentives. Building on tiered prescription drug benefits for different classes of drugs, new health plans have extended tiered co-payments to the rest of health care, in which patients who visit a “preferred” physician face a lower co-payment.9This could be combined with more bundling of payments. Together, such changes would give patients a clear, predictable out-of-pocket cost for the care they receive and not a fragmented set of bills. This would also make it easier for physician practices because they would collect a fixed-dollar co-payment at the visit.
The growth of cost sharing and HDHPs has resulted in patients’ taking on more of the cost of their own care and in physicians’ holding the risk and responsibility of collecting large dollar amounts. Physician offices are poorly suited to the task, exacerbating a complex and confusing system for patients and clinicians alike. New private firms have developed products to simplify, consolidate, and improve billing. However, these private-sector solutions may help ameliorate the problem but will not solve it. Only larger shifts in how out-of-pocket costs are envisioned will meaningfully address the burden of high out-of-pocket spending on both patients and physicians.
