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With the recession in high gear, more out-of-work consumers are bypassing health insurance to stretch their budgets. With unemployment reaching 8.9% in April, and projected to continue upward before calming, it's clear the health care sector is not immune to rising levels of bad consumer debt.

Rather than wait to drown in a tide of troubled loans, many health care providers are turning to scoring models to help them better pinpoint patients with limited financial resources who may qualify as charity care cases. The goal is to build more effective treatment strategies to boost recovery rates.

Out-of-pocket patient liability for health care is expected to reach 20% in the next few years, up from about 12%, according to the Centers for Medicare and Medicaid Services (CMMS).

This is bad news for providers, especially hospitals disinclined to turn down emergency care to uninsured patients. In 2007, 41% of households had trouble paying medical bills, up from 34% in 2005, according to the Commonwealth Fund Biennial Health Insurance Surveys.

With national health care spending totaling $2.2 trillion in 2007 and health care costs projected to rise 6.2% annually through 2018, according to CMMS, the number of households having trouble paying health care costs is only expected to rise.

"About 40% of self-pay accounts have too thin a credit file to generate a credit bureau score, so health care providers can't look at a patient's credit bureau score or income as the sole predictor of their ability to pay," says David Franklin, chief development officer at Waltham, Mass.-based Connance Inc., provider of analytics and self-pay software to the health care industry. "Scoring models built from health care data help predict the expected value of the account once it goes into collections and develop the right treatment to maximize recovery and the cost of the treatment strategy."

The benefits to be reaped from scoring patient debt are substantial. Connance says its clients increase recovery rates 15% to 20% on average from scoring and reduce operating costs by 15%.

Because providers and hospitals have a lot of information about how their patients pay, they can leverage that data to create scoring models that help them prioritize the allocation of resources on a per-account basis.

"Having predictors of debtor behavior is valuable information because some debt can qualify for charity care after it is written off and then there is debt that some patients have no intention of paying," says Mark Neeb president and CEO at The Affiliated Group, a Rochester, Minn.-based collection agency that collects health care debt. "Better anticipation of patient behavior through scoring can lead to more effective collections practices."

Qualifying patient receivables for charity care as soon as possible is becoming a focal point for the use of scoring models. As much as 31% of patient receivables sent to collection agencies should be classified as charity care, according to Connance.

Concurrently, most hospitals have their non-profit status tied to the amount of charity care they provide and state and federal regulators have been insisting on more stringent audit trails from hospitals to show how they determine what constitutes bad debt, as well as how they qualify a patient for charity care. How these determinations are made have an impact on whether a hospital retains its non-profit status, according to industry experts.

Rather than scramble to sort this out by relying on the subjectivity of someone reviewing the patient case file, more hospitals are turning to scoring models to bring greater objectivity and consistency in determining if patient receivables qualify for charity care.

"There is a much stronger desire to understand which patients qualify for charity care or other types of financial assistance as early in the cycle as possible, which includes pre-admittance or at the time of care," says Mark Doman, an executive vice president at St. Cloud, Minn.-based eBureau, provider of analytics and scoring models.

To build the scoring models needed to determine charity cases and properly evaluate the collectibility of the health care debt, vendors are steering away from credit bureau data and relying more on information about patient payment histories from the health care provider for which the model is being built.

EBureau, for example, will ask hospitals for the data pertaining to patient accounts that qualified for charity care cases and information concerning accounts that did not.

Other information that can be used to build health care scoring models may include federal poverty guidelines and demographic data provided by the U.S. Census Bureau.

"No model is 100% accurate, but models help to narrow down charity care cases and that's a plus for collection agencies because they will be paid for identifying these accounts as if they had recovered the balance," says Doman.

Along with using scoring models to spot charity care cases, health care providers can score the validity of a patient's identity. Doing so serves two purposes. First, health care providers can verify a patient's address using databases from the United States Postal Service and other sources, which helps in the collections process.

Recent findings by nTelagent Inc., a Franklin, Tenn.-based provider of self-pay management systems for health care providers, revealed that more than 30% of write-offs occur because of a failure to collect adequate personal patient information at the point of service.

Second, scoring the validity of a patient's contact and insurance information helps reduce the risk of fraud.

"Hospitals will gather patient and insurance data at the point of service, but some patients don't always provide the correct data or fill in all data fields on the forms," says Todd Nelson, technical director at Westchester, Ill.-based Healthcare Financial Management Association. "Gathering good patient and insurance data at the point of service, and then validating it, helps in the management of the patient receivables."

Finally, once a receivable has gone into collections, scoring the debt can help determine the resources to be used to recover the balance owed.

"Increasingly, health care providers and their agencies aren't looking just at the percentage of the portfolio that can be recovered, but how much it is going to cost to do so," says Doman, at eBureau. "Scoring accounts so they can be rank ordered helps with assigning treatment strategies that work well and are cost effective."

Doman says eBureau clients have been able to improve account profitability between 20% and 30% on average.

With the CMMS predicting national health spending to reach $4.4 trillion by 2018, health care providers and their collection agencies not only need to score the debt but use specialized models that determine whether an account ought to be referred to a collection attorney or outsourced to an agency.

"A single score is not a silver bullet and running accounts through several specialized models can lead to the creation of more effective treatment strategies that boost recovery and lower operating costs," says Connance's Franklin. "That's what health care providers and agencies are ultimately looking to achieve."  CCR

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