Money Management and Reduced Costs: An Introduction to Medical Banking

By PokitDok Team,

Paying for healthcare can be complex, even as American healthcare adopts a more consumer-centric approach.

Employers, insurance companies and patients usually share some financial responsibility for medical bills, which means healthcare providers often have to wait for months to get paid. These complexities and lag times inflate administrative costs for doctors, who then pass those costs on to the consumer.

Health IT expert John Casillas coined the term "medical banking" to describe a system that would help solve those inefficiencies by bringing familiar banking processes to the healthcare industry. Medical banking, its proponents argue, would reduce the costs passed onto consumers and alleviate financial risks for healthcare providers, while allowing them to focus more of their resources on actually treating patients.

But as with any healthcare reform, medical banking is complex to implement. Here is a brief snapshot of how medical banking works, how it fits into American healthcare, and most importantly how it can make healthcare more affordable. We'll also touch on revenue cycle management and what we're doing to help bring medical costs down.

Consumer Healthcare and the Promise of Medical Banking

Medical banks are financial institutions that use their systems, processes and collective knowledge to make the money in healthcare flow more efficiently.

HiMSS, which brought on Casillas in 2009 to lead its medical banking project, describes medical banking as handling "the business side of healthcare." In an industry that is trying to become increasingly consumer-focused, that's no small challenge.

At some point along a traditional chain of bills and claims, a bank steps in to process payments. As healthcare processes move from paper to digital, these financial institutions have opportunities to step in and create simpler systems that allow providers to get paid right at the point of care provision.

When a clinic doesn't have to wait 12 months to get paid for a specific procedure, it spends fewer of its own resources on handling money transactions. IT consulting company Cognizant puts a figure to those traditional administrative costs in a company white paper: up to $18 per claim.

"Financial institutions on the other hand have highly efficient transaction processing systems," the white paper reads. "For example, transactions executed via ATM, phone or Internet average a few cents a piece. The reason: financial institutions have built a very stable, secure, and widespread payment network to process various types of payments (from credit and debit cards through non-card transactions). The healthcare industry should leverage the financial industry's infrastructure and competencies to improve the efficiency of healthcare financing and services delivery."

By reducing end-to-end administrative costs, a specific clinic, hospital or practice can pass the savings on to the consumer. Across an entire industry, competition would create incentives for those clinics, hospitals and practices to do just that.

Consumers, Cognizant says, would respond to these lower prices by actually developing preferences and loyalties to specific healthcare providers, as they do with brands in other industries. To drive that point all the way home and share with you all why our team at PokitDok is doing what we're doing, a recent white paper conducted by Harvard Consulting Group notes that the claims space alone could save up to $17 billion annually by taking advantage of the digital and API economy that powers other industries, like banking.


Financial Realities for Healthcare Providers

This competition would put new strain on healthcare providers, which would then force them to adopt new approaches to the business side of their clinics. And that would be a very good thing.

"We're seeing a very competitive environment: Doctors joining forces and consolidating practices ... in order to survive," says Evan Barker, Senior Managing Director and Co-Head of Healthcare Banking at Opus Bank, in a series of interviews on the company's website.

"A decade ago, [young doctors] were coming out [of med school] with minimal student loans. Now, they've got large student debt. They don't have that opportunity to go out and start a private practice right out of college."

This financial reality, plus the sheer complexity of what an American healthcare practice looks like these days, can make medical banking sound attractive to doctors who — like many people — are struggling to pay off student loans.


Why Getting Paid for Healthcare Provision is so Difficult

Let's take a look at "revenue cycle," which describes the process of engaging with a customer, making him or her aware of the price of the service, confirming a payment method and receiving that payment. All businesses have revenue cycles, but those in healthcare tend to be vastly more complicated.

"The extent to which your practice has a handle on these steps directly impacts your ability to get paid the full amount you are owed as quickly as possible," NueMD writes.

But even practices that were managing the business side of things five years ago find themselves confronting a very different industry, and playing catchup can be both difficult and expensive. Mike Miliard, editor at Healthcare IT News, has written several pieces on the subject and points out that one issue is the pace of technological care. Hospitals, especially, would love help with ICD-10 migration and better point-of-sale collections, but they struggle to find the right vendors for their needs, Miliard writes.

Another issue is the fact that healthcare consumerism is disrupting the legacy systems in place. "The game has changed," HiMSS Revenue Cycle Improvement Task Force Chair Stuart Hanson told Miliard. "And those systems are not really capable of dealing with the revenue cycle shift that these organizations need to go through to effectively manage their receivables."


Consumer Responsibility and Multiple Financial Stakeholders

Becker's Hospital Review is publishing an excellent series on how hospitals manage their revenue cycles, and the first post in that series cites a report from the National Center for Health Statistics, which notes that 37% of people younger than 65 with private health insurance had a high-deductible health plan.

These plans have been hailed as a useful tool to introduce greater consumer financial responsibility to the healthcare industry. The problem, the Becker's post argues, is healthcare providers have trouble understanding how much financial responsibility each consumer should bear because it differs from patient to patient.

"Thirty-nine percent of providers said that they did not know the amount of consumer responsibility during a patient visit, and 72% said that it took more than one month to collect from a consumer, reported in a recent InstaMed study. Some 58% of providers surveyed said that their primary revenue cycle concern was related to consumer collections."

The report argues that hospitals should take a more active role in counseling patients on their financial responsibilities at the point of service, but there is only so much a hospital can do before this counseling becomes a burden (and an administrative cost) on its own.

Medical banks could step in at some point in the revenue cycle management process to assess an individual patient's capacity to pay and find ways to help him or her make payments. But it's not just healthcare providers and patients who would prefer a more cost-effective set of payment processes. The looming employer mandate penalties in the Affordable Care Act have employers thinking about how to rein in healthcare provision costs.

"True consumer-driven healthcare is all about economics," Acclaris VP of Strategic Accounts Carlos Hernandez writes in Managed Healthcare Executive. "Employers predict that in 2015 their health benefit cost per employee will rise by 4.6 percent on average. This increase reflects changes they will make to reduce cost; if they made no changes to their current plans, the estimated cost would rise by an average of 7.1%. Consumers aren't the only ones feeling the pain; employers are looking for creative alternatives to help fund the growing costs as well."


How Medical Banking Works in Practice

Medical banks have several tools they've brought over from the consumer and corporate finance worlds to help healthcare providers ensure they get paid and can grow their businesses.

West coast-based Opus Bank, for example, extends lines of credit and offers loans; helps with acquisitions, expansions, consolidation and refinancing; and has treasury services to keep incoming and outgoing funds secure. That company reports rapidly increasing interest in its services. A release from September showed a 72% increase in funded loans during the first half of 2015.

Most medical banks will offer some combination of the following services:

  • Credit and lending
  • Payment processing
  • Lockboxes or some other tool for holding onto money securely
  • Online billing and processing
  • Big-picture business management issues such as taxation and incorporation

First Tennessee, as an example, splits its services into five separate packages that deal with broad aspects of running a healthcare business, including the automation of claim payments, the streamlining of payments from patients and creative tools for lending money.


Final Thoughts: Consumerism and Building Better Businesses

There are many details within medical banking to sort through — so many it becomes easy to lose sight of the bigger picture: consumerism and true market dynamics force healthcare providers to be better. These issues are not addressed in medical school, so providers will need to adjust the way they run their businesses accordingly. With any luck, the improvements to come in the revenue cycle management side of things will justify their investment in other areas of their businesses.

Bobbi Brown at HealthCatalyst supports this approach and recommends infusing all of a practice's operations with better business tactics to optimize its revenue cycle. "Use any touchpoint you have with patients as a public relations possibility," she says. "I worked with a physician group who was having problems with increasing collection time in accounts receivable. We discovered that the root of the problem was a poor process at the registration desk. By simply scripting questions for the registration staff, we were able to decrease collection time in accounts receivable, thus increasing cash flow, while also continuing to provide a good first impression for patients."

It's our job to build the technology required to streamline healthcare business transactions, — and for providers to evolve their businesses based on what that inspires.

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The opinions expressed in this blog are of the authors and not of PokitDok's. The posts on this blog are for information only, and are not intended to substitute for a doctor-patient or other healthcare professional-patient relationship nor do they constitute medical or healthcare advice.

  Tags: Enterprise, Healthcare consumerism