Patient Collection Rate Falls to Nearly 48%

Healthcare organizations are finding it harder to collect patient financial responsibility, a new analysis from Kodiak Solutions indicates.

The analysis of patient financial transactions from over 1,850 hospitals and 250,000 physicians nationwide showed a sharp decline in the patient collection rate, from 54.8 percent in 2021 to just 47.8 percent in 2022 and 2023.

Total payments made on the nearly 3 million fully resolved medical claims from commercially insured patients during the two-year analysis period were about $5.2 billion. However, the cash providers received was barely a quarter of the total charges, which were $21 billion at the time.

Patient financial responsibility accounted for about $1.1 billion of the over $5 billion in total payments received, or about a fifth of total payments. But providers collected less than half —$500.5 million — of what patients owed for services rendered in 2022 and 2023.

Researchers said there is a clear line between what patients are likely to pay and what they will likely avoid paying, and that line was $500 in 2022 and 2023. The analysis found that most patients paid outstanding medical bills when they owed $500 or less, while the opposite rang true if the bill was over $500.

Overall, patient collection rates decreased as the claim dollar amount owed increased.

Lower patient collection rates left providers facing bad debt. The analysis showed that 1.54 percent was the bad debt write-offs as a percentage of total claim charges in 2023. Researchers note that the percentage may be small, but the total cash amount equated to over $17.4 billion last year.

Self-pay patients had the highest percentage of bad debt write-offs for providers analyzed. However, over half — 53 percent — of the total bad debt write-offs in 2023 stemmed from patients with some form of insurance, including commercial plans, managed care plans, and Medicare.

“With the amounts that health plans require patients to pay continuing to grow, provider organizations need a strategy to avoid intensifying pressure on their already thin margins,” Colleen Hall, senior vice president and revenue cycle leader at Kodiak Solutions, said in a statement.

“For scheduled encounters, we recommend solidifying point-of-service collection practices and requiring deposits from patients when they face higher-dollar financial responsibility. We also recommend providing patients with financing options for higher-dollar balances,” Hall continued.

Bolstering patient collection strategies may be key to staving off thin operating margins. The median hospital operating margin index, as calculated by the latest financial performance data from healthcare consulting firm Kaufman Hall, was 2.3 percent in December 2023.

Operating margins have improved from the negative margins hospitals experienced at the start of 2023, but are far from cushioning hospitals from high expenses. Both hospitals and physician practices ended the year with larger expenses, including labor costs.

Bad debt can exacerbate the financial challenges healthcare organizations are currenting facing. As patients owe more for medical services, expanding patient collection strategies may be key to maximizing revenue and avoiding losses.