ASK THE EXPERTS: Federal Healthcare Reform

Question: Will federal healthcare reform jeopardize the market for healthcare collections?

Answer: (from Michael Klozotsky, Analyst, Kaulkin Ginsberg)
Despite last week’s announcement that Congress will not take action on federal healthcare reform legislation prior to the August 7th recess, a bill to overhaul the nations healthcare system is all but assured before the end of the year. Will efforts to establish a public insurance plan, contain costs, and revamp access to and the quality of patient care impact the ARM industry? Undoubtedly. Will those effects be detrimental? Not necessarily.

In early June, ARM industry groups and owners and executives in the healthcare market began to raise concerns that several proposals for federal healthcare reform would negatively influence medical collections. Those proposals were speedily cast into light as “hamstringing non-profit providers” and “harming millions of patients” by some inside the ARM industry. Others described the language in the various proposals as “misguided and damaging” and suggested that early drafts of Congressional reform bills would “consider punitive measures against all non-profit hospitals.”

One problem with these depictions is that they tended to generalize about the reform proposals, and did so only in negative terms. Moreover, in early June few people (if anyone) in the ARM industry had actually seen one word contained in the bills being crafted in Washington.

As it turns out, early anxiety about a doomsday event for the ARM healthcare market was unfounded. While specific details about the Senate Finance Committee’s position on health reform have yet to emerge, the House bills do not contain overtly damaging language. It seems there is a lesson here for healthcare collection professionals: vigilance and patience are perhaps the best course of action as federal reform efforts unfold. Hasty reactions, prior to assessing all the facts, may inject some dollars into the U.S. economy in the form of expenditures for hair replacement therapies and blood pressure medication, but they do little to shield medical collection agencies, debt buyers, and vendors from impending legislative risk.

And what precisely is that supposed risk? Broader insurance coverage may reduce the total volume of delinquent patient accounts, but in many instances self-pay already meant no-pay. More stringent requirements for determining charity care eligibility may also divert some patients from a collections stream, but if in fact these patients should have been qualified for some type of financial assistance prior to reform, the risk for collection agencies was actually greater prior to reform than it will be after this type of legislation is passed. No hospital wants to see its name in the local newspaper because its collection agency partner “harassed” a low-income cancer patient over a past due bill.

In fact, some health-related legislation already passed by Congress this year, as well as a part of the Obama Administration’s budget that expanded funds for healthcare Information Technology have actually created new business opportunities for ARM companies. The expansion S-CHIP early in 2009, which provided health insurance coverage to an additional four million low-income American children, is administered and partly funded by individual states. But as the majority of U.S. states face budget shortfalls that will extend well beyond 2010, creative solutions for how to meet their end of the S-CHIP bargain were in short supply. In a number of states, S-CHIP recipients are for the first time required to pay some co-pays under the program. Given the current recession, it is likely that some percentage of these patients will accrue delinquent balances with healthcare providers. In short, the expansion of Federal and state insurance coverage has, in this example, actually created a new source of revenue for healthcare collection agencies.

One could also argue that healthcare reform may provide an indirect upshot for the entire ARM industry. The economic crisis that persists today will absolutely drive an increase in the number of un- and underinsured Americans. And unanticipated medical events are often cited as a leading cause of consumer bankruptcy. In the context of massive investment losses, unemployment risk, staggering reductions to the equity in consumers’ homes, and tighter access to credit since the recession began in December 2007, a single serious illness or injury may quickly lead a patient to file for protection from creditors. The option of a public insurance plan, if enacted by Congress as a part of broader healthcare reform, might divert that consumer/debtor from a bankruptcy solution and sustain his financial obligations to medical and non-medical creditors alike.

During President Obama’s prime time press conference on healthcare last week he said:

"This is not just about the 47 million Americans who don’t have any health insurance at all. Reform is about every American who has ever feared that they may lose their coverage if they become too sick, or lose their job, or change their job. It’s about every small business that has been forced to lay off employees or cut back on their coverage because it became too expensive. And it’s about the fact that the biggest driving force behind our federal deficit is the skyrocketing cost Medicare and Medicaid.

"So let me be clear: If we do not control these costs, we will not be able to control our deficit. If we do not reform health care, your premiums and out-of-pocket costs will continue to skyrocket. If we don’t act, 14,000 Americans will continue to lose their health insurance every single day. These are the consequences of inaction. These are the stakes of the debate that we’re having right now."

Successful ARM companies should look for opportunities to arise out of healthcare reform efforts, rather than descry the winds of legislative change. Medical collection agencies, debt buyers, and service or technology vendors who partner with healthcare creditors should assess their current business practices, develop strategic plans (in real-time) for short term sustainability, and actively seek new prospects for growth with the knowledge that the enactment of federal healthcare reform legislation is a “when,” not an “if” proposition.

Assess, develop, and seek. Those in the ARM industry, and specifically those in the healthcare market, who do not will soon feel the consequences of inaction in declining liquidation performance, lost market share, and hazards to future viability.