High deductibles squeeze rural providers’ margins

In the rural community of Fort Payne, Ala., much of the local economy is driven by a handful of large companies that serve as both the major employer and the source of healthcare coverage for a large proportion of the town’s 14,000 residents.

Many families with employer-backed health insurance bring their children to Fort Payne Pediatrics, an eight-clinician, 6-year old medical practice.

But what sounds like an almost ideal situation for a rural community and its patients and providers is actually becoming financially difficult. Dr. Peter Strogov, owner and medical director of Fort Payne Pediatrics, said his practice is often patients’ first point of care, meaning they likely still have a large deductible amount to pay. “A company often pays the entire premium for health insurance, which comes with a very high deductible,” Strogov said. “The entire cost of the visit (or subsequent follow-up visits) is being charged to the patient’s deductible and these patients are held responsible for the cost of their entire visit to our practice.”

As a result, residents are less likely to get needed care and when they do get it, are less likely to pay than their insurer is. Strogov recalled a recent case where his staff sought to find a behavioral healthcare provider whose services were better covered under a patient’s health plan. Fort Payne offers mental healthcare treatment, but the patient’s plan would have required them to pay the full cost of a visit.

“The closest qualifying mental health facility was over two hours away,” Strogov said. “When the patient called for an appointment, they were informed that they could potentially be responsible for up to $2,000 out of pocket for their first visit.”

Similar scenarios have occurred throughout the country in recent years as rising deductibles have forced a growing number of patients to pay a larger share of their medical expenses upfront. A 2019 analysis by the Kaiser Family Foundation found the average deductible for employer-based health plans for a single person rose about 150% to $1,350 in 2018 from $533 for a single person in 2009. The rise means it takes longer for individuals to meet their deductible before they can receive first-dollar coverage.

MidMichigan Health’s bad-debt level has risen because of the issue, leading the system to devise new bill collection approaches, said Greg Rogers, the system’s chief operating officer.

The health system, which serves 23 counties in central Michigan, has moved away from approaching patients about their bill during their stay, which Rogers said was not very productive in terms of collections. He said right before or after services are performed have been better times to discuss finances with patients. That has led to the system providing financial counseling at the front end of service, simplifying billing, and streamlining how patients in need apply for financial assistance.

But Rogers attributed a portion of MidMichigan Health’s successes in patient collections to the patients themselves as they have become better consumers.

“I think because of their high-deductible plans patients are much more cognizant of what things cost,” Rogers said. “We’re getting more questions about how much will they be charged.”

Even before the pandemic struck, rural patients and providers faced uphill challenges because of higher patient cost-sharing. The Affordable Care Act’s insurance exchange plans carry high out-of-pocket health costs. The average deductible for an individual ACA health plan purchased through the exchange without cost-sharing reductions was $5,316 in 2020, according to CMS’ Health Insurance Exchanges 2020 Open Enrollment Report, released in April.

Nearly all hospitals’ bad debt has risen to some extent because of unpaid patient bills, but the increased cost burden on patients has been especially hard on rural providers. “If you’re transferred to a tertiary facility and the total reimbursement for a procedure from start to finish is $100,000, incidents of a $5,000 or even $10,000 deductible in the face of a claim that size is not nearly as significant as if you’re indebted to a rural hospital and that $5,000 or $10,000 happens to be the total sum of the stay,” said Brock Slabach, senior vice president for member services at the National Rural Health Association. 

A survey conducted in 2019 by the Robert Wood Johnson Foundation and Harvard T.H. Chan School of Public Health found 4 in 10 Americans living in rural areas reported problems affording medical bills, with nearly half stating they were unable to pay off an unexpected expense of $1,000. Yet rural healthcare facilities often take on most or even all of the debt caused by a patient’s inability to pay their deductible. 

“Personal healthcare expenditures have just tanked,” said Sayeh Nikpay, associate professor in the University of Minnesota School of Public Health’s health policy and management division.

Rural providers can face challenges when they bill insurers for patients who are covered by high-deductible health plans who later receive advanced care elsewhere. The lion’s share of a rural provider’s expenses is applied to the patient’s deductible. If a patient is then transferred to a larger facility, much, if not all, of the patient’s deductible is considered to have already been met by the bills from the rural provider, even if they have not been paid. As a consequence, larger hospitals are left to receive first-dollar coverage from the insurance companies while rural providers must contend with trying to collect on bills from vulnerable patients.

“If I only have $1,000, and I have a deductible of $2,000-plus, I’m already upside down,” said David Shelton, CEO of hospital revenue operations consulting firm PatientMatters. “The healthcare provider group, once those services have been performed, can sometimes find themselves on the bottom of the food chain on the opportunity to get paid.”

Rising deductibles have contributed to the overall rise in hospital bad debt, which grew about 1%, or $617 million, between 2015 and 2018 to total more than $56 billion, according to a 2019 Healthcare Financial Management Association benchmark analysis.