Tackling consumer credit risk

Consumer credit risks present a growing dilemma for US healthcare practitioners, writes Ron Calhoun, managing director, Global Strategy for Aon.

The healthcare industry is currently changing in ways that are truly unprecedented. The Patient Protection and Affordable Care Act (PPACA) and other statutory and commercial initiatives have accelerated the adoption of alternative payment methodologies that are redefining the fundamentals of margin generation for providers. Coincidental with these transformations are macro shifts on the consumption side of healthcare delivery as the national ‘payer mix’ evolves at an accelerated rate. These shifts are occurring against a backdrop of increased consumerism, accompanied by significant increases in the percentages of total healthcare expenditures shifting to the consumer.

The escalation of healthcare expenses being assumed by consumers are forcing providers to adjust their collection strategies to accommodate these shifts in financial responsibilities while dealing with macro shifts in their payer mix; shifts that are already challenging historical business models. These increases in consumer out-of-pocket exposures are creating a ‘credit risk’ for providers; a risk that has profound financial and regulatory consequences if not managed appropriately.

The current US ‘out of pocket’ reality

The Centers for Medicare & Medicaid Services (CMS) National Healthcare Expenditure Projections: 2015–2025 estimate that the total ‘national healthcare expenditure’ in 2016 will total $3.3 trillion dollars, $350.1 billion of which is projected to be the ‘out-of-pocket’ expenditure born by consumers. This represents a 17 percent increase in the national out-of-pocket expense since the passage of the PPACA in 2010. The out-of-pocket growth rate is expected to accelerate over the next several years, leveling off to an average of 5.5 percent per year from 2020 through 2025.

“A detailed D&O and E&O policy review specifically designed to assess how current policies address these consumer credit-centric regulatory risks is recommended.”

Public exchanges: According to the HHS (Health Insurance Marketplaces: 2016 Open Enrollment Period, Final Enrollment Report) during the 2016 open enrollment period, 12.7 million individuals selected or were automatically enrolled in public marketplace plans. Of those enrolled, 83 percent qualified for advanced premium tax credits. Roughly 68 percent of the 2016 enrollees selected Silver plans (with an actuarial value of 70 percent) and 23 percent selected Bronze plans (with an actuarial value of 60 percent).

Private exchanges: According to Accenture (Private health insurance exchange enrollment increases 35 percent to eight million in 2016) an estimated eight million individuals will secure coverage through private exchanges in plan year 2016 (pre-65 individuals and dependents securing coverage through their employer). Overall, approximately one-third of all private exchange enrollees are selecting Bronze plans.

High deductible health plans: The 2015 Kaiser Family Foundation Survey of Employer Health Benefits revealed (for employees securing health coverage through their employers) that deductibles, overall, have increased 67 percent since 2010. Emerging as one of the dominant vehicles utilized to slow healthcare cost growth, approximately 24 percent of all employees receiving health insurance through employer-sponsored plans were enrolled in a high deductible health plan (with a savings option) in 2015.

As the amount of financial responsibility assumed by the consumer increases so does the amount of bad debt realized by the provider community. For patients with employer-sponsored group health coverage, private exchange coverage, coverage secured through the public marketplaces or some other form of commercial coverage, their ‘propensity to pay’ drops significantly as their deductibles rise (see The Future of Uncompensated Care: Addressing the Impact of Changing Coverage on Patient Revenue; the Advisory Board–Financial Leadership Council, 2014).

Revenue cycle management realities

The core functions of traditional revenue cycle management (registration, eligibility, coding, billing, collection, claim and denial management, referral tracking, contract management, reimbursements, payment resolution, etc) facilitated either manually or through legacy platforms are colliding with new realities: a) the escalation of consumer out-of-pocket liabilities embedded within widely varying plan designs; b) a new generation of disease and illness classifications with significant increases in the volume of related diagnostic and procedure codes; and c) the proliferation of new value-based payment models. These new realities are against a backdrop of legacy patient accounting systems, claims systems, electronic medical record platforms, workflow systems and other financial systems that have, historically, been unintegrated.

Bridging the gaps

While revenue cycle management outsourcing options are helping providers bridge the mechanical gap in core revenue cycle functions, many of these options do not address the need to help patients manage their out-of-pocket liabilities. As a result, many providers have adopted policies such as zero interest payment plans to help their patients bridge these financial gaps. While well intended, these practices expose providers to significant regulatory risks.

Regulatory risk factors

The following is a sampling of federal statutes and regulations that may be applicable to the collection and payment plan activities that providers may be deploying to meet the challenges of growing financial responsibilities being placed upon the consumer. This list is not meant to represent an exhaustive account of all of the statutes and regulations applicable to any given provider’s collection and payment activity.

• Equal Credit Opportunity Act (ECOA) 
• Regulation B 
• The Fair Credit Reporting Act (FCRA) 
• The Fair and Accurate Credit Transaction Act of 2003 (FACTA)
• Fair Debt Collection Practices Act (FDCPA)
• The Federal Trade Commission Act (FTCA)
• The Gramm-Leach-Bliley Act & The Safeguards Rule
• IRC Amendment, Section §501(r)
• The Telephone Consumer Protection Act (TCPA)
• The Truth in Lending Act (TILA)

While the aforementioned represent only a sample of the Federal statutes related to consumer credit activity, many states have adopted their own statutes and related rules that focus on unfair trade practices, debt collection, financial assistance notification and other forms of consumer protection.

Regulatory liability coverage related to consumer credit activity

Most standard healthcare directors & officers liability (D&O) policies define ‘regulatory wrongful acts’ within a regulatory coverage endorsement as “any notice or letter from any recovery audit contractor (RAC), or any actual or alleged violation by an Insured of the responsibilities, obligations or duties imposed by the Federal False Claims Act or any similar federal, state, or local statutory law or common law anywhere in the world, any federal, state, or local anti-kickback, self-referral or healthcare fraud and abuse law anywhere in the world, or amendments to or regulations promulgated under any such law; provided that regulatory wrongful act shall not include any employment practices wrongful act or third party wrongful act.”

Most policies inherently define a regulatory wrongful act in the context of fraudulent billing activity regulated by the Federal False Claims Act or related statutes; thus, not extending coverage for violations of statutes designed to regulate the provision, extension and related administration of credit to consumers.

However, there remains some ambiguity within the standard definition of ‘claim’, which a typical directors & officers liability policy defines as: (a) a written demand for monetary damages; (b) a civil proceeding commenced by the service of a complaint or similar pleading; (c) a criminal proceeding commenced by the return of an indictment or information or similar document; or (d) a ‘formal civil administrative or civil regulatory proceeding’ commenced by the filing of a notice of charges or similar document or by the entry of a formal order of investigation or similar document, against an insured person for a D&O wrongful act, including any appeal therefrom.

Given the ambiguity of the language, the reference to ‘civil regulatory proceeding’ could actually apply to some of the consumer credit related statutes (ie, the Telephone Consumer Protection Act [TCPA]).

Another variable is whether the healthcare provider is a 501c(3) or a public or private for-profit entity. Claims related to violations of consumer credit-centric statutes are, for the most part, against the ‘entity’ as opposed to the ‘individual’, and the D&O policy form applicable to public for-profit entities explicitly extends entity coverage only for claims related to securities violations. Even for-profit private D&O policy forms with broader entity protections may limit, through the use of policy definitions and exclusions, the extent of coverage available for such alleged regulatory violations.

It is safe to say that the ‘intent’ of standard healthcare D&O policies is not to provide coverage for violations related to consumer credit-centric statutes. Some D&O underwriters are addressing this through professional services, E&O exclusions, or explicitly excluding consumer credit-centric statute violations. Additionally, many E&O carriers that would have historically covered this exposure have recently added specific exclusions related to consumer-centric statute violations.

While ‘bankers professional liability’ & ‘lender’s liability’ coverages were designed to specifically address the various liabilities associated with wrongful acts committed through the facilitation, extension or administration of consumer credit, the underwriting for these types of coverages are engineered specifically for financial institutions that can demonstrate robust compliance protocols; the provision of these types of coverages for ‘non-bank lenders’ is extremely difficult to economically secure.

Conclusion

Given the proliferation of health plans that significantly increase the patient’s financial responsibility and the corresponding front-end revenue cycle modifications underway to address this trend, it is increasingly precarious for a healthcare provider to assume that adequate financial protections related to the regulatory risks associated with these revenue cycle modifications are afforded through the D&O and E&O coverages currently in place for that institution.

A detailed D&O and E&O policy review specifically designed to assess how current policies address these consumer credit-centric regulatory risks is recommended. In the absence of adequate financial protection, healthcare providers must look to other risk mitigation strategies to address these escalating risk factors.