Hospitals prepare for a cash-pay future

By Nona Tepper / October 18, 2022

Dr. Keith Smith started Surgery Center of Oklahoma because he wanted to stop working with health insurers—specifically, government insurers.

Smith, an anesthesiologist and self-described libertarian, opened the ambulatory surgery center in 1997 with the idea that he would never accept money from Medicare, Medicaid or any other public health program. He initially grew his business by billing patients’ private insurance for out-of-network claims. But a state law capping the amount of out-of-network benefits health insurers must provide patients eventually emptied his waiting room.

“I’m sitting there, scratching my head thinking, ‘This is America. If you’re cheaper and better in a competitive market economy, you ought to be doing well. There ought to be a line around the block,’” Smith said. “So I decided to post all of our prices online. I wanted to start a price war.”

Smith vowed to no longer work with any insurer, public or private, and only accept money directly from patients. He established a claims clearinghouse in 2009, named Atlas Billing Company, to allow patients to fund their procedure—with cash, credit cards, traveler’s checks, cryptocurrency, gold coins or other forms of payment—in a single lump sum.

More than a decade ago, Smith was an anomaly for advertising his cash pay rates. But a new federal price transparency law, the No Surprises Act, is pushing hospitals to do precisely that: It requires health systems to provide patients a good-faith cost estimate ahead of their procedure. At the same time, consumers are changing their expectations, with some choosing to fund their procedures themselves.

For health systems that have long relied on payment from insurers, accepting money for services directly from patients requires modernizing their technology systems, educating staff and setting cash rates with an actuarial eye. It can still also mean negotiating with insurance companies. But some providers embracing the cash pay revolution say their bottom line benefits from faster reimbursement, lower administration costs and higher patient retention.

“The market is going there,” said Larry Van Horn, associate professor of management, law and health policy and executive director of health affairs at Vanderbilt University. Van Horn’s research into hospital price variation was critical in developing the No Surprises Act. “You’ve got direct primary care, you’ve got physicians going and moving into cash pay. You’re gonna have to sit there at some point and say, ‘Wait a minute, they’re taking my business.’ ”

The state of cash pay

More than 60% of hospitals nationwide published their cash price for at least one service as of early October, according to health system data compiled by Turquoise Health, a price transparency startup that measured price data on 6,631 hospitals. At some health systems, cash payments were common even before the No Surprises Act.

Pomerene Hospital in Millersburg, Ohio, for example, offers bundled cash prices for more than 300 services to serve the large populations of Amish and other Anabaptist people in its county. Anabaptist people do not carry commercial health insurance. The bundles include everything associated with the service, including the physician’s time, facility fees and pharmaceutical costs.

Health systems that receive a large volume of medical tourists, such as the University of Texas MD Anderson Cancer Center, also are used to dealing with self-pay patients. The Houston-based facility requires such patients to pay through credit card or check at one of its in-person facilities. Self-pay patients can also send a wire transfer before the services to the healthcare organization.

“If you think about it, in foreign countries, that’s actually how people pay for a lot of healthcare services,” said Aaron Miri, who previously served as chief information officer of the University of Texas at Austin. Miri currently works at Baptist Health South Florida and also serves as co-chair of the federal Health Information Technology Advisory Committee.

But generally, in the U.S., the move to cash pay has just begun.

Just 17% of clinicians operated under cash-only, concierge or direct-pay primary care models in 2020, according to the most recent data from Medscape, which surveyed more than 17,000 clinicians from a variety of specialties nationwide. Primary-care providers reported the highest acceptance of cash pay, with 10% of practices charging patients a flat, monthly fee for unlimited services, the report said.

Nearly all primary-care providers operating under the self-pay model reported feeling “better or much better” personal and professional satisfaction, compared with practicing under a fee-for-service system, according to a 2020 report by the Society of Actuaries. The report estimated there are at least 2,000 direct-pay primary care practices nationwide. Of the 200 cash-pay practices surveyed, 70% said they had started within the past four years, a finding the report’s authors said indicated the payment trend is in its early stages and growing in popularity. Thirty-four percent reported “better or much better” earnings under a direct-pay model, according to the report.

No organization tracks the demographics of patients who pay for their doctors’ services in cash. But hospital leaders said many of their direct-pay customers are uninsured people or middle-class Americans enrolled in high-deductible plans. Hospitals generally offer these self-paying patients a lower rate for services than commercial insurers because they save on administrative work and collection hassles.

The proportion of hospitals that set their cash price below their median commercial negotiated price ranged from 38.4% of health systems lowering the cash price for liver tests to 68.5% of hospitals willing to perform a C-section delivery for a lower cash price than the insured rate, according to a December 2021 study published in the Journal of the American Medical Association Network Open. Researchers analyzed 922 hospitals’ rates for what CMS calls “shoppable” services.

Most health systems that accept cash pay require the entire sum for a procedure upfront. That naturally excludes lower-income individuals who cannot pay, say, $17,000 for a hip replacement in a single lump sum, or ever. For these patients, health systems offer financial assistance, charity care and other types of relief.

Some insurers, with a lot to lose, are also using their leverage to slow adoption of cash pay.

At MercyHealth, some of the health system’s contracts with insurers prohibit it from offering insured patients a cash discount, said Kimberly Scaccia, vice president of revenue management at the six-hospital system in northern Illinois and southern Wisconsin. The health system worked with actuary firm Wakely to review claims data and determine competitive cash prices for its market. As contracts come up for renewal, she said she is working with insurers to remove the clause from their contracts in response to demand from cash-pay patients.

“Some of the smaller payers, they’re fine with removing it. Some of the very, very large payers, they simply will not allow it,” Scaccia said. She declined to name which insurers hold this stipulation.

It is conceivable that the Health Insurance Portability and Accountability Act of 1996 would make these contract clauses illegal, said Matthew Fiedler, senior fellow of economic studies at USC-Brookings Schaeffer Initiative for Health Policy. But he’s never heard of providers citing HIPAA to remove contractual restrictions around cash pay.

Clinicians may be concerned that insurers will ask to pay the lower cash rate the next time their contract negotiations come up, Fiedler said, or that the providers’ network position could be compromised.

“An insurer could say, ‘We’re gonna put this provider out-of-network, but we’re gonna put them in a preferred out-of-network position in our benefit design, where the cost-sharing is not that onerous, because we know they have this really good cash price,’ ” Fiedler said.

Growing demand

Deaconess Health System was thinking about insurers when it instituted its cash-pay program a few years ago. The health system started receiving more requests from insured patients during the COVID-19 pandemic about what services they could pay cash for, said Steve Russell, vice president and chief revenue cycle officer at Deaconess, which operates hospitals across Illinois, Indiana and Kentucky. None of Deaconess’ insurer contracts include clauses that bar the health system from offering insured patients cash discounts.

“The patient has decided to take a bet on themselves,” Russell said. “They have a high deductible, they don’t think they’re going to reach that threshold and their thought is, ‘If I don’t use my insurance, what kind of discount can you give me?’”

Deaconess launched an in-house bundled payment program in July 2020. In the first year, the system sold 130 bundled services related to cardiology, radiology, urgent care and other needs. In 2021, that number more than doubled to 351 care packages. As of August, Deaconess had already sold 489 cash bundles in 2022.

For services not covered through the program, Deaconess offers a 50% discount compared with its rate with insurers, he said. The health system arrived at the percentage by reviewing all its contracts with insurers and then discounting the amount that cash-paying patients save it on revenue cycle management and time, he said. Deaconess requires self-paying patients to pay the full cost of the procedure upfront.

Along with updating its payment rates, the health system changed how it accepts payment both for co-pays and the entire procedure amount. Previously, Deaconess only accepted credit card payments. Now patients can also use PayPal or Papaya to pay online at the Deaconess website, through Epic’s MyChart or at the point of sale, Russell said. As a result of the expanded choices, the health system increased its collection rate, Russell said.

“There’s a whole new generation coming up, and we want to make sure we meet the patient where they are, with whatever platform they’re on,” Russell said. “We’re always continuing to evaluate those things.”

Five years ago, CommonSpirit Health’s Catholic Health Initiatives started noticing a significant number of patients enrolled in high-deductible plans and deferring care out of concerns over affordability. After deciding to launch a bundled cash price program, CHI Health mulled building an internal system for listing, processing and marketing its services, but decided it would be easier to advertise and sell them on MDsave, an 11-year-old online marketplace where consumers can shop for healthcare procedures. Patients can compare the cash prices for healthcare services by location and type of care, purchase their procedure and then schedule their appointment on MDsave, which did not respond to interview requests.

The Midwest division of CHI Health, which serves patients in southwest Iowa, Minnesota, Nebraska and North Dakota, worked to get anesthesiologists, emergency department and other physician partners to agree to set package prices—helped by MDsave identifying the average cash price for specific procedures in its market. The division started listing cash prices for some services on MDsave in late 2018.

“We are able to offer a lower price because we’re not having to deal with all of that administrative burden, the cost of billing, collecting, claims denial, all those things,” said Jeanette Wojtalewicz, senior vice president and chief financial officer at CHI Health’s Midwest division.

Normally, the health system generates about $100,000 in monthly revenue through MDsave. But in August, the health system sold 500 procedures through the site, bringing in $200,000, Wojtalewicz said.

“As we’ve seen inflation increase so dramatically in healthcare, it’s a bit of a conundrum for people who are like, ‘I can’t afford this,’ ” she said.

“With the No Surprises Act and the price transparency regulations, this has to be something that we offer,” Wojtalewicz said. “You’ll see more of this coming.”

MDsave also works with patients who would like the amount they paid through the platform applied to their deductible, Wojtalewicz said. MDsave keeps a percentage of each procedure sold, though she did not offer specifics.

Baptist Health South Florida, where Miri is senior vice president and chief digital and information officer, in July started allowing patients to use Apple Pay and Google Pay to pay for healthcare procedures for their co-pay or procedure. The health system previously collected most of its payments over the phone or in-person, he said. Patients could pay through personal check, credit card or cash.

The move to additional payment options presented a workflow challenge, rather than a technical hurdle, Miri said.

“What’s hard is getting a zebra to change its stripes,” Miri said. “If you’re a health system who has been around for 65-plus years, like Baptist, you’ve always collected payment a certain way, right? And if I’m going to change that on you and go very modern and digital, a lot of people were like ‘Whoa, man, what are you talking about?’ That’s the heavy lift.”

Listening and directly addressing employee concerns about implementing new payment processing systems helped soothe staff skepticism, Miri said. Baptist Health conducted several meetings in which groups of front desk, revenue cycle management, clinical and other employees talked about what the workflow should look like for serving self-pay patients. The health system also developed staff initiatives to address patient questions about using Apple Pay and other types of payment. Baptist Health staff were trained to help patients recover their Apple Pay passwords, for example, he said.

In the first 45 days after launch, Baptist Health encountered a few issues with accounting staff transferring payment to the incorrect general ledger account, Miri said. He plans to monitor the books daily for the first quarter to ensure minor errors are caught early and resolved. The patient experience has not been affected, he said.

While just 5% of Baptist Health customers pay directly for healthcare services, it was important to implement Google Pay, Apple Pay and other cash capabilities because that is where the industry is headed, Miri said.

“When you look at the directionality of demand, this is only going to go up,” Miri said. “Patients are going to start seeing their total estimated bill and say, ‘I want to spend my $500 at a health system that was really transparent with me, and made me feel comfortable, versus the health system down the road that I’ve always gone to, but that simply can’t tell me what my actual amount due is.”

In response to requests from providers, Smith, of Surgery Center of Oklahoma, has begun licensing his claims clearinghouse to help hospitals accept cash-paying patients and determine the appropriate rate to charge. For hospitals looking to develop cash rates, Smith recommended health systems start by pricing their services as a percent of Medicare.

But when thinking about his own rates, Smith eschews the government program. Instead, he asks clinicians how much they expected to be compensated for each procedure, factors in expenses like surgical equipment, medical implants and office space, and then tacks on a 10% to 15% profit margin. If the surgery ends up costing the center more than the patient has agreed to pay, the center eats the cost, he said. If the procedure was quoted too high, oftentimes Smith said he will refund the patient.

“It’s kind of on a bell curve,” Smith said. “I make mistakes on both ends, and it evens out. I’ve got a marginal profit that is built in, and that protects me.”