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And how does ability to pay affect patient payment success?

The billing and collections industry often uses the concept of propensity to pay to express the likelihood that a group of customers will pay their bills. Propensity-to-pay calculations continue to get more precise, with artificial intelligence-based algorithms to interpret historical data and forecast future collections rates. But especially in healthcare, ability to pay is also crucially important, yet historically overlooked.

What is “propensity to pay” in healthcare?

In healthcare, revenue-cycle management (RCM) leaders use “propensity to pay” to forecast the system-level financial risk involved in receiving patient payments. But while this model may predict whether patients will pay, it doesn’t truly explain why patients pay (or don’t pay) their medical bills. 

For that, we need to understand the patient’s ability to pay. This is a different set of calculations with a different goal: offering payments customized to a patient’s unique financial situation. This definition has evolved in recent years, with the rise of affordability financing platforms that engage patients in creating realistic payment plans.

As we consider the growing pressures patients face to fit medical care into their monthly budgets, now’s the right time to understand what “ability to pay” really means.

How do we determine ability to pay?

Traditionally, ability to pay has been determined by a combination of several standard data points and how they relate to one another. We might take how much someone makes every month, through self-reported income, and compare it to monthly debts, as reported on their credit scores.

Someone may, on paper, have $100 a month to put toward a $1,000 debt. It would seem reasonable to give them a year to pay and assume they have a strong chance of meeting that expectation.

While that’s a good starting point, it’s not enough to accurately determine someone’s ability to pay. For starters, credit reports pinpoint a moment in time that may not fully reflect upcoming financial obligations, such as plans to buy a home or attend college. A debt-to-income ratio presents an ability to pay only in the best-case scenario. 

Traditional risk assessment also fails to account for new or limited credit histories. For example, consumers might prefer cash or debit cards but still pay on time if they need to take on debt. While such people have the ability to pay and likely reflect an attractive risk, traditional models may not score them effectively.

Why payment forecasting requires more

Another shortcoming in the existing ability-to-pay model is the lack of understanding around willingness to pay. This is where health systems can pull the lever of individual behavioral economics to influence a patient’s likelihood of payment.

Again, the model may show someone can pay $100 a month. While that may be true, it doesn’t reflect a patient’s personal financial priorities, such as setting aside $50 a month for a child’s college fund.    

Meanwhile, patients in a group deemed to have low propensity to pay might in fact have a strong willingness to pay. In fact, our interactions with patients show that most consumers are willing to pay their medical bills. 

If offered a customized payment plan, these high-willingness patients would pay something rather than nothing. When health systems write these patients off from the beginning, they fail to capture this revenue.

Most one-size-fits-all payment arrangements don’t consider these unique situations, or even try to engage patients in this step at all. This is where PayZen is different. Our patient engagement tools offer patients the choice of several payment plans, with the ability to pay and size of the bill used only as starting points. 

When given choices for monthly payment amounts and length of term, patients usually land on numbers that not only work for their on-paper budget but also reflect their willingness to pay.

By providing this extra input, patients are more likely to pay on time through the duration of their term. When patients understand how payments work and what’s required of them, they’re more likely to adhere to the plan. 

As patients become active partners in their financial and personal health, they develop a sense of ownership, rather than feeling like the collection process is simply happening to them. 

Ability to pay isn’t a one-and-done

Ideally, patient engagement doesn’t stop at setting payment terms—it should be a constant throughout the repayment process. PayZen regularly engages patients through notifications and account messages, which can be particularly helpful when they miss payments.

Mistakes happen—people go out of town and forget to send a payment, or link a payment to the wrong account. Traditionally, missed payments may have triggered an automatic transfer to a collections agency. Although easier in the short term for the provider, these inflexible responses can alienate patients who may still be willing and able to pay.

Rather than harming relationships and losing revenue opportunities, we can determine what went wrong and confirm plans to continue payment. PayZen can assess these situations and get patients back on track, without harming their credit or their opinions of the provider.

And if a payment does get missed for financial reasons, it offers another chance to show how PayZen approaches “ability to pay” differently. 

Perhaps the patient can still pay, but can now afford a little less each month. PayZen can offer a flexible response, by changing monthly amounts or term length, either temporarily or for the duration of the payment plan. The provider’s cash flow is unaffected, and the patient stays engaged. It’s a good outcome for all involved.

This built-in flexibility means that frequent changes in a patient’s financial situation aren’t something providers have to mitigate on their own. With PayZen’s proprietary AI and patient engagement tools, risk is more accurately determined from the start. Since PayZen manages patient payments, providers receive cash upfront, without straining IT resources or revenue cycle teams to keep payments coming in.

Any changes in ability to pay are met with flexible solutions that capitalize on the patient’s willingness to pay without burdening the provider. It’s a win-win for patients and providers—encouraging responsible financial behavior, while acknowledging that “life happens” to even the most prepared patients.

Leveraging propensity and ability to pay

In today’s turbulent financial environment for healthcare systems, RCM leaders must leverage both propensity and ability to pay to ensure strong financial performance. 

While propensity to pay is typically a fixed set of financial assumptions, ability to pay allows healthcare systems to do something about the data. By offering customized payment plans rooted in each patient’s ability to pay, health systems can help patients avoid medical debt and maximize collection rates at the same time. 

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