Out of Pocket Healthcare Payments, Part III: Unique Opportunities to Prepayment Models

Introduction: Prepayment Models Addresses The Surge in Out Of Pocket Payments

*Click here for Part I or Part II of this series on Out of Pocket Payments*

In part II of this series on out of pocket payments, we explored the ways in which the market has responded to the ever growing out of pocket payment revenue, and why a prepayment system is best positioned to capture this opportunity.

But venture investing isn’t just about exploiting existing market opportunities; it is also about capturing the path to future use cases for sustained growth. So what unique value propositions extend from prepayment systems?

Novel Opportunities with Prepayment Systems

Helping hospitals comply with the No Surprises Act:

The No Surprises act requires the convening provider (the party responsible for scheduling the primary service) to gather all provider out of pocket costs for the procedure and present to a patient within 24hrs of the request prior to care. More importantly, estimates must be accurate within $400, or they risk a $10K fine per mistake. A study this year showed that only 19% of hospitals are compliant despite having gone into effect in 2022. Providers have trouble complying because even they have difficulty getting accurate estimates, especially when services can include multiple specialties in different sites. By integrating a robust prepayment system with actionable pricing, hospitals will naturally comply with the No Surprises Act by allowing patients to pay before the procedure, and not have to worry about bill disputes.

Fostering Competitive Pricing and Preventing Patient Churn

Medical technology improvements have pushed more and more procedures into the outpatient setting, fostering an increase in outpatient facilities that are pulling volume away from larger hospitals. Prepayment models allow healthcare providers to showcase their commitment to affordability through prepay discounts and price transparency, attributes that can attract price-sensitive patients. When patients feel informed and in control of their healthcare expenses, they are more likely to remain loyal to their providers. This loyalty is crucial for healthcare providers looking to maintain a stable patient base in a competitive market.

Improve patient outcomes by reducing care avoidance:

As we noted in our previous article, 38% of patients skip care due to high costs and uncertainty about their potential bills, with that figure rising to 6 out of 10 patients for uninsured patients. This avoidance can lead to worsened health outcomes and higher long-term costs for both patients and the healthcare system. Prepayment models, by offering upfront pricing, reduce the financial uncertainty that often leads to care avoidance. Knowing the costs in advance can encourage patients to seek the care they need when they need it, leading to better health outcomes. Furthermore, prepayment models can increase patient engagement by involving patients more directly in their healthcare financial decisions. Engaged patients are more likely to follow through with treatments and preventive measures, contributing to overall better health and reduced healthcare costs.

Correct the misaligned financial incentives through price transparency.

A quick scan of the internet yields no shortage of seemingly outrageous bills shared by shocked patients:

Given what we’ve explored about healthcare billing over the last three articles, it should be obvious why out of pocket expenses are so outrageous. Especially when:

1. Insurance reimbursement is unrelated to the underlying cost,

2. Payors can reject billing claims (”payments and adjustments”)

3. Any remaining out of pocket payments are collected after the procedure

Healthcare providers are often compelled to set arbitrarily high prices, anticipating that insurance companies will cover only a portion of the costs, with the patient bearing the remainder. This approach not only clouds the true cost of care but also creates a financial disconnect between the service provided and the payment received.

Adopting prepayment models introduces a transformative shift in this financial paradigm. By enabling payment upfront, based on clear and accurate pricing, the model realigns the financial incentives for all parties involved: Providers administer treatments with an understanding of the costs, patients pay what they can afford upfront, and insurance companies cover the remainder based on the actual costs of services rendered.

Realigning financial incentives benefits all stakeholders:

• For healthcare providers: it means cleaner, more predictable finances and a reduction in the administrative burden associated with billing and collections.

• For patients: it means a clearer understanding of healthcare costs and a reduction in the anxiety associated with unexpected medical bills.

• For insurers and providers: future reimbursement negotiations can start with an accurate picture of the cost of care.

Overall, this approach promotes a more sustainable healthcare system, where costs are transparent, predictable, and reflective of the actual value of services provided.

Conclusion: The Promising Horizon of Prepayment Models

The potential of prepayment models in reshaping the healthcare financial landscape is immense. By addressing the core challenges of today's billing practices and laying the groundwork for a more transparent, patient-centric approach, prepayment models not only offer a solution to current problems but also open the door to new opportunities for innovation and growth. While there is many other aspects of the finance of healthcare needing a total rebuild, we at The Healthcare Syndicate believe prepayment models are leading the charge towards a more transparent, efficient, and patient-friendly system.

Thanks for reading our 3 part series on the growing challenge and opportunity in out of pocket payments, and how prepayment systems will change the way we view healthcare finance!

If you believe in tackling this growing out of pocket payments as much as we do, please join our AngelList Syndicate to invest in the companies that are leveraging prepayment models to lead the next big leap in healthcare finance.