Considering patient credit checks? Key terms to know.

Patient Credit Checks

(3 min read) As high deductible health plans become the financial norm of modern healthcare delivery, a sharp rise in self-pay patients means that many providers are increasingly using patient credit checks to determine propensity to pay and reduce bad debt. As we stated in a March 2016 Healthcare Finance article, “The new self-pay accounts receivable is rising at an uncontrollable rate, creating an accounts receivable headache.”

Patient credit checks on the front and back end of the revenue cycle are being used nationwide to determine propensity-to-pay and to prioritize self-pay accounts receivable. They are an important tool for healthcare providers and with good reason – determining a patient’s ability to pay is a critical element of allocating revenue cycle resources.

This article reviews some of the common terms, definitions and guidelines associated with checking a patient’s credit information.

What is a ‘Hard’ vs. a ‘Soft’ Credit Inquiry?

Credit inquiries can be classified as either ‘hard’ or ‘soft.’ A hard inquiry is generally when a financial institution checks a credit report as part of their due diligence when making a decision to lend. The most common places you would see a ‘hard’ credit inquiry is if you apply for a car loan, house mortgage, or a credit card. These hard inquiries are also sometimes associated with 3^rd party collection agencies both inside and outside of healthcare.  Hard credit inquiries have the potential to lower a credit score by a few points and could stay on your report for a couple of years.

Soft credit inquiries typically occur when an institution or individual checks a credit report as part of a background check, such as a pre-approved loan. While these inquiries are able to be made without permission by organizations who have permissible purpose to perform the search and can show up on a credit report, they don’t negatively affect your credit score. Soft checks have become commonplace in healthcare to assist in determining a patient’s propensity-to-pay a bill and as a tool for healthcare provider’s to assess and mitigate risk. Soft credit inquiries are also sometimes used for assisting healthcare providers in qualifying patients for financial assistance. The first step with soft credit checks requires awareness of permissible purpose and the laws that surround it.

What is Permissable Purpose?

Permissible purpose is the right for any organization to search credit information. It is defined in Section 604 of the Fair Credit Reporting Act (FCRA). [15 U.S.C. § 1681b]. Under permissible purpose, healthcare organizations can check patients’ credit scores. A best practice in healthcare is to partner with a certified propensity to pay vendor to do the heavy lifting of secure patient credit checks.

For example, AR Boost (formerly Payor Logic) assists our clients in understanding and gaining permissible purpose to access and search federally-regulated databases of consumer credit information.  With this access, Payor Logic clients are able to determine accurate credit-related information, while maintaining compliance with the laws surrounding HIPAA, FCRA and GLBA.

Consumer protections regarding both hard and soft credit checkes were given a serious boost when the Dodd-Frank Wall Street Reform and Consumer Protection Act materialized after the 2008 financial crisis. This legislation created the Consumer Financial Protection Bureau, which enforces consumer protection laws and regulates how companies use credit reporting and collection services—including healthcare providers.

Getting Started

Understanding all of the regulations surrounding credit information can sometimes feel a bit nebulous, but knowing the core terms and definitions is your first step. Contacting a proven service provider for further guidance is the next practical move.

Want to learn more? Contact us or read more about how AR Boost's technology and services supports your emergency medicine practice billing efforts here.