When the hospital phoned Sonya Seidl about her bill for labor and delivery this month, she thought it was the collections department calling. Only she hadn't had her baby yet.

Instead, Fairview Southdale was previewing the bill she would receive for a C-section delivery and encouraging her to start early with payments.

"Is this the state of the economy we're in -- that they'll shake you down even before you have your baby?" she remembers thinking.

Seidl and others will have to get used to it. Alarmed by a rising tide of bad debt and a crushing squeeze on their finances, Twin Cities hospitals are resorting to finance tactics that few people associate with health care. Some are calling patients weeks before a procedure to talk money. One local company is even poised to offer loans for surgery, much the way auto dealers line up financing for a new car.

Playing banker is not a role the not-for-profit hospitals relish. Yet they have little choice. Medicare and Medicaid, which pay roughly half of Twin Cities hospital bills, are tightening reimbursement rates. Patients are postponing elective procedures because they can't afford their deductibles. The number of uninsured Minnesotans is rising, pushing the bounds of hospital charity care.

Add in recent investment losses, and metro hospitals collectively lost $62 million in the third quarter of 2008, compared with a net profit of $49 million a year earlier, and have laid off hundreds of employees.

"It's starting to put us in a position we almost don't want to be in -- the collections business," said Dr. Penny Wheeler, chief clinical officer at Allina, the metro area's biggest chain of hospitals and clinics.

Insurance has changed

Hospitals say the early calls save patients from being blindsided by unexpected bills and help them budget. They stress that there is no obligation to pre-pay, nor do they withhold care to those who can't afford it.

It used to be easier for hospitals to identify who might not pay. If patients were uninsured, they were screened for Medical Assistance, MinnesotaCare or the hospital's charity care program. If they had insurance, payment was pretty much guaranteed.

But the rapid growth of high-deductible health plans, where the patient can be responsible for the first several thousand dollars of a bill, has changed all that. More than one in 10 Minnesota health plan enrollees, or 456,000 people, had high-deductible policies linked to health savings accounts as of the end of 2007.

Even traditional policies now have an average deductible of $1,000, according to benefits consultant Mercer.

Often, a hospital has no idea whether patients are liable for such bills until weeks after they've checked out. Worse, when the hospital bill shows up in the mailbox, many people place it low on the list of priorities after groceries, housing, credit cards and medication.

Last year, insured and uninsured patients left $601 million in unpaid bills at Minnesota hospitals, according to the hospital association, up from $510 million a year earlier. (Those numbers are calculated from full-price charges; the average discount is 50 percent.)

At Allina, about 30 percent of accounts receivable is now more than 90 days old and "the dollars keep getting older and older," said chief clinical officer Wheeler. They range from a small co-pay to a $100,000 hospital bill.

Bad debt means more paperwork, which only drives hospital costs higher. In the past, a hospital would send a bill to an insurer and get paid, often within 30 days. Now the insurer sends a letter back to the hospital, listing the patient's share. The hospital bills the patient, and keeps sending statements, with diminishing balances, until the amount is paid off.

"This is the reverse of the Paperwork Reduction Act in hospitals," said Gregg Redfield, vice president of finance at the Minnesota Hospital Association.

As little as six months ago, Allina was sending out about 225,000 patient statements a month. That's grown to an average of 260,000 a month, even as patient volumes stagnated in a weak economy.

New tactics

As a result, hospitals are reaching out sooner, hoping they'll collect more if they collect early, but moving cautiously.

Fairview Southdale and Fairview Ridges are starting with labor and delivery, but hope to expand the calls to patients scheduled for other non-emergency services. Park Nicollet Health Services, which owns Methodist Hospital, will do the same starting in May. Allina Hospitals and Clinics already has 60 employees calling patients before scheduled surgeries and outpatient procedures such as MRIs. The team's motto: "No Surprises."

Hospitals are careful not to appear overzealous.

"We are very cognizant of our community," said Kathy Parsons, who oversees billing at St. Cloud Hospital. "We are not the big, bad hospital."

Her hospital has more than 1,000 people on interest-free payment plans, up 10 to 15 percent from a year ago. They haven't started calling patients ahead of time, but Parsons thinks it's something all hospitals will have to consider.

At HealthEast Care System, which started doing just that in January, "we have very formal scripting," said Marlene Johnson, system director for health information services. "It's not a threatening conversation. It's more like: 'Can we help you?'"

HealthEast offers a discount of 15 to 25 percent to patients if they pay within 30 days. Health- East owns Woodwinds, St. Joseph and St. John's hospitals.

The circumstances have placed hospitals in an awkward bind. Do too little and they don't get paid. Get too innovative and they risk running afoul of regulators.

In January, Minnesota Attorney General Lori Swanson sued Allina, accusing it of charging unlawfully high interest rates. MedCredit Financial Services, a for-profit unit of Allina with about 8,000 open accounts, had charged as much as 18 percent on some debt. MedCredit is offered to patients as one option alongside other payment plans.

While maintaining it acted legally, Allina has since dropped the interest rate on all MedCredit debt to 8 percent. Despite the bad publicity, more patients have since opened MedCredit accounts.

Seidl, the Fairview patient, said her annoyance dissipated after friends pointed out the hospital is simply doing what's standard in other industries. It's not uncommon, for example, for lawyers to ask for a retainer. Seidl herself is a lawyer for a big Minneapolis firm.

Now she wishes the call was more informative. While Fairview estimated Seidl's share of the hospital bill ($1,150), they couldn't offer estimates for the obstetrician, anesthesiologist or pediatrician. "If you're going to provide this service," she said, "do it well."

HealthEast also has run into a hitch or two. One patient pre-paid the hospital $3,000. But then the surgeon submitted a bill before the hospital did, fulfilling the patient's insurance deductible. HealthEast ended up giving the money back to the peeved patient and collecting from the insurance company.

Now HealthEast collects only co-pays ahead of time.

Leave it to experts?

Some say hospitals should leave financing to the experts -- the banks.

"Hospitals should not be doing this stuff," said Steve Parente, a health finance professor at the Carlson School at the University of Minnesota. "It's not their core business."

They may soon have an alternative. Later this year, a Maple Grove firm plans to start offering loans to finance health plan deductibles. Search- America, which was recently bought by global financial giant Experian PLC, had hoped to start doing so earlier but was stymied by the frozen credit market.

Meanwhile, health finance experts say, the sooner patients know what they're expected to pay, the better.

"Food is important, but you don't go into a grocery store and get stuff for free," said David Glaser, a health care attorney with Fredrikson & Byron, a Minneapolis law firm that is hosting a medical billing seminar on the Web soon.

"People might get their feathers ruffled by this, but it's a direct reflection of reality."

Chen May Yee • 612-673-7434


Part of an occasional series