The medical FICO score: a tool for hospital risk management or patient discrimination?

Suze Orman, heads-up; there's a new FICO score in town.

Fair Isaac knows a lot about credit risk and data analytics, and they're behind the development of the medFICO score that will help hospitals manage the financial risks they take on when they admit patients to hospitals.

The medFICO will represent a patient's "medical credit" score. While consumer advocates are concerned that hospitals will use this data point pre-admission -- thus giving the institution information about patients' ability-to-pay their co-payments and coinsurance amounts -- the project's sponsors say the score will only be gleaned once the patient is discharged from the hospital. At that point, according to the project's PR, the hospital financial department will determine, "what sort of (financial) relief a hospital should grant the patient." That is, which patients to allocate to the "bad debt" file, and which to bill, finance over time, etc.

I've written in this blog about the growing burden of consumers bearing more financial responsibility in health care. This has led to a consumer trend in using credit cards to their limit, a trajectory of personal bankruptcies, and increasing credit problems for more Americans.

The medFICO score will be calculated based on an individual's medical bill payment history. A database accounting for $100 billion of hospital patient billings will be mined for the effort by Healthcare Analytics.

The medFICO effort has four partners involved: in addition to Fair Isaac and Healthcare Analytics, the IT firm developing the score, are Tenet, the hospital company, and the VC North Bridge Venture Partners. Each of the partners has invested $10 million in medFICO.

To put the provider's problem in context, Tenet calculates that their 63 hospitals had $433 million in bad debt through 3Q07. 75% of the bad debt was from uninsured patients and 25% from patients with deductibles they couldn't or wouldn't pay.

Health Populi's Hot Points: Welcome to another challenging aspect of consumer-driven health care. The more financial responsibility a patient has, the more of a health retail model we're in. Hospitals have managed the complexities of government and commercial insurance payments for the past 20 years through sophisticated billing systems and large cadres of financial staff. However, getting payments from consumers (i.e., patients) is more complicated -- and more risky. The rationale for the medFICO score among hospital CFOs is that it will help their institutions manage credit risks.

Hospitals have been turning delinquent accounts over to credit agencies more quickly in the past couple of years as they try to get patient payments sooner rather than later. This practice can compromise patient privacy; by law, when delinquent patient accounts are handed over to collection agencies, only the billing amount and institution name can be included on the account information. But the name of a hospital can give away a patient's diagnosis: think Betty Ford Clinic (chemical dependence), Sloan-Kettering (cancer), or Wills Eye Institute (ophthalmology) as examples of provider names that could compromise patient privacy.

Furthermore, credit report data can be incorrect. The Consumer Federation of America analyzed over 500,000 credit scores, and found that 29% of them were 50 points lower than they should have been.

Hospitals are financially squeezed these days, and 2008 looks like it's going to be tough as well given planned Medicare inpatient reimbursement rates. While the medFICO score has some thorny issues to resolve -- getting the data right, ensuring personal data stays safe, and the potential for individual institutions to discriminate between higher and lower medFICO patients -- it is a rational approach for hospital CFOs to adopt under a consumer-driven health system. These complexities would be averted in a single-payer system. Consumer medical credit is a critical challenge facing both patients and providers in a consumer-driven health system. This is one of many trade-offs all stakeholders need to understand when evaluating future health care financing models.