Bad debt is a chronic issue for hospitals and health systems. Many facilities expect to recover less than one-fifth of what patients owe.
This trend has grown with the adoption of high-deductible health plans, which leaves a greater portion of the financial burden on patients rather than payors. When patients can’t repay hospital bills due to high deductibles or lack of insurance, it leads to unrecoverable funds – or bad debt.
1. The definition of bad debt changed in 2018
Prior to Dec. 15, 2018, hospitals could report bad debt as the difference between what was billed to patients and the amount patients actually paid, regardless of whether the hospital ever anticipated receiving the full amount. Under the new standard, hospitals are only able to report bad debt when extenuating circumstances – such as unemployment or bankruptcy – prevent patients from paying an issued medical bill.
This new standard could impact how hospitals report community benefits spending to the IRS. Many hospitals include bad debt as part of charity care spending and payment shortfalls from Medicare and Medicaid. The changes could also shift how non-profit hospitals justify their tax-exempt status, as bad debt is an indicator of not-for-profit status.
Currently, there are nearly 3,400 active nonprofit hospitals in the U.S. – about 47 percent of all active hospitals.
2. Increase in uninsured patients leads to more bad debt
In a 2017 poll from Amino, 37 percent of Americans said they would go into debt if faced with a medical bill of $100 or more. This number goes up for women: 44 percent said they couldn’t afford a bill of over $100 compared with 27 percent of men. Less than a quarter of Americans said they could cover an unexpected medical bill of $2,000 or more.
A 2018 study from TransUnion showed that patient balances after insurance (PBAI) grew by more than 52 percent between 2012 and 2017. This is an increase from 8 percent of the total bill to more than 12 percent. In the same period Medicare bad debt increased by about 18 percent, for a total of nearly $3.7 billion. (Medicare bad debt occurs when recipients don’t pay deductibles and co-insurance.)
One-third of Americans can’t afford an unexpected medical bill of over $100, but PBAI keeps growing. Many hospitals are struggling to find a solution to recuperate costs.
3. One-third of hospitals report over $10M in bad debt
Sage Growth Partners released the results of a survey of 100 hospital executives in June 2018. About 36 percent of responding executives said their health systems faced more than $10 million in bad debt, with 6 percent reporting bad debt of over $50 million. Only half of these executives indicated their hospitals could recover more than 10 percent of what they’re owed, with 9 percent estimating they could recover more than 20 percent.
Of the respondents, 59 percent cited insurance reform as the primary cause of bad debt growth. This includes the associated increase in copays and deductions. Only 17 percent of the hospital executives surveyed ascribed blame to patient delinquency.
Top 5 hospitals reporting the greatest bad debt:
- Orlando Regional Medical Center: $253,196,054
- Memorial Hermann Southwest Hospital: $197,766,466
- Prisma Health Richland Hospital: $183,453,703
- WakeMed Raleigh Campus: $179,272,214
- Christus Good Shepherd Medical Center - Marshall: $165,085,900
Fig 1 Data from Definitive Healthcare’s Hospitals & IDNs database. Bad debt data is from the January 2020 Medicare Cost Report from calendar year 2019.
4. Over 20 percent of hospitals do not have a bad debt recovery process
According to the Sage survey, 36 percent of hospital executives report using a third-party service to recover bad debt. About 25 percent report using an in-house approach, with 18 percent using a combination of the two.
Additionally, 11 percent of the executives surveyed cited ineffective revenue cycle management (RCM) processes as a leading contributor to bad debt. Approximately 85 percent of active U.S. hospitals use an RCM software. The most common RCM vendors include Epic, Cerner, Evident, Meditech, and Medhost.
5. Less than half of Americans budget for healthcare expenses
Despite rising healthcare costs and deductibles, only 46 percent of Americans budget $50 or more per month for healthcare-related expenses according to Amino. Instead, Americans are saving that money for food (79 percent), transportation (59 percent), and debt repayment (49 percent). Of the 54 percent of Americans who do budget for healthcare, one-third put the funds toward doctor visits, 28 percent for prescriptions, and 28 for insurance premiums.
Reducing emergency room bad debt
Reducing bad debt in emergency departments starts with educating patients. Often, patients are unsure of what constitutes an emergency room visit rather than an urgent care visit. Many healthcare providers are using telehealth to reduce emergency department wait times and reduce resources spent on non-emergency cases. Minimizing the number of patients who seek costly emergency care can lower the number of uncompensated care visits.
Additionally, providers in emergency rooms can normalize having conversations with patients about care costs and payments. This can include discussing insurance coverage for different treatments as well as a check-out experience that encompasses payment options.
In many cases, patients accrue unforeseen medical debt when payors charge for out-of-network providers. For some, this occurs while a patient is unable to choose the provider or treatment they prefer.
One example is when a patient has a heart attack in a public setting, and a bystander calls an ambulance. The patient, who may not have been able to consent, would be on the hook for the cost of the ambulance ride and the care provided en route to the hospital.
This proactive approach to care delivery is vital to provide fast, life-saving care. It may also mean that patients find themselves saddled with thousands of dollars in medical debt for treatment that they didn't opt to receive.
To learn more about how hospital bad debt and other quality metrics impact selling to care facilities, watch our on-demand webinar: Selling to Doctors in the Fast-Growing Outpatient Market.
In this webinar, you will learn:
- To identify sales opportunities in the ambulatory care market
- How traditionally inpatient acute care specialties are shifting
- The ways payment reforms, technology, and patient sentiment are driving care into the outpatient setting
- To target key physician influencers across networks
Originally published March 2019