Nonprofit hospitals' bad debt is rising again, Moody's says

U.S. nonprofit hospitals' bad debt initially declined after Medicaid expansion but is once again on the rise, according to a report from Moody’s Investors Service.

The report shows nonprofit hospitals' median bad debt as a percentage of net patient revenue was 5.6 percent in 2014 then dipped to 4.7 percent in 2015 and 4.3 percent in 2016. It then was flat in 2017 before rising to 4.6 percent in 2018.

Moody's said the rise is due to changes in insurance benefit design that place greater financial responsibility on patients, increasing healthcare costs and confusing medical bills. These factors will continue to contribute to bad debt growth, often faster than net patient revenue, which is a credit negative for nonprofit hospitals, the credit rating agency said.

"Legislative proposals to simplify billing have the potential to reduce bad debt, but the proposed changes will be negative for hospitals because they introduce additional complexity to the billing processes and complicate relationships with contracted physician groups," said Moody's analyst Safat Hannan. The Financial Accounting Oversight Board's update of the revenue recognition accounting standard "will [also] reduce transparency around reporting bad debt."


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