It is true that hospitals across the nation are seeing a reduction in charity care provided for the uninsured. However, that financial improvement is offset by an increase in bad debt—or the cost of services for which the hospital expected, but did not receive payment.
This is posing major challenges. Cost pressures on exchange buyers and employers providing coverage have proven to be expensive for patients, healthcare providers and hospitals, accelerating growth of high co-pays and high deductibles. As a result, it is difficult for patients to pay for services and for hospitals to collect unpaid bills.
A 2016 report from Crowe Revenue Cycle Analytics demonstrates that the responsibility of healthcare costs have continued to shift from insurers to patients during the third quarter of 2016, resulting in struggles with collection rates for healthcare providers. The shift is the result of more people participating in high-deductible health plans. It is also due to the fact that many are moving from being uninsured to being insured following the enactment of the ACA. During the past year, insured patient responsibility has grown from 23.2 to 26.9 percent of their hospital bill for outpatients and 10.2 percent to 12.1 percent of their hospital bill for inpatients.
Ohio Report Highlights Unintended Consequences
The first statewide summary of hospital community benefit reports post-Medicaid expansion shows that Ohio hospitals’ bad debt increased $190 million in 2014 from 2013 for a total of $1.23 billion. This increase is largely due to the additional number of consumers with high deductible health plans.
Nearly 650,000 Ohioans secured health coverage through expanded Medicaid in 2014. Another 250,000 Ohioans got coverage through the marketplace exchanges, which reduced hospital charity care in the state to $809 million. This is down from $1.03 billion in 2013.
Census data show that by 2015 the uninsured rate in Ohio dropped to 6.5 percent, down from 12.3 percent in 2010. This sharp reduction is not reflected in the growth of Ohio hospitals’ total uncompensated care (which includes bad debt) to $5.50 billion in 2014 from $4.90 billion in 2013.
Compounding the issue is the fact that the role of today’s hospital has expanded drastically outside its four walls. In addition to providing quality patient care, hospitals are healing many aspects of their communities. This includes working to solve major social issues and serving as strong economic leaders that provide jobs and contribute billions to the vitality of the state. The combination of care for the uninsured, underinsured, self-pay patients and high-deductible beneficiaries has put financial stress and increased bad debt on hospitals across the nation.
Bad Debt Matters
Bad debt reduces funds available for critical investments in staff, technology and facilities. Managing bad debt is time-consuming and financially taxing on already strapped hospitals.
Many hospitals have limited access to external capital, including tax-exempt bonds. Tax-exempt bonds are a critical source of funding for hospitals. Bonds are dependent on the credit rating of the hospital as an indicator of its financial health. Reduced access to capital also creates a circular problem, i.e., limited capital restricts hospitals’ capacity to invest in improving operational efficiencies, which leads to further weakening of hospitals’ financial condition.
The American Hospital Association recently unveiled a report outlining these financial challenges in vulnerable communities. As the hospital field engages in its most significant transformation to date, 1 out of 3 hospitals is fighting to survive – potentially putting communities at risk for losing their access to local health care services.
The health economics and finance team at the Ohio Hospital Association developed the following steps for hospitals and health systems to manage bad debt:
1. Understand the problem with your tracking system. Lives are saved every day because of the commitment of community hospitals to provide care for all who walk through their doors, regardless of their ability to pay. One of the ways that hospitals can manage their bad debt is by correctly categorizing and accounting for costs that are actually bad debt and not charity care. This needs to be done throughout the year rather than waiting for year-end community benefit reporting.
2. Provide reasonable financing options to patients. Hospitals can partner with financial institutions to improve revenue collection through more innovative payment options. Together, hospitals and financial institutions can provide resources such as non-recourse loans and medical credit cards, which make it possible for patients in need to set up payment plans that hospitals do not have to manage in-house. As an incentive for personal payers, some hospitals are sharing the risk of patient accounts.
3. Keep patients satisfied throughout all aspects of their healthcare experience. Patient satisfaction continues to be a key factor in maximizing collections. The happier patients are with the quality of care they receive, the more likely they are to complete all payments to the best of their ability. One way to build good rapport with patients is to help set cost expectations before procedures by encouraging patients to consult early and often with their insurer.
4. Deploy or contract with financial navigators to help patients understand the payment landscape. Healthcare finance is complex for patients and providers. It is easy to get lost in a maze of health insurance policies and assistance programs which require different information for successful enrollment. Financial navigators, which have been successfully used in recent years at cancer-focused hospitals, are now being more widely-deployed at hospitals and health systems to help patients maneuver the cost of services and to understand payment options.
To mitigate the bad debt challenge, hospitals and health systems must identify the scope of their bad debt challenges, support patients’ understanding of their financial responsibility, and explore innovative payment options to reduce bad debt.
Mike Abrams is the president and CEO of the Ohio Hospital Association, which represents Ohio’s 220 hospitals and 13 health systems. He leads a team of 60 associates, supports a 20-member Board of Trustees, serves on a variety of health care and hospital task forces and committees, and works with more than 2,000 members of seven OHA professional societies. Learn more at www.ohiohospitals.org.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker’s Hospital Review/Becker’s Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
