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Acute care hospitals across the country provide uncompensated care to patients who are uninsured, impoverished, or who otherwise cannot pay for their medical care. Uncompensated care, such as charity care and bad debt, is the total monetary value of healthcare-related services hospitals provide to these patients.
This is a vital metric for hospitals to track because resources must be allocated to pay for the costs not covered by patients. Hospitals and other care facilities are not viable if they leave gaps in payment, and must resort to cost shifting, often moving responsibility for the unpaid care costs to private insurers.
Charity care is the money spent to provide care to patients that the hospital deems unable to pay and is regulated by a hospital's charity care policy. A patient's financial status is generally determined before admission or care provision, though it can also be determined after admission in the case of an emergency or lack of patient information. There are several factors hospital leaders consider when establishing a patient's financial standing: income, assets, employment status, and additional sources of funding.
Bad debt, unlike charity care, occurs when a patient cannot or does not pay their total invoice for received medical care. This situation could arise when a patient does not request or does not qualify for financial assistance, and the hospital issues a bill that goes unpaid. For insured patients, bad debt refers to deductibles and other costs that patients are responsible for. For uninsured patients, bad debt refers to any unpaid portion of the bill.
Fig 1 Data from Definitive Healthcare based on 2017 hospital financial and CMS reports. Bad Debt to Net Patient Revenue Ratio.
When patients cannot or do not provide compensation for medical care, hospitals must allocate funds to cover hospital bad debt and charity care costs. This, of course, leaves less money to pay physicians & staff, order essential medical supplies, and provide other health & wellness initiatives. In order to raise funds, hospitals and care facilities must increase care costs. This prompts insurers to raise their rates, which could make insurance coverage unaffordable for more patients and worsen the whole cycle.
Generally, the greater the number of insured patients, privately or through programs like Medicaid, the lower bad debt ratios and overall care costs will be.
States that expanded Medicaid and Medicare services between 2013 and 2015, after the passing of the Affordable Care Act (ACA), saw a sharp drop in the provision of uncompensated care. Charity care and bad debt fell from 3.9 to 2.3 percent of hospital operating costs, with savings totaling more than $6 billion. Hospitals serving the highest proportion of low-income and uninsured patients saw the greatest savings through the reduction of uncompensated care. Non-expansion states also saw reduced uncompensated care costs, though the rates were much lower than in expansion states, according to a study published by the Commonwealth Fund.
Fig 2 Data from Definitive Healthcare based on 2017 hospital financial and CMS reports.
Despite the decrease in uncompensated care costs between 2013 and 2015, the American Hospital Association (AHA) found that the same costs increased by 7.3 percent in 2016 -- a difference of nearly $3 billion. While 2016 uncompensated care costs rose from the year before, costs were still lower than in 2013. In 2016, uncompensated care costs totaled around $35 billion, down from over $46 billion in 2013.
According to Definitive Healthcare data, hospital bad debt totaled nearly $80 billion in 2017, with an average bad debt to net patient revenue of just over 25 percent.
If you're interested in learning more about bad debt & charity care spending, risk management, hospital revenue cycles, and other healthcare finance issues, come visit us at the HFMA conference on June 25 & 26. Schedule a meeting with one of our visiting reps -- spots are limited, sign up today!