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Bad debt is a chronic issue for hospitals, with the vast majority of facilities expecting to recover less than one-fifth of what patients owe. This trend has proliferated 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.”
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 a significant indicator of not-for-profit status. Currently, there are nearly 3,400 active nonprofit hospitals in the U.S. according to Definitive Healthcare's Hospitals & IDNs database – about 47 percent of all active hospitals.
According to a 2017 poll from Amino, 37 percent of Americans say they would go into debt if faced with a medical bill of $100 or more. This number goes up for women: 44 percent say 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, from 8 percent of the total bill to more than 12 percent. In the same time 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 – and hospitals are struggling to find a solution to recuperate costs.
Sage Growth Partners released the results of a survey of 100 hospital executives in June 2018. Sage reported that 36 percent of executives said their health systems faced more than $10 million in bad debts, 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 – and the associated increase in copays and deductions – as the primary cause of bad debt growth. Only 17 percent of the hospital executives surveyed ascribed blame to patient delinquency.
Fig 1 Data from Definitive Healthcare’s hospitals & IDNs database, which features financial, clinical, and quality intelligence on hospitals and health systems. Bad debt data is from the January 2019 Medicare Cost Report.
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, while 11 percent of the executives surveyed cited ineffective revenue cycle management (RCM) processes as a leading contributor to bad debt, only 85 percent of active U.S. hospitals use an RCM software according to Definitive Healthcare’s hospitals & IDNs database. The most common RCM vendors include Epic, Cerner, Evident, Meditech, and Medhost.
Despite rising healthcare costs and hefty 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.
To learn more about how hospital bad debt and other quality metrics impact selling to care facilities, watch our webinar today: