Hospitals hit by bad debt
By Julie Appleby
USA Today
Health benefit changes in corporate America that are hitting employees in the pocketbooks are also affecting hospitals' bottom lines.
As employers have established new hospital co-payments — and raised existing deductibles — hospitals are reporting an uptick in patients who don't pay their bills.
"I can't think of a single company that isn't experiencing slightly higher bad debt," says industry analyst Darren Lehrich at SunTrust Robinson Humphrey.
Analysts say the rise in bad debt and the change in workers' health benefits are related, although it is not the only cause. The other large factor, analysts say, is an increase in the number of uninsured and underinsured residents, along with the generally weak economy.
Deductibles and co-payments for hospital care are collected directly from patients. Analysts say industrywide, hospitals are able to collect 10 percent to 20 percent of such charges.
With health insurance premiums rising rapidly, employers have shifted costs to workers, including charging them more for hospital care. For example, in 1999, only 17 percent of HMO plans had a separate co-payment for hospital care. Last year, 24 percent did, according to Hewitt Associates, a consulting firm.
The amount workers pay has also risen. Small employers charged an average deductible of $250 for hospital care in 1997, an amount that doubled to $500 last year, consultant Mercer says. In family coverage, the deductible went from $500 in 1997 to $1,000.
"A lot of hospitals have found some additional challenge in collecting the increased co-payments," Lehrich says. "The concern over the near and intermediate term is that it will cut into profitability."
The nation's largest hospital chain, HCA, took a $106 million charge in the second quarter after underestimating the amount of reserves it needed to cover so-called "doubtful accounts." For the year, HCA says bad debt, as a percentage of revenue, might rise to 9 percent or 9.5 percent, up from 8 percent in 2002.
Tenet, the second-largest chain, reported Thursday that its bad debt in the second quarter rose to $288 million, up from $219 million in the year-ago quarter. That increase — coupled with a decline in revenue — drove bad debt as a percent of revenue from 6.4 percent in the year-ago quarter to 8.5 percent.
Mercer consultant Blaine Bos says he thinks the major reason for the increase in bad debt is the large number of uninsured.
"That you raised a deductible by $50 to $100 would not have a huge impact on bad debt," Bos says. "But the fact that a worker may have had a $250 deductible last year and now has no insurance at all would make a difference."
