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'An Industry-Wide Issue': Bad Debt Over $10M at One-Third of Hospitals

Analysis  |  By Jack O'Brien  
   June 19, 2018

Most healthcare organizations are suffering from rising bad debt as well as a lack of confidence and resources to combat it. 

Health system executives are dealing with rising levels of bad debt, which they largely attribute to insurance reform, yet they lack effective solutions to handle the situation, according to a recent survey.

Sage Growth Partners, a healthcare business consultant agency based in Baltimore, released a survey of 100 hospital executives discussing excessive bad debt on Tuesday. In the survey, 36% of executives said their systems face bad debts totalling over $10 million, including 6% who reported bad debt in excess of $50 million.

"Bad debt is an industry-wide issue that has only grown increasingly more challenging in the last five years," Dan D’Orazio, CEO of Sage Growth Partners, said in a press release. "While external factors like insurance reform have compounded the problem, it’s important for leaders to talk about this issue strategically with their teams, and to remember that there are steps they can take to mitigate bad debt."

Of the executives who said their systems had at least $10 million in bad debt, half believe they can recover no more than 10% of that sum. Forty-one percent estimate they can recover 10-20% of their bad debt, while 9% estimate they can recover more than 20% of their bad debt.

Edward Kennedy, CEO of Dorado Systems, which commissioned the survey, told HealthLeaders Media that an ideal range of recoverable bad debt is between 12% and 15%, but that remains a subjective figure for health systems due to relative population demographics.

Related: Infographic comparing national bad debt for hospitals by Medicaid expansion status, hospital type, and bed size

"The biggest thing is you have to get into the 21st Century with technology," Kennedy said. "If I'm not using technology and not looking at my current processes to figure out how can I change that to deal with the changes in the market, then as a small hospital I'm not going to survive."

While all hospitals share a concern about high levels of bad debt, the issue is particularly relevant for smaller health systems dealing with mounting uncompensated care and shrinking margins.

Insurance reform is the top concern:

  • 59% of respondents cited insurance reform, including higher patient copays and deductions, as the biggest driver of bad debt.  

  • 75% of leaders hospitals with 50-100 beds, attribute rising bad debt to insurance reform

  • 68% at small hospitals, those with less than 50 beds, blame insurance reform

Where else is bad debt coming from:

  • 17% patient delinquency

  • 11% ineffective facility-specific revenue cycle management (RCM) processes

  • 10% industry-wide RCM complexities and regulations

  • 2% changes in reimbursement models

  • 1% high poverty rate

Compounding the problems with rising bad debt is the lack of a sound approach to recover bad debt from patients and put effective processes in place. Many hospitals do not have an efficient way to regain bad debt, while some have operations slowed by redundancies.

  • 36% of respondents use a third-party vendor as a bad debt recovery solution

  • 25% have created an in-house process for bad debt recovery

  • 18% are using both approaches

Related: Posting Self-Pay Prices Mitigated Costs for a Phoenix Hospital

While 82% of respondents said they re-check patient insurance eligibility, nearly one-fifth of hospitals do not re-check eligibility. Of those who do not re-check patient insurance eligibility, 28% also lack an in-house process or third-party partner for bad debt recovery.

  • 20% of organizations have no partner or internal process in place to proactively recover bad debt

  • 21% are using neither an in-house process nor a third-party vendor for bad debt recovery.

Kennedy said that health systems have focused their strategies on addressing other financial concerns while bad debt issues have continued to rise, creating a financial problem that "isn't going away." Kennedy added that the survey could serve as a "wake-up call" so hospital executives can revisit their bad debt operations and RCM processes.  

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

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