Yet another health care crisis: Bad debt rising

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Hospitals are struggling with bad debt — bills that patients can’t or won’t pay, and in Colorado, the problem is growing.
“We have a bigger problem here because of the number of uninsured,” said Colorado Hospital Association CEO Steven Summer. “And we have a larger number of small businesses who are buying insurance with increasingly higher co-pays and deductibles.”
John Suits, assistant administrator for government affairs at Memorial Health System, said the hospital’s bad debt was about $5 million a month in 2005, which equals 11 percent of the hospital’s monthly budget.
“That’s separate from the $72 million annually in unreimbursed care,” he said. “That’s care that we provide the uninsured or underinsured. We don’t get reimbursed for the actual cost of care from Medicare or Medicaid, so that’s the amount that we spend in taking care of those people.”
Suits said the bad debt was twice the amount budgeted.
“We work with the payment plans and do whatever we can, but we’re at the point now where we look closely as every patient’s financial ability to pay,” he said. “Those high deductible plans — with $2,500 deductibles — are difficult for people to come up with to pay off hospital bills.”
A study by The University of Texas School of Public Health echoes Suits’ concerns. The study shows that the growing amount of bad debt is “mainly due to the shifting trend away from HMOs to PPOs as a conscious decision by employers to share costs with employees.”
Penrose-St. Francis Health Services tells a similar story. Both hospitals blame high deductible health insurance plans for the rising debt. But that isn’t the only reason.
“People do not rank hospital bills in terms of importance to be very high compared to the other bills in their lives,” said Penrose CFO Michael Scialdone. “There was a survey about bills, and people ranked hospital bills as somewhere below student loans.”
Health care is still a business, Scialdone said, but access is viewed as an entitlement. The result is a system where the provider is stuck between insurance companies and patients.
“Somehow, doctors and providers got stuck in the middle, having to bill people for co-pays and deductibles,” he said. “Instead, insurance companies should pay us what they contracted to pay us, and then deal with the insured person for the co-pays and deductibles. That way, providers don’t shoulder more financial risk once the service is provided.”
Suits said that high deductible plans — where much of the cost of hospital care is shouldered by the patient — are the leading reason for Memorial’s debt.
“People don’t take into account that they are going to have the $2,500 up front,” he said. “And then it could be a 70/30 plan, where they have to come up with an additional 30 percent of the bill. It can be expensive.”
Steve Hicks, owner of Investment Insurance Services, said the industry is well aware that high-deductible health plans are leaving providers in the lurch.
“There’s no complete solution,” he said. “What we’re doing is having a high deductible plan but providing it through section 105 of the law. It takes the burden off the employee when switching to an HSA (health savings account), and allows the employer to save money over a period of years to help fund the account initially.”
Hicks recommends that employers fund at least half of the HSA savings account, so employees have some money to draw on in case of an emergency. Better education is also a benefit, he said.
“Some of these procedures cause a slow pay situation with the provider,” he said. “Another benefit of our company is that we take on that role for the patient. We deal with the provider and with the payments.”
Hicks also agrees that health care is seen as an entitlement. His company makes sure clients are educated about the costs and responsibilities of an HSA and high deductible health plan.
“Our plan design is used as a bridge between traditional insurance and the HSAs,” he said. “We really stress that people know about the HSAs, and their responsibility as consumers.”
Increasing costs from uninsured and underinsured patients also are adding to bad debt, Scialdone said.
“And it puts us in a position — paints the provider in the corner — of being the bad guy and having to try to collect on those bills,” Suits said.
The solution, according to the hospital administrators, is health care reform.
Summer is a member of the 208 Commission, a panel which will make reform recommendations to the legislature in November.
“The issue is huge,” he said. “And it’s being driven in some part by the government reimbursement. Patients receive $1 of care, but the hospitals only get 60 cents reimbursement. The other solution is to get businesses to buy insurance for employees at a reasonable rate, to make it more affordable. That’s an issue we’re all grappling with right now.”
Most hospitals sell their bad debt to collection agencies, but that puts the hospital in an unfavorable light, Scialdone said.
“It pushes the financial risk on the provider,” he said. “But the bad debt also makes the cost of health care go up. It would be clearer if the insurance companies and individuals worked out the cost — the provider needs to be out of the middle.”
Much of the debt remains unpaid, according to the Healthcare Financial Management Association. Once the bills go to a collection agency, the recovery rate is only about 20 percent.
Hospitals also wait longer for payments from self-pay accounts — Health Savings Accounts or high deductible health plans — than for other forms of payment. According to a study by Zimmerman and Associates, self-pay accounts take 208 days to resolve, compared to 64 days for other types.