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Hospital executives say Affordable Care Act insurance reforms driving up bad debt

Bad debt exceeds $10 million at a third of healthcare organizations and leaders lack confidence about how much is recoverable.

Jeff Lagasse, Associate Editor

The majority of hospital C-suite executives and finance leaders believe insurance reform is to blame for bad debt -- which is an increasingly common problem in the industry.

According to a survey of 100 hospitals by Sage Growth Partners, in fact, more than a third have bad debt exceeding $10 million.

Fifty-nine percent pin the blame on insurance reform resulting in higher patient copays and deductions. Only 17 percent of respondents attribute bad debt to patient delinquency. Other reported causes of bad debt include ineffective facility-specific revenue cycle management processes (11 percent); industry-wide RCM complexities and regulations (10 percent); changes in reimbursement models (2 percent); and a high poverty rate (1 percent).

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Leaders at smaller hospitals were more likely to attribute bad debt to insurance reform. In fact, 75 percent of those at hospitals with 50-100 beds, and 68 percent at hospitals with less than 50 beds, say reform is the main culprit.

Of the 11 percent who cited internal RCM processes as the biggest cause of bad debt, a large majority, 81 percent, were C-suite executives -- CEOs, CFOs and COOs, primarily.

The prospect of recovering that bad debt didn't inspire a whole lot of confidence. Half of the respondents estimate they can recover only up to 10 percent of their bad debt, meaning that up to 10 percent could actually be recovered from a payer or self-pay patient. Forty-one percent estimate they can recover between 10-20 percent of their bad debt, while only 9 percent estimate they can recover 20 percent or more of their bad debt.

The debt appears to be piling up, as 36 percent  report their organizations' bad debt is more than $10 million; 20 percent say it's between $10-30 million; 10 percent say it's between $30-50 million; and six percent say it exceeds $50 million.

While 36 percent are using a third-party vendor as a bad debt recovery solution, and a quarter have created an in-house process for bad debt recovery, 21 percent of respondents are using neither an in-house process nor a third-party vendor for bad debt recovery. Eighteen percent are using both approaches.

And while 82 percent report they re-check patient insurance eligibility, 18 percent don't; of those who don't re-check patient insurance eligibility, 28% percent also have no in-house process or third-party partner for bad debt recovery.

Last year, the Advisory Board said that as as coverage has increased, so too has bad debt. The Advisory Board cited data from the Kaiser Family Foundation showing that from 2008 to 2015, U.S. workers with deductibles greater than $2,000 grew from 5 percent to 19 percent. During that same period, patient obligations being written off as bad debt swelled from 0.9 percent to 4.4 percent.

Twitter: @JELagasse
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