Study: 31 percent of patient bad debt misclassified, should be charity

As much as 31 percent of patient revenue written off to bad debt and sent to collection agencies should be classified as charity, according to a study conducted by Connance, Inc. and PARO Decision Support, LLC. 
With self-pay portfolio balances rising, regulatory authorities are scrutinizing hospitals’ charity care practices and provisions of community benefit in exchange for tax exemptions. 

The Connance-PARO study looked at the charity care practices and community benefit provision of 148 hospitals during 2008, using a combination of EVI analytics and PARO’s Presumptive Charity Model.

Key findings include:

  • Nationally, as much as 31 percent of self-pay revenue currently being assigned for bad debt collection meets provider charity-eligibility guidelines.
  • Differences in regional economics substantially impact charity eligibility. Providers need to calibrate any charity analytic to their local context.
  • For not-for-profit providers, the cost of services for charity accounts can be claimed as community benefits in Form 990, Schedule H.
  • Early trends indicate the appropriate classification of presumptive charity care can result in reduced account processing costs with bad debt agencies and increased ability to focus on performing patient portfolios.

“These findings highlight the shortcomings, and opportunities, within providers’ charity screens where patients who could easily qualify for charity care end up as bad debt accounts,” said David Franklin, chief development officer at Waltham, Mass.-based Connance. “Providers and their agencies needlessly expend money and erode community and patient goodwill pursuing collections against charity-eligible patients.”

“In 2008, (the company assisted) nearly a quarter of a million consumers through the analysis of nearly $1.5 billion in patient accounts,” said Neil Smithson, Managing Member of PARO Decision Support, LLC, based in Dunbar, W. Va. “Adding Connance strengthens our ability to ensure that patients are receiving the appropriate level of financial resources regardless if that resource is charity care, extended Medicaid eligibility efforts or correct patient follow-up strategies.”
“The combination of PARO and Connance enables providers to quickly and cost-effectively identify charity-eligible patients and work discreetly with them to resolve their financial situation,” said Franklin. “Patients who can and should pay can be similarly identified for effective follow up. In combination, providers realize lower operating cost, better recognition of their community benefit activity and more patient-friendly collection activity.” 

Consumers who live in poverty are often reluctant to apply for traditional charity care because they are unable to understand the application, required documentation or overall process. The PARO Presumptive Charity Model was built in conjunction with LexisNexis, a global provider of information and analytic solutions, to help ensure individuals are identified for these types of community benefits.

The Connance-PARO research findings suggest specific actions healthcare providers can take to improve both their cash performance and relationships with the poor and underserved in their communities. The research also suggests that appropriately applied analytics can help hospitals more accurately quantify charity care to comply with the new Schedule H to IRS Form 990.