Insured patients become top reason for bad debt at providers

Caroline Hudson\August 23,2022

The amount of bad debt stemming from patients with insurance increased more than five-fold in a three-year period, hitting providers' financial statements in an already challenging environment.

Almost 58% of patient bad debt in 2021 came from self-pay accounts after insurance, compared with about 11% in 2018, according to a recent study from professional services firm Crowe. Self-pay accounts after insurance include the deductible and amount due after the insurance payment.

Most bad debt, or write-offs associated with patient balances deemed uncollectible after significant collection efforts, once was tied to uninsured patients. Discounts implemented for the uninsured have helped curb those balances in the last several years, said Brian Sanderson, a principal in Crowe’s healthcare consulting group. 

Health systems are navigating rising costs in the face of fewer payments from patients who are increasingly turning to high-deductible plans they can't afford.

Higher balances

Average patient balances had been on the upswing before the COVID-19 pandemic, Sanderson said. The public health crisis made matters worse because of disruptions in staffing and patient volume. Patients also sought more treatment for mild symptoms, such as coughing or a runny nose, that were not a cause for alarm prior to the pandemic, driving up their medical bills.

“More people were accessing the healthcare system at the same time that the healthcare system was very challenged to both treat them and (was) probably overly aggressive at the outset in terms of clinical spend on things,” Sanderson said. 

The Crowe study found $7,500 to be the threshold at which collections dropped off on self-pay patient accounts. Statement balances greater than $7,500 made up 17.7% of total statements in 2021–triple the proportion in 2018. Balances greater than $14,000 accounted for 16.8% of total statements in 2021, compared with 4.4% in 2018, according to the study.

Sanderson said the rise of high-deductible plans has made it more difficult for patients to pay their healthcare bills, as those plans shift much of the cost burden to patients. Many employers offer high-deductible plans to lower their overall benefits costs, and employees pay lower premiums. 

Such plans are also becoming more popular in areas of lower socioeconomic status. Hospitals in the regions already tend to see more bad debt, said Brian Tanquilut, an analyst at investment banking firm Jefferies.

Health systems are seeing the effects of rising patient balances.

Encompass Health reported the portion of its revenue reserves related to bad debt increased to 2.2% in the second quarter, compared with 1.7% a year earlier. In 2019, that ratio was 1.4%. 

Birmingham, Alabama-based Encompass attributes the increase, in part, to higher enrollment numbers for Medicare Advantage and managed care, instead of the original Medicare, often leading to longer collection times and higher patient responsibility, said Mark Miller, chief investment relations officer. Most of Encompass’ patients are senior citizens who qualify for government plans, meaning any unpaid balances are typically related to deductibles or copayments, he said.

“We would want it below a certain level and we do our best to collect, but at the end of the day, we are caring for patients and that’s our primary responsibility and our primary goal,” Miller said. “We wouldn’t try to shift patient mix for the purpose of improving bad debt expense.” 

Handling the debt

Despite higher levels of unpaid bills, bad debt may not be included on a hospital's' balance sheet. An accounting standard implemented a few years ago determined that unpaid balances are only considered bad debt if a payer expected to cover the cost experiences an adverse event, such as bankruptcy. 

Some hospitals use the term “implicit price concession” to represent bad debt on the balance sheet. 

Nashville, Tennessee-based HCA Healthcare reports total uncompensated care, which includes those price concessions, plus uninsured discounts and charity care. Total uncompensated care rose 6.5% to $15.5 billion in the first half of 2022.  

Universal Health Services in King of Prussia, Pennsylvania, no longer discloses bad debt, Chief Financial Officer Steve Filton said, but the system does record charity care and discounts for uninsured patients, offering further insight into the status of collection rates. 

In the first half of 2022, charity care rose 21% year-over-year to $420 million. Discounts for the uninsured, which include partial write-offs on charges, grew 11% to $674 million. 

Dallas-based Tenet Healthcare Corp. said in a February regulatory filing about 4% of its net accounts receivables were self-pay as of the end of 2021. It is working with its revenue cycle unit, Conifer Health Solutions, to improve collection rates.

“Self‑pay accounts receivable, which include amounts due from uninsured patients, as well as co‑pays, co‑insurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems,” the filing reads. “While emergency department use is the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. … We have increased our focus on targeted initiatives that concentrate on non‑emergency department patients as well.”

Tanquilut said the collection rate issue could get worse in 2023. He expects to see bad debt rise as emergency department volumes recover. Upcoming Medicaid insurance redeterminations could also have a negative impact if the federal government halts coverage for patients who no longer qualify after the public health emergency ends.