Bad Debt Expense Drops at For-Profit Hospitals

Health care industry observers bracing for higher bad debt expense in the first quarter of 2008 were pleasantly surprised when for-profit hospitals recorded a decline in unpaid medical bills.

In a quarterly report to investors last week, Fitch Ratings Co. noted that the sector’s adjusted bad debt expense as a percentage of revenues dropped from 18.4 percent in the fourth quarter of 2007 to 17.7 percent in the first quarter 2008.

“Fitch believes the relatively low unemployment rate in spite of the weakening economy is the primary reason bad debt expense has moderated,” Lauren Coste, director of corporate finance, said in Fitch’s For-Profit Hospital Industry Quarterly Diagnosis. “In addition, most providers have adopted more conservative accounting practices over the past couple of years, which has limited industry exposure to special bad debt charges.”

However, bad debt expense could accelerate if job losses increase or if states pull back on Medicaid funding, Coste said in the report.

According to the report, Tenet Healthcare Corp. recorded the lowest adjusted bad debt expense as a percentage of revenues at 12.1 percent, followed by LifePoint Hospitals Inc. with a 13.5 percent adjusted bad debt expense as a percentage of revenues.  Fitch said Tenet was helped by lower uninsured and charity care admissions in the quarter.

Health Management Associates posted the highest adjusted bad debt expense at 22.7 percent, followed by HCA Inc with 21.3 percent and Universal Health Services with 18.8 percent. Community Health Systems recorded bad debt expense as a percentage of revenues at 17.5 percent during the first quarter.