For-Profit Hospitals' Bad Debt Could Reach $12.5 billion

A Lehman Brothers analyst is predicting that bad debt and charity care expense for the for-profit hospital industry will grow between 14 and 16 percent in 2007.

Adam Feinstein expects the industry’s total bad debt to reach $12.5 billion this year compared with $10.8 billion in 2006.

“There had been some optimism that the bad-debt expense trend was stabilizing,” Feinstein said in the report issued last week. “However, it now appears that first quarter 2007 results were likely overstated, which led to additional catch-up in the June quarter.”

Feinstein said the adjustment doesn’t mean the problem has stabilized, but the magnitude of the increase may not be as severe as the reported numbers suggest. Nonetheless, the bad debt trend continues to worsen, he said.

His report focuses on data from Community Health Systems, HCA, Health Management Assoc., LifePoint Hospitals, Triad Hospitals (now part of Community Health Systems), Tenet Healthcare and Universal Health Services.

According to the report, the total cost of uncompensated care, which includes bad debt, charity care and discounts to the uninsured, averaged 21.9 percent of adjusted net revenues for the second quarter, compared with 19.3 percent in the second quarter of 2006.

Echoing the trend of years past, Feinstein said the mix of insured patients is declining. “As a result, uninsured volume increased at a faster rate than overall volumes, leading to the higher bad debt.”

Lehman Brothers began predicting bad debt expense for the hospital industry in January 2006. The investment firm found that bad debt expense is closely related to hospital prices, real disposable income, continued claims and personal savings.