Hospital Bad Debt Resumes Its Upward Climb

Though it slowed in the first quarter of the year, the for-profit hospital industry’s bad debt expense resumed its accelerating trend during the second quarter, according to Fitch Rating’s Industry Quarterly Diagnosis report on the industry.

Fitch reviews the performance of Community Health Systems Inc., HCA Inc., Health Management Associates Inc. (HMA), LifePoint Hospitals, Inc., Triad Hospitals Inc., Tenet Healthcare Inc., and Universal Health Services. Community Health completed its $6.8 billion acquisition of Triad in July.

The average bad debt expense as a percentage of net revenues increased to 10.74 percent in the second quarter, up from 9.17 percent in the same period a year ago. In one of the most dramatic examples cited, LifePoint saw its bad debt expense increase almost 200 basis points to 12.4 percent of revenues, according to the report.

HMA recorded a $39 million charge to bad debt expense as a “result of deteriorating collections,” according to Fitch. Tenet reported bad debt expense of 6.8 percent, the lowest among the hospitals profiled.

Fitch expects bad debt expense and uncompensated care levels to continue to challenge the industry for the remainder of the year.

“Providers are required by law to treat patients in emergency situations regardless of ability to pay, which places a limit on how much providers can control the levels of uncompensated care,” the report said. “As long as the levels of uninsured and underinsured patients continues to rise, Fitch believes the industry will likely continue to face this challenge.”

However, Fitch noted, some health care providers are making some headway in meeting this challenge through centralized billing, increased point-of-service collections and more accurate screening to determine emergency and non-emergency situations.

Other potential relief, according to Fitch, could come from legislation many of the 2008 Presidential candidates are touting to reduce the number of uninsured patients.