The Chronic Problem of Bad Debt in Hospital Systems

March 18th, 2021

One major opportunity lies in the reduction of bad debt -- debt that is considered unrecoverable. In a survey of hospital executives, about 36 percent said their health systems faced more than $10 million in bad debt, with 6 percent reporting bad debt of over $50 million.

Finding sustainable solutions to reduce and prevent bad debt can help hospitals begin to turn the corner and head into a healthier financial future.

What is bad debt?

There are a handful of ways in which health systems can incur bad debt, also known as write-offs: Some write-offs are incurred due to errors in registration, coding, or billing, but the majority occur when hospitals provide services or perform procedures for patients who cannot afford to pay for them. These patients are typically either uninsured (self-pay), or underinsured (cannot afford out-of-pocket costs of their health plans).

The percentage of patients who are uninsured has been increasing of late, due to recent job losses: According to the Kaiser Family Foundation, about 27 million Americans will have lost their employer-sponsored insurance as a direct result of the pandemic.

A survey conducted by consulting firm Kaufman Hall in August 2020 showed that more than 40 percent of hospitals have seen increases in bad debt and uncompensated care (48 percent), the percentage of uninsured or self-pay patients (44 percent), and the percentage of Medicaid patients (41 percent) since the start of the pandemic.

Bad Debt from Healthcare Workers

Interestingly, research has shown that a sizable percentage of bad debt in hospital systems is coming from the very employees who provide care within them: Healthcare workers are not exempt from the struggles of paying for medical care, and often find themselves among the millions of Americans currently facing medical debt.

Doctors and nurses can be vulnerable to medical debt, but the most vulnerable populations are low-wage essential workers such as nursing assistants, phlebotomists, home health aides, housekeepers, medical assistants, cooks, which make up about 7 million people -- more than all healthcare practitioner and technician jobs. 

As baby boomers continue to age, the demand for these low-wage essential health workers continues to grow. Employment in these categories is expected to grow 34 percent from 2019 to 2029, much faster than the average for all occupations.

However, although demand for these occupations is growing, their wages are not: Median ages in health care support, service, and direct jobs were $13.48 an hour in 2019, about the same as fast food workers. This is considerably less than a living wage and far lower than the median pay of doctors (well over $100 per hour) and nurses ($35.17 per hour).

Because the cost of a given health-insurance policy is the same regardless of the income of the worker, that cost is a higher percentage of the compensation of lower-wage workers. And because premiums have been growing faster than total compensation for some time, it is becoming nearly impossible for low-wage healthcare workers to afford to get the care they need: Workers making $25,000 are having to pay $7,000 a year just for their share of family premiums, or about a third of their salaries, according to a study by the Kaiser Family Foundation. 

It’s not surprising, then, that many hospital employees are unable to afford the out-of-pocket costs for their care. Helping to make healthcare affordable for hospital employees is absolutely critical in order to retain and attract workers today and in the future.

Limiting Exposure to Bad Debt

Hospital systems need to get creative in order to protect the physical and financial health of their employees and continue to provide quality care to their communities while minimizing financial risk. 

In an article about bad debt in health systems, Health Catalyst recommends four tactics to limit exposure to bad debt:

1. Identify bad debt exposure early.

Identifying bad debt exposure as soon as possible in a patient encounter is the first line of defense against bad debt. One way to prevent bad debt is to implement a pre-registration program to register and financially clear or flag a patient before the day of their procedure.  If a patient is flagged as a financial risk, the health system can create a payment plan or require a deposit for non-emergent procedures to avoid incurring bad debt.

2. Educate patients about alternative payment options.

Educating patients about alternative payment options, and offering flexible zero or low-interest payment options, is another winning strategy, and one that patients are ready for: According to interviews AccessOne conducted with 47 healthcare billing executives, 43% of providers reported increases in patient requests for payment plans

To reduce bad debt coming from hospital employees, health systems can take this a step further by offering Paytient as a benefit. Structured as an employee benefit, Paytient provides a healthcare payment card pre-loaded with funds matching the employee's deductible that can be used to pay for any medical, dental, pharmacy, vision and veterinary service.

The employee uses Paytient to pay for their treatment at the time of service, and then has the option for how they want to pay it off over time, interest free. This means the hospital can collect the payment in full at the time of service (reducing bad debt), and the employee can get the care they need.

3. Leverage technology within the workflow.

Leveraging technology that uses data to identify and prevent risk within the health system can also drastically reduce bad debt exposure. For example, real-time eligibility technology can reduce the risk that a hospital will perform a procedure for which a patient is not actually covered. Predictive analytics tools can be used to predict a patient’s likelihood to pay based on historical data. These types of tools can help health systems offer realistic treatment and payment options based on what patients can actually afford.

4. Understand the true cost of care.

Finally, working to improve the accuracy of cost estimation within health systems can go a long way to reduce bad debt. Often, financial leaders have a good grasp on what the health system charges for procedures, but are less aware of how much those procedures actually cost to perform. Working to clarify the true cost of care can not only reduce risk of bad debt for health systems, but can also help patients make more informed decisions. 

Healthier Payment Plans = Healthier Employees

Better bad debt management isn’t just good for the bottom line: In the long term, it allows hospitals to offer more value to their communities -- such as by adding services, hiring more providers, improving facilities, and focusing on providing higher quality care.

Reducing and preventing bad debt will require a multi-faceted approach: Eliminating bad debt coming from hospital employees is a great place to start. By offering Paytient as a benefit to hospital employees, hospital systems can reduce their exposure to bad debt while improving the physical and financial health of their essential workers.

Learn how Paytient can help your health system.

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