US healthcare hit by hospital bad debts
By Christopher Bowe in New York
Copyright The Financial Times Limited 2007
Published: August 5 2007 22:10 | Last updated: August 5 2007 22:10
Bad debts at hospitals from unpaid patient bills are triggering deep and growing problems within the US healthcare system as up-front costs are increasingly passed on to consumers and growing numbers of people are opting out of health insurance.
Bad debts for hospitals in 2004 were estimated to be between $26bn and $30bn(€22bn, £15bn), representing about 12 per cent of their revenue and rising.
Last week, hospital groups including Health Management Associates, United Health Services and Community Health Systems reported varying increases in bad-debt levels affecting second-quarter results. The week before, LifePoint Hospitals also reported bad debt increases in the quarter.
Highlighting the problem, HMA shares plunged 32 per cent last week after it slashed profit forecasts this year.
Paul Mango, healthcare expert at consultancy McKin sey & Company, said the situation showed that the healthcare system was compounding its own sustainability problems. “Are we at an inflection point? That would be a reasonable question. Probably yes,” he said.
Healthcare benefits and costs, particularly for the approximately 45m uninsured Americans, remain one of the most explosive issues in US politics.
In recent years employers have increasingly turned towards healthcare plans where the patient pays part of their care costs out of their own pocket.
The plans were intended to stem rising costs to insurers and employers by making consumers aware of how much their healthcare was costing, but one result has been an increase in the level of bad debts.
Average out-of-pocket costs vary according to insurance plans, but patients can pay thousands of dollars before their insurer takes over the cost of treatment. A McKinsey report estimated consumers’ out-of-pocket healthcare costs could increase 68 per cent to $420bn by 2015.
Many of these bills are never paid and end up as debts on the hospitals’ books. Hospitals collect 8-12 cents on the dollar from debts by uninsured patients – of which 60-70 per cent are estimated to be working. Bad debts by patients with insurance have higher collection rates at 50 cents on the dollar.
Bad debts are increasingly driving a little-discussed vicious circle. Hospitals seeing more debt from insured patients can react by pushing insurers to help them offset it. This in turn can push insurers to charge higher premiums to employers, which can force employers to place more of the risk of healthcare costs on to their employees.
David Bachman, analyst at Longbow Research, said: “If you keep passing the cost around it does just spiral into a worse situation where people have even less coverage, bigger balances, and it gets out of hand.”
Paul Watson, analyst at AG Edwards, said: “The concern investors have at the moment [is] when does this problem stop?”
Not only might the problem for hospitals not stop under the current system, but it was likely signalling that the US healthcare benefits system had begun to feed on itself, Mr Mango said. Trends show ever-increasing ranks of Americans who are uninsured or unlikely to pay their out-of-pocket healthcare costs.
According to McKinsey, since 2001 the US has seen an increase of 3m-4m uninsured while the economy has created about 7m jobs. Overall that may indicate the presence of up to 10m-11m people who would previously have taken out health insurance but currently do not.
US hospitals are seeing double the rate rise in uninsured patient visits versus insured. But the fastest-growing segment of bad debt for hospitals is from people with health insurance.
Mr Mango said this was a direct result of changes towards higher out-of-pocket payments from patients.
As healthcare insurance becomes more expensive, employers and employees are choosing plans that pass more of the cost on to the consumer or opting out of insurance altogether. “Bad debt is going up fast because people with means have less insurance or no insurance,” Mr Mango said.