Bad Debt Rising

    As the worsening economy enters what appears to be the decade’s second—and uglier—recession, hospitals are readying for a new wave of patients to join an estimated 72 million already struggling to pay medical bills. Insured households are increasingly among those considered at risk for financial distress from medical costs, an emerging demographic known as "underinsured" among health policymakers.

    An estimated 25 million adults were underinsured in 2007, up from nearly 16 million five years earlier, the Commonwealth Fund, a New York-based health policy foundation, reported in June. And not only did such tenuous coverage increase, but it did so across every income bracket, according to the study, which was published as a Web exclusive in the journal Health Affairs. Not surprisingly, those living in or very near poverty were most likely to be underinsured. But in the middle class (adults who earned more than $40,000 but less than $60,000), the percentage of underinsured rose to 13 percent from 5 percent five years earlier, the researchers wrote.

Expected to climb
    That figure is expected to climb as the downturn persists, say patient advocates, hospital executives and industry experts, a suspicion supported by evidence that a growing number of unpaid bills have landed on hospital balance sheets.

    Sara Collins, an economist and assistant vice president for the Program on the Future of Health Insurance for the Commonwealth Fund, co-authored the Health Affairs article. She noted the findings drew from surveys conducted prior to this year’s deepening downturn.

    For hospitals, the trend has accelerated efforts to collect from patients before treatment or adopt more sophisticated billing strategies. Such collections may prove to be increasingly difficult in an economy without ready consumer credit or home equity that helped bolster household budgets. One out of 10 underinsured in 2007 relied on mortgages or loans to grapple with medical bills and one-third took on credit card debt. Nearly half used all their savings to pay medical costs, and 29 percent skipped other basic necessities to cover medical bills, the Commonwealth Fund survey said.

    Integris Health, a 12-hospital system based in Oklahoma City’s highly competitive health care market, began overhauling its billing and collections in mid-2006 with efforts to contact patients prior to care for payment and contracting with a Maple Grove, Minnesota-based health care consumer credit company.

    "We recognize the real concern is a dollar is a dollar when you collect it upfront," says Bob Golden, director of Integris Health’s central business office. "A dollar is 30 cents when you collect it later."

    Integris’ efforts group patients into those likely to pay, those unable to pay, and the challenging group that falls somewhere in between, Golden says.

    Patients who score as likely to pay don’t need or appreciate reminders, and Integris wasted money and goodwill by pursuing them, Golden says. "It’s a marketing issue, it’s a customer-satisfaction issue and it’s a cost issue." Blindly collecting from every patient risks offending paying customers, he says. Insured but financially struggling patients need information about the system’s charity. "It’s an obligation of ours to try to take every step to contact the patient with no resources," he says.

    The rest account for a growing share of the system’s write-offs for unpaid bills, Golden says. Unpaid balances for insured patients once accounted for 30 percent of such write-offs; now they account for half, he says. Uninsured patients who pay the full bill make up the remainder. "Health care, I have found, is the last organization to get payment," says Golden, who spent 22 years in credit and collections with what was once SBC Communications before joining Integris. The system must vie for patients’ dollars, he says. "We want to make sure we’re in the mix."

Accelerated losses
    Some executives contend health plans that combine high deductibles and savings accounts in exchange for lower premiums have accelerated losses. Such plans are an attractive option for small employers, and are a product that was not on the market during the last recession. In negotiations with insurers, such high-deductible plans have prompted some hospitals to push for higher reimbursement for all privately insured patients, they say.

    "We’re not a financial institution and not in the business of financing the provision of care," says Neil Bertrand, CFO for United Hospital in Longmont Colorado, which saw charity care spike 65 percent to $22 million and bad debt increase 8 percent to $12.4 million in 2007 after major area employers began introducing high-deductible health plans two years ago.

    For the first nine months of 2008, both measures of unpaid bills have surpassed estimates thanks to the sour economy, rising unemployment and greater out-of-pocket costs for insured patients, Bertrand says. Actual bad debt—or losses on patients who fail to pay debts and do not qualify for financial assistance—was projected to reach $10.3 million through September, but in fact totaled $11.7 million.

    The 168-bed hospital has plenty of company. Unpaid medical bills ate away 2008 profits at Ascension Health, the largest U.S. private not-for-profit hospital operator. The St. Louis-based health system, which owns 77 hospitals, saw income from operations fall $66 million as its bad debt increased by $167 million, or 23 percent, financial records show. Catholic Healthcare West, a 38-hospital system based in San Francisco, closed its books in June with an 18 percent increase—or $98 million—in bad debt, compared with 3 percent the prior year. Neither system responded to requests for comment.

    Losses from insured patients suggest health care is vulnerable to the battery of economic pressures squeezing other industries. One major trade group for health care finance executives polled 1,000 members during a late-October webcast on the economic downturn and found that 80 percent expected significant increases in unpaid medical bills in the coming year. Three-quarters said they had already seen an ebb in profitable surgery patients.

    Rising individual medical expenses aren’t the only cause of household medical debt, says Carol Pryor, senior policy analyst for the Access Project, a Boston-based health care access advocacy group. Poorly understood policies can leave patients with far less coverage and substantially larger bills than expected. Patients may inadvertently end up outside of health plans’ approved networks—where out-of-pocket costs are lower—when in-network hospitals contract with out-of-network doctors for services such as anesthesiology or emergency care, she says.

    But patients’ growing share of health care spending is a significant contributor to the unpaid bills dragging down household and hospital finances, Pryor says.

    Patients with chronic conditions, who make frequent visits to health care providers, are particularly vulnerable, Pryor says. "Underinsurance both puts people in financial jeopardy and is also a serious barrier for people to get care," she says.

    Underinsured patients reported costs prevented them from filling prescriptions or seeking tests or follow-up care recommended by their doctors, the Commonwealth Fund reported. Such patients did not visit needed specialists or seek treatment for a medical condition because of cost, the survey found.

    Pryor cited two reasons why relief is unlikely anytime soon. Health plans and employers will continue to shift financial risk onto the consumer because "they are the least able to avoid it."

    Meanwhile, good health and good luck may have kept many underinsured from illness or injury—and the related expenses. "They may think they’re doing OK because they haven’t got sick yet," Pryor says. "But everybody’s at risk, and sooner or later, everybody gets sick."