December 2, 2019

The amount of bad debt nonprofit hospitals experience increased in 2018 for the first time since 2014, in part because of recent changes to insurance benefit design that are placing greater financial responsibility on patients, according to a new report from Moody's Investors Service.

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Bad debt rises

According to Moody's, bad debt as a percentage of net patient revenue began to decline in 2014 in part because of the Affordable Care Act's Medicaid expansion, falling from 5.6% in 2014 to 4.7% in 2015 and 4.3% in 2016. In 2017, bad debt as a percentage of net patient revenue remained flat, but in 2018, for the first time since the downward trend began, it rose to 4.6%.

Moody's said the rise is in large part due to changes in insurance benefit design placing greater financial responsibility on patients.

For example, Moody's found that the prevalence of general deductibles has increased from 55% of all covered workers in 2006 to 85% in 2018. In that same time period, Moody's also found that annual deductible amounts nearly tripled to an average of $1,573 in 2018.

Discussion

According to Moody's, proposals in Congress to introduce bundled payments as a way to minimize surprise medical bills have the potential to majorly affect both hospitals and physician staffing companies.

Safat Hannan, an analyst for Moody's, said, "Legislative proposals to simplify billing have the potential to reduce bad debt, but the proposed changes will be negative for hospitals because they introduce additional complexity to the billing processes and complicate relationships with contracted physician groups."

The authors of the Moody's report said that long-term bad debt trends "will continue to erode financial performance despite health systems' efforts to reduce them" (Gooch, Becker's Hospital CFO Report, 11/22; Lagasse, Healthcare Finance News, 11/22; American Hospital Association, 11/22).

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