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The Chronic Problem of Bad Debt in Hospital Systems

Even before the COVID-19 pandemic, hospital systems were struggling to increase revenue on razor-thin margins. With the added pressure of a global health crisis, healthcare leaders have been pressed to reduce economic vulnerabilities where possible.

Healthcare systems have a major opportunity as it relates to reducing hospital bad debt — debt that is considered unrecoverable. In a survey of hospital executives, about 36% said their health systems faced more than $10 million in hospital bad debt, with 6% reporting bad debt of more than $50 million.

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

What Is Bad Debt in Healthcare?

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% of hospitals have seen increases in bad debt, uncompensated care (48%), the percentage of uninsured or self-pay patients (44%), and the percentage of Medicaid patients (41%) since the start of the pandemic.

A Closer Look at Hospital Bad Debt Trends

Interestingly, research has shown that a sizable percentage of hospital bad debt comes from the very employees who provide care within them. Healthcare workers are not exempt from the struggles of paying for medical care, and they 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. These low-wage workers account for about 7 million positions — 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% from 2019 to 2029, outpacing the average for all occupations.

Although demand for these occupations is growing, their wages are not: Data from the U.S. Bureau of Labor Statistics shows that median wages in healthcare 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 (more than $100 per hour) and nurses ($35.17 per hour).

Because the cost of a 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 with premiums growing more quickly than total compensation for some time, it is becoming nearly impossible for low-wage healthcare workers to afford the care they need: Workers making $25,000 might be paying $7,000 a year just for their share of family premiums — nearly one-third of their salaries — according to a hospital bad debt analysis 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. Making healthcare affordable for hospital employees is absolutely critical to the attraction and retention of healthcare workers.

Limiting Exposure to Hospital Bad Debt

Hospital systems need to get creative 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 hospital bad debt, Health Catalyst recommends four tactics to limit exposure to the widespread problem:

1. Identify bad debt exposure early.

Identifying hospital bad debt exposure as soon as possible in a patient encounter is the first line of defense against bad debt. One way to prevent this problem is to set a hospital bad debt policy that registers and financially clears or flags each 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 hospital 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 that patients are ready to embrace. 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 Visa card that can be used to pay for almost any medical, dental, pharmacy, vision, or veterinary services.*

Employees use Paytient to pay for their treatments at the time of service. They are then able to set a payment plan that works for their budget — always without any fees or interest. This enables the hospital to collect the payment in full at the time of service (reducing bad debt) and the employees to 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 hospital bad debt. Often, financial leaders have a good grasp of what the health system charges for procedures, but they might be less aware of what those procedures actually cost to perform. Working to clarify the true cost of care can reduce the risk of bad debt for health systems and help patients make more informed decisions.

Healthier Payment Plans = Healthier Employees

Better hospital bad debt policies aren't just good for the bottom line. In the long term, these efforts can allow hospitals to offer more value to their communities by adding services, hiring more providers, improving facilities, and focusing on providing higher-quality care.

Reducing and preventing bad debt will require a multifaceted approach, and 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.

If you'd like to learn more about how Paytient can help your health system, click here.

*Please note that merchants self-select the category in which transactions will be listed and some merchants may be owned by other companies, therefore the transactions may not be categorized as a medical expense as you might expect.

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