For-profit hospitals find ways to cut the bad debt they carry

A study finds hospitals are doing better in collecting debt but also have changed accounting systems to better report bills that might never be paid.

By Karen Caffarini, AMNews staff. July 7, 2008.

Bad debt levels fell among for-profit hospitals in the first quarter of 2008, says a report by the international credit-rating agency Fitch Ratings.

Still, these hospitals continue to have a higher percentage of unpaid medical bills than physicians and nonprofit hospitals.

For-profit hospitals saw bad debt levels as a percentage of revenues fall from 18.4% in the fourth quarter of 2007 to 17.7% in the following quarter, said Fitch Ratings' recently released "For-Profit Hospital Industry Quarterly Diagnosis" report.

Past surveys by the Medical Group Management Assn. estimated physician practices' bad debt level in the 5% to 10% range. For nonprofit hospitals, Fitch said the percentage in 2006, the latest data available, was 5.5%. Bad debt is generally defined as payments that are written off as uncollectable.

Fitch analyst Lauren Coste attributes the decline in bad debt among for-profit hospitals in part to decreases in the number of uninsured patients at those facilities.

In addition, hospitals have been more aggressive in collecting co-payments up front and have improved efforts externally and internally to collect debt, she said.

This has balanced a change in for-profit hospitals' accounting techniques, Coste said. They have become more conservative in their assumptions concerning how many of their patients would pay for their services, which results in more debt being written off as uncollectable. Before, their accounting figures reflected a more hopeful collection amount.