Requiring patients to pay 14% interest on overdue hospital bills might not be the ideal way for a county hospital to score community support.
In fact, within a week of Singing River Healthcare System's adoption of the policy, a story appeared on the front page of the local newspaper. It focused on the impact the policy would have on patients in the coastal Mississippi region who don't qualify for charity care but who cannot afford to pay their medical bills without busting their budgets.
In an editorial, the Mississippi Press noted that "the hospital is in a situation in which it has to do something to remain competitive and financially sound. Unfortunately, the solution is to pass it along to its customers, who will feel a tremendous squeeze on their family budgets."
Some accounts receivable experts, however, argue that self-pay accounts are where hospitals should be looking to increase their cash flow.
The two-hospital Singing River system comprises 282-bed Singing River Hospital in Pascagoula, Miss., and 124-bed Ocean Springs (Miss.) Hospital. The system stopped its no-interest policy about a month ago and started selling overdue self-pay accounts to a local financial institution that charges interest on unpaid balances, says Chief Financial Officer Robert Lewis. Patients are charged an annual rate of 14%.
Patients still have six months to pay off the bills before they're subjected to the interest rate, and the hospital continues to charge less than most credit cards, which have much shorter grace periods.
"For us to be in the lending business is really not where we need to be," Lewis says. "That's not what we're here for."
As for the less-than-gracious reception from patients, Lewis says, "It's like anything else; the people who are affected by it directly are not necessarily going to like it."
At the same time hospitals are grappling with minimal operating profit margins, the dollar amounts of bad debt they are writing off are growing substantially.
Given that scenario, some are trying to squeeze the most out of what they used to write off as unrecoverable. Other providers, some say, could do a lot more squeezing.
Singing River's bad-debt expense for the fiscal year ended Sept. 30, 1999, was $32 million, up from $22.5 million in fiscal 1998. Its total net revenue was $160 million and net income was slightly less than $1 million in 1999. Its two hospitals wrote off $14.6 million in charity care last year, up from $9.6 million in 1998.
Hospitals nationwide are expected to write off about $30 billion in bad debt in 2000, says David Zimmerman, an accounts receivable consultant in Hales Corners, Wis. When charity care is added to that number, the total uncollectible amount may reach $40 billion. In 1980, by contrast, hospital bad debt was less than $3 billion, Zimmerman says.
Lewis says his hospitals simply do not have the capital to float the interest-free loans anymore.
"Our top priority was certainly not to put an excess financial burden on our local community here," he says, "but as much as possible within our mission, we have to operate like a business and collect our bills on a timely basis."
As a percentage of gross revenue, uncollectibles, which include both bad debt and charity care, shrank in the first quarter of 2000 to 4.8% from 5.4% in the last quarter of 1999, according to data from the Hospital Accounts Receivable Analysis, a quarterly journal published by Aspen Publishers, Gaithersburg, Md.
"The percentage hasn't gone up substantially, but the dollar amount sure has," Zimmerman says.
Gene Lass, editor of the HARA report, says that the uncollectible figure has not been as low as 4.8% in a long time.
Hospitals are looking long and hard at how they collect accounts to make up for shrinking margins, says Rick Gundling, senior technical director at the Healthcare Financial Management Association.
"Facilities are looking at all their business processes and trying to get the cash where (the hospitals) weren't before," he says. "If people feel they've been hanging onto some accounts receivable before, they're going to start charging interest."
In the case of Singing River, the hospitals will get between $500,000 and $1 million per year in accelerated cash flow from the sale of receivables to a local finance company, Lewis says.
Singing River is not the only hospital system looking for quicker cash turnaround.
"We found ourselves in the business of being a lending institution," says Marvin Goldman, administrator of Memorial Hospital of Sheridan County (Wyo.). "That's not the business we're in."
That hospital also recently started outsourcing its receivables to jump-start its cash flow. Goldman says the hospital decided to sell its receivables because of the growing level of uncollected patient accounts.
"We thought it would be wise to turn that over to folks who do that as a business," he says.
As a result, 90 days after all third-party payers such as insurers have been paid, the hospital will outsource the self-pay portion of the account to a local bank, receive the amount of money on the outstanding balance and leave it to the outside financial institution to collect. Patients who may have placed their hospital bill low on their list of priorities will now be hit with an interest payment, Goldman says.
Another hospital, 55-bed Corry (Pa.) Memorial Hospital in Erie County, is trying to deal with its debt load by taking patients to court when they don't make good on their hospital bills. The hospital has sent out a couple of thousand letters to patients whose overdue accounts collectively total about $1 million.
"We have a charity-care policy and charity-care guidelines, and if someone meets those criteria, they're eligible for charity care," says Jerry Heinzman, the hospital's CFO.
The hospital board voted to cut nearly 20 jobs to tackle $700,000 in mid-year debt and losses of $1.4 million over two years. "These people can go out and buy cars and buy houses, and not pay their hospital bills."
Corry Memorial's bad debt will be about $960,000, or 3% of gross revenue of $32.5 million, for the year ending June 30, Heinzman says.
Zimmerman argues that any bad debt expense above 2% of gross revenue is too high.
"CEOs would be fired for that in any other industry," he says. "The most simple way to do it is to identify the patient's portion of the bill and ask for it. It's as simple as that."