Concern about writing off bad debt continued for investor-owned chains last week, as two rural hospital operators, LifePoint Hospitals and Province Healthcare Co., reported large increases in provisions for bad debt, but both chains reported higher profits.
LifePoint's bad-debt provisions rose to 10.6% of revenue, up from 6.9% in the year-ago quarter. Province reported a smaller rise, to 10.2% of revenue from 7.6% of revenue. Both chains are based in Brentwood, Tenn.
Also last week, Triad Hospitals, Plano, Texas, reported lower profits for the third quarter because of a $50.6 million charge to increase its provision for bad debt. Triad had announced the charge about two weeks before releasing its third-quarter results.
Triad also provided an acquisition update. The company anticipates selling two hospitals and three ambulatory surgery centers to HCA, Nashville. HCA has been operating Triad's Kansas City, Mo.-area facilities since HCA's $1.1 billion acquisition of not-for-profit Health Midwest, Kansas City, Mo., on April 1. Triad also said it expects to finish its acquisition of four Arkansas hospitals from Tenet on Dec. 1. Around the same date, Triad said, the company hopes to complete a joint-venture agreement to operate Valley Hospital, Palmer, Alaska. Not counting the pending deals, Triad owns or operates 49 hospitals.
Most of the chains are expecting that as the unemployed go back to work, they will regain insurance coverage, and bad debt will decline. Robert Mains, a healthcare stock analyst with the brokerage firm Advest, Hartford, Conn., wrote last week that improving efforts to collect on patient copayments and deductibles could help, but the primary source of the bad-debt problem is uninsured patients, and fixing that situation would require sustained job growth.
Michael Culotta, senior vice president and chief financial officer of LifePoint, said the company's self-pay revenue increased more than 20% on stronger admissions. Some of the rising bad-debt expense is a product of physician recruitment, since new physicians are more likely to take self-pay and Medicaid patients while they build their practices, Culotta said.
Province expects bad-debt expense to remain about 10% of revenue through at least the first half of 2004, said Christopher Hannon, the company's senior vice president and chief financial officer. Like LifePoint, Province has seen self-pay revenue climb and recently has recruited 103 physicians who will begin practicing this year at its 20 hospitals, the company said.
The chains have responded by cutting costs. LifePoint, which owns or runs 28 hospitals, trimmed costs at its more recent acquisitions by switching those hospitals to its group purchasing contract, Culotta said. Province has restrained growth in employee benefits costs and reduced the use of expensive contract labor, Hannon said.