It certainly is skewing revenue and earnings, we think, in a nonconservative and aggressive way, but hospital companies have in the past few years become less aggressive in their collection practices, Taylor says. Still, most of the hospital companies are booking more revenue for uninsured patients than for those covered by commercial insurance, which means that insured patients are enjoying larger discounts than uninsured patients.
Plaintiffs attorneys, however, have held not-for-profit hospitals feet to the fire on this issue in the past year, with several systems settling class-action lawsuits by offering discounts to the uninsuredin many cases regardless of incomesimilar to what commercial insurance companies are offered (Aug. 14, 2006,
p. 6). On the for-profit side, though, Taylor says the detail given shareholders regarding discount policies is pretty limited, while the community benefits provided are also based on chargesa policy the not-for-profit sector has been urged to abandon by their trade associations. I think regardless of how pricing is structured, the silver bullet to ensure revenue and earnings are fairly stated is to not book more revenue than you expect to collect, Taylor says.
Tenet, he notes, has actually become among the most conservative of the for-profit hospital companies in revenue recognition.
Plano, Texas-based Triad Hospitals is among the most aggressive, reporting nearly $17,000 of net revenue per uninsured adjusted admission, according to Taylors report. Taylor calculated in a separate report on Triad published last November that the companys costs for uninsured patients increased only $6 million in the third quarter of 2006 compared with the year-ago period, while bad-debt expense increased $67 million over the same period. We believe bad debt is a red herring, Taylor wrote at the time. We believe aggressive prior-period revenue recognition is the primary issue here, not the societal issue of the uninsured.
Laura Baldwin, vice president of finance and investor relations at Triad, says in an e-mail that the company could not comment directly on Taylors conclusions because they dont know how he derived his assumptions. However, We believe that our revenue recognition practices are appropriate; they are applied consistently across all of our companys facilities and are in accordance with generally accepted accounting principles, Baldwin says. She adds that Triad officials believe bad-debt expense continues to have a negative effect on both for-profit and not-for-profit hospitals because of increases in the number of uninsured and rising copays/deductibles. In response to the trend, Triad began offering discounts to the uninsured in 2004, she notes.
Officials at Tenet declined to comment.
If the other hospital companies have an issue with Taylors report, they havent voiced it to him directly. Its fair to say that we havent received any qualitative or quantitative disagreements from any of the companies mentioned in the report, Taylor says.