Bad-debt expense, along with weak patient volume, has been a drag on the profits of investor-owned hospital companies for the past three years. In 2006, for-profit hospital companies recorded about $300 million in accounting charges related to patient accounts that couldnt be collected, the bulk of which comes from the uninsured, according to Fitch Ratings analysts.
As a result, adopting universal coverageas proposed last week by the Federation of American Hospitalscould translate into increased revenue for the chains. And this news comes at a time when the growth in bad debt is expected to slow, according to Fitch.
Bad debt alone, however, doesnt tell the entire story of how much these companies could benefit from expanded or universal health insurance, the analysts said. In a report earlier this month, Fitch analysts Lauren Coste and Annahita Haghgooie compiled data on bad-debt expense, discounts granted to uninsured patients and forgone revenue for charity care for seven investor-owned hospital chains (See table). Its all care thats being provided that theyre not being reimbursed for. You really need to take a look at all of that, Coste said in an interview.
When Health Management Associates released its year-end financial results last week, it became the latest investor-owned company to take a huge bad-debt charge. Companies such as HMA, Community Health Systems and Triad Hospitals have been forced to change their accounting treatment of anticipated revenue from uninsured patients because collection rates have fallen.
Thanks to the bad-debt charge of $200 million to boost reserves, HMA said it lost $56.2 million for the fourth quarter, compared with profits of $75.5 million in 2005s fourth quarter. Revenue was up nearly 15% to $1.05 billion.
Uninsured patients arent the only contributors to bad debt, Coste noted. Insured patients with higher copayments and deductibles also add to bad debt. Last year appears to be the bottoming out for bad debt, Coste said. We dont see a doomsday scenario where it continues to spiral out of control, she said. The growth in bad debt will moderate, but it wont go away.