Healthcare providers shouldn't let the good news on shrinking bad debt distract them from dealing with one of the more pressing financial issues facing the industry—helping people saddled with unmanageable bills.
Before the Affordable Care Act, bad debt was heavily concentrated among the uninsured. They faced financial ruin when hit by a major illness.
President Barack Obama, in his first State of the Union address, relied on research by then Harvard law professor Elizabeth Warren to famously claim that medical debt triggered more than half of personal bankruptcies in the U.S. Though he later faced criticism from conservative scholars and journalists for that claim, an independent analysis of consumer bankruptcies in 2013—the year before the ACA exchanges kicked into gear—found medical debt was the “predominant causal factor in 18% to 26% of all consumer bankruptcies.” That's still a disturbingly high number.
There's reason to believe that number is lower today. The level of bad debt on hospital balance sheets went down sharply because of the ACA insurance expansion, 4.3% of total operating revenue in 2015 compared with 5.7% in 2013, according to an analysis of 274 major hospital systems in Modern Healthcare's Financial Database.
Moreover, the people who once faced bankruptcy from huge healthcare bills were the ones most likely to sign up for plans.
But that doesn't end their bad-debt problems. Today, the biggest financial headache for medical consumers is the accumulation of smaller and confusing bills, especially if they chose or their employers put them in a high-deductible health plan. Because these bills hit people seeking routine care as well as those with major illnesses, medical debt is now a reality for tens of millions of low- and moderate-income families.
A report by the Consumer Financial Protection Bureau 18 months ago documented the toll taken by this type of debt. The agency found 20% of all consumer credit report scores—that's 43 million people—were lowered by unpaid medical debt. Virtually all of those bills were reported to credit bureaus by collection agencies, not directly by doctors and hospitals.
It doesn't matter that the median unpaid bill was $207 for medical debt compared with $366 for nonmedical bills (the averages were $579 and $1,000, respectively). Credit bureaus do not distinguish between an unpaid hospital or physician deductible and an unpaid cellphone bill.
The fragmentation of healthcare's revenue cycle/consumer debt-collection industry compounds the problem. The top 10 reporters of bad medical debt accounted for only 18% of uncollected bills, compared with 83% in telecommunications.
As a result, attitudes and policies toward “deadbeat” medical consumers vary wildly across the country. The CFPB found some agencies hired by hospital revenue-cycle departments didn't even bother telling consumers about their bad-debt problems.
A year ago, the CFPB fined Syndicated Office Systems, a subsidiary of Tenet Healthcare Corp.'s Conifer Health Solutions, $500,000 and ordered it to return $5 million to consumers after it failed to send notices or respond to billing complaints in a timely manner. The company agreed to end the practices and correct errors in the consumers' credit reports.
Some systems are taking a more proactive approach. Last month, Modern Healthcare's Dave Barkholz reported that Ascension Health has offered to waive the deductibles for any patient at any of its 137 hospitals who earns below 250% of the poverty level.
Other hospital chains are engaging in upfront conversations with patients to gauge their propensity to pay, figuring it makes no sense to send an unpaid bill to a collection agency if it will only result in ruining the person's credit score.
But much more needs to be done. Provider policies on unpaid bills must find the proper balance between collecting what's due and not punishing low- and moderate-income people whose only crime is seeking healthcare.
